Adopted Rules Title 10

TITLE 10. COMMUNITY DEVELOPMENT

Part 1. TEXAS DEPARTMENT OF HOUSING AND COMMUNITY AFFAIRS

Chapter 53. HOME INVESTMENT PARTNERSHIP PROGRAM

10 TAC §§53.50 - 53.63

The Texas Department of Housing and Community Affairs (Department) adopts the repeal of Chapter 53, §§53.50 - 53.63, concerning the HOME Investment Partnership Program, without changes to the proposal as published in the October 5, 2007, issue of the Texas Register (32 TexReg 6932) and will not be republished.

The sections are adopted for repeal in order to promulgate new sections addressing the adoption of new rules governing the HOME Program, to coordinate the adoption of new HOME rules with new rules being adopted as part of the 2008 rule cycle, and to implement changes enacted during the 80th Regular Session of the Texas Legislature.

Public hearings on the repeal were held in El Paso (September 24, 2007), Lubbock (September 28, 2007), Brownsville (October 3, 2007), Houston (September 26, 2007), Dallas (October 1, 2007), and Austin (October 4, 2007). Additionally, written comments on the repeal of the rule were accepted by mail, e-mail, and facsimile through October 10, 2007.

No comments were received regarding adoption of this repeal.

The repeal is adopted pursuant to the authority of the Texas Government Code, Chapter 2306, which provide the Department with the authority to adopt rules governing the administration of the Department and its programs.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on December 21, 2007.

TRD-200706625

Michael Gerber

Executive Director

Texas Department of Housing and Community Affairs

Effective date: January 10, 2008

Proposal publication date: October 5, 2007

For further information, please call: (512) 475-3916

Chapter 53. HOME PROGRAM RULE

Subchapter A. GENERAL

10 TAC §§53.1 - 53.9

The Texas Department of Housing and Community Affairs (the Department) adopts new Chapter 53, Subchapter A, §§53.1 - 53.9, concerning HOME Rules. Section 53.2 is adopted with changes to the proposed text as published in the October 5, 2007, issue of the Texas Register (32 TexReg 6932). Sections 53.1 and 53.3 - 53.9 are adopted without changes and will not be republished.

The chapter is divided into seven subchapters: (1) Subchapter A - General, (2) Subchapter B - Allocation of Funds, (3) Subchapter C - Program Activities, (4) Subchapter D - Application Requirements and Procedures, (5) Subchapter E - Community Housing Development Organizations (CHDO), (6) Subchapter F - Awards and Contracts, and (7) Subchapter G - Loans and Contract Administration. The new chapter is necessary to coordinate the Department's HOME program with rules being adopted as part of the 2008 rule cycle, and to implement changes enacted during the Regular Session of the 80th Texas Legislature.

Public hearings on the new chapter were held in El Paso (September 24, 2007), Lubbock (September 28, 2007), Brownsville (October 3, 2007), Houston (September 26, 2007), Dallas (October 1, 2007), and Austin (October 4, 2007). Additionally, written comments on the new chapter were accepted by mail, e-mail, and facsimile through October 29, 2007.

SUMMARY OF COMMENTS, STAFF RESPONSE AND BOARD ACTION

Public comments and the Department's responses are presented in the order in which the subchapters and sections appear in the new chapter, starting with general comments for Chapter 53 as a whole, and ending with comments on §53.86. Following the section number is the title of the section as it appears in the rule. Following the title is a parenthetical containing a number or series of numbers. Each number corresponds to a person who commented on the particular rule section. Following the identification of the section and related commenters is a summary of the comment and staff's response, including the reasons why the agency agreed or disagreed with the comment and a statement of the factual basis for the new section.

Public comments on the proposed rule were received by (56) Langford Community Management Svcs; (60) Advocacy Incorporated; (61) Hunter & Hunter Consultants; (62) Grantworks; (64) Texas Association of Community Development Corporations (TACDC); (65) ADAPT; (66) UCP of Texas; (67) Community Development Corporation of Brownsville; (68) City of Corrigan; and, (69) HOME Task Force.

GENERAL COMMENT (64): Commenter expresses disappointment that the recommendations offered by the HOME Task Force were largely ignored by staff in drafting the proposed rule. Concern was also stated that if the board adopts these rules, there will be a decline in applications across OCC, HBA and TBRA programs.

STAFF RESPONSE: Comment is not specific to proposed rule, however it should be noted that some of the Task Force recommendations have indeed been addressed as will be mentioned throughout this document. There were seventy-six (76) specific Task Force recommendations. Of those some conflicted with Federal or Legislative requirements or often each other; therefore not all of the proposed changes could be implemented or incorporated into the proposed rule. As an additional consideration, some of the recommendations have already been were indirectly incorporated as policy. As an example, the reorganization of the HOME Division to create "one group" responsible for the administration of the HOME Program has effectively addressed several Task Force concerns: increased technical assistance and contract oversight for contract performance; streamlining application requirements by revisiting processes (such as open application cycles) to help distribute funds as they are needed; and identifying internal expertise to work on creating a Community Housing Development Organization (CHDO) training process. Finally, some of the recommendations by the HOME Task Force that were incorporated into the proposed rule include increasing the contract term for both OCC and TBRA and changing the contract start date to be effective when the Department's Executive Director executes the contract. Staff has also included recommended changes to the proposed rule to address Rider 5 eligible households and increased soft costs to provide funding for expenses related to the loan closing requirements.

GENERAL COMMENT (66): Commenter states the HOME Task Force recommendations regarding the timelines for TBRA assistance for those organizations assisting people with disabilities transitioning from an institution should be adopted.

STAFF RESPONSE: Comment is not specific to what timelines should be adopted, however staff feels that current timelines balance sufficient time for contract fulfillment with the need to assist Texans promptly.

GENERAL COMMENT (69): One document containing comment and signatures for some of the HOME Task Force members and additional community members was received. This comment will be summarized in this section as it does not directly address specific changes to the proposed rule, but rather addresses HOME Task Force recommendations. The comment stated the group's disappointment in incorporating fifteen recommendations subcommittee members presented in the four issue areas of:

1) Form of assistance for Owner Occupied Housing Program (loan versus grant),

2) Determination of appropriate contract terms,

3) Interim contract performance benchmarks, and

4) Match requirements.

Major recommendations made by these subcommittees that the commenters felt had not been included in the proposed rule include: grants for Rider 5 eligible households, an increase in soft costs percentage to cover unfunded costs resulting from 2006 program changes, a 24-month contract term for the Owner-Occupied Housing Assistance Program (OCC), a contract start date tied to TDHCA execution date, technical assistance for missed benchmarks, and a reduction in match percentages based on population.

Regarding the first issue of form of assistance for OCC, the commenters identified several specific recommendations that were not included in the proposed rule including the incorporation of a Demonstration Loan Program, providing for unfunded additional soft costs, and not requiring an additional four years of homeowners insurance.

In the second issue area, the determination of contract terms, the commenters stated a desire to return the OCC contracts to a 24-month term with recommended contract benchmarks, adopt new benchmarks for Tenant-Based Rental Assistance (TBRA) for Persons with Disabilities (Olmstead) contracts, adopt new benchmarks for the OCC contracts, and adopt new benchmarks for Homebuyer Assistance Program (HBA) contracts.

The third issue area of interim contract performance measures recommendations include: allowing the procurement of professional services prior to contract award, incorporating new standards if benchmarks are missed including a mandatory technical assistance visit from the Department on missing the first benchmark by more than 30 days and requiring a workout plan if a subsequent benchmark is missed with option to deobligate if no resolution.

Additionally changes to the proposed rule that were never presented to the Task Force for discussion include a reduction in soft cost percentage, limiting the number of progress inspections, listing a minimal number of "eligible" line item soft costs, and requiring contract amendments for each benchmark missed.

With regards to the recommendation of grants for Rider 5 eligible households, there are two stated points. First, the loans for this targeted group creates a burden on the Contract Administrators creating the loan packages. Second, by requesting loan repayment, there is an undue burden on elderly, who even at $100 a month, may need to make choices between safe housing, food, utilities, and medicine. An alternative suggestion is utilizing a five-year deferred forgivable loan that is secured by a promissory note (not requiring a closing, appraisal, or title commitment).

Finally, regarding match, commenters identified three issues that were not addressed in the proposed Rule including the elimination of match for TBRA Contract Administrators, the reduction of the match scoring requirement for applicants other than TBRA, and the reduction of the match percentage for smaller cities and counties as a threshold requirement upon application.

STAFF RESPONSE: Please note that since this general public comment merely references that the Department did not adopt the HOME Task Force language and recommendations and does not specifically provide comments citing sections of the proposed rule, staff has not revisited the HOME Task Force language and recommendations with a reasoned response. At the time the Task Force met, staff informed all members that their recommendations would be considered, but not necessarily adopted. In drafting the proposed rule, all HOME Task Force recommendations were reviewed and to the extent they were consistent with Board policy and the Department's goals, staff attempted to incorporate them into the draft rule.

GENERAL COMMENT (62): Commenter states the HOME Advisory Task Force, as well as staff, recommended that the Match Guidelines be revised to allow for all eligible match sources. While the Match Guidelines are not in 10 TAC, it is reasonable for the Board to revise the Match Guidelines as recommended by the HOME Advisory Task Force and staff as soon as possible.

STAFF RESPONSE: It is not necessary to revise the Department's Match Guidelines since all eligible match sources are already accepted by the Department. Comment is not specific to what sources are not acceptable to the Department. Additionally, there was no recommendation from the HOME Task Force regarding eligible match sources.

COMMENT (60,65,66): Section 53.2(72). The definition of "Persons with Disabilities" should be inclusive of households with a child or children who have disabilities. Children deserve access and that the increased expenses of living with a disability are also increased expenses for children and their families.

STAFF RESPONSE: Staff concurs with the comments and recommends the following language:

(72) Persons with Disabilities--A Household composed of one or more Persons, at least one of whom is a person, who has a disability that is a physical, mental, or emotional impairment that is expected to be of long-continued and indefinite duration, substantially impedes his or her ability to live independently, and is of such a nature that such ability could be improved by more suitable housing conditions. A Person will also be considered to have a disability if he or she has a developmental disability, which is a severe, chronic disability and as further defined at 24 CFR §92.2.

The Board approved the final order adopting these amendments, as well as administrative changes as needed for consistency within this Chapter, on December 20, 2007. The new rules ensure compliance with statutory requirements as per changes in Chapter 2306, Texas Government Code during the 80th legislative session. In order to offer consistency and uniformity among housing programs, changes were made to the rule in the areas of definition. To provide clarity regarding administrative processes, additional sections were added to assist in formalizing those program processes. Finally, to streamline and update certain processes, some sections were removed or collapsed with other relevant sections.

The new sections are adopted pursuant to authority granted in Chapter 2306, Texas Government Code; specifically §2306.053 which grants the Department general rulemaking authority to carry out the powers expressly granted or necessarily implied by Chapter 2306, and §2306.111(a) which requires the Department to administer all federal housing funds provided to the state under the Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. §§12704 et seq) or any other affordable housing program.

§53.2.Definitions.

The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Act--HOME Investment Partnership Act at Title II of the Cranston-Gonzalez National Affordable Housing Act as amended, at 42 USC §§12701, et seq.

(2) Activity--A single housing unit with a unique physical address. An activity may also refer to an individual Project or site.

(3) Administrative Deficiencies--The absence of information or a document from the application as required in this Chapter or applicable NOFA.

(4) Administrator--The Person responsible for performing under a Contract with the Department.

(5) Affiliate--An individual, corporation, partnership, joint venture, limited liability company, trust, estate, association, cooperative or other organization or entity of any nature whatsoever that directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with any other Person, and specifically shall include parents or subsidiaries. Affiliates also include all General Partners, Special Limited Partners and Principals with an ownership interest.

(6) Affiliated Party--A person in a relationship with the Administrator on a Contract with the Department.

(7) Annual Income--As defined in 24 CFR §92.203.

(8) Applicant--A Person who has submitted to the Department an Application for Department funds or other assistance.

(9) Application--A request for funds submitted to the Department in a form prescribed by the Department, including any exhibits or other supporting material.

(10) Application Acceptance Period--The period of time that Applications may be submitted to the Department as more fully described in the applicable NOFA.

(11) Application Submission Procedures Manual (ASPM)--The manual that sets forth the procedures, forms, and instructions for the completion and submission of an Application to the Department.

(12) Area Median Family Income (AMFI)--The income estimated and determined by HUD as the median family income with adjustments for family size and geographic locations.

(13) Articles of Incorporation--The document that sets forth the basic terms for a corporation's existence and is the official recognition of the corporation's existence.

(14) Board--The governing board of the Texas Department of Housing and Community Affairs.

(15) Business Plan--The written document that for the purposes of CHDO certification outlines the CHDO's plan for developing eligible housing activities, its internal operations, and citizen participation process.

(16) Bylaws--A rule or administrative provision adopted by a corporation for its internal governance. Bylaws are enacted apart from the Articles of Incorporation. Bylaws and amendments to Bylaws must be formally adopted in the manner prescribed by the organization's Articles of Incorporation or current Bylaws by either the organization's board of directors or the organization's members, whoever has the authority to adopt and amend Bylaws.

(17) CFR--Code of Federal Regulations.

(18) Chapter 2306--The enabling statute for the Department found in the Texas Government Code.

(19) CHDO Service Area--A Community in which a CHDO owns, developed and/or sponsored CHDO eligible housing activities for the low income residents of the city/place or county they serve.

(20) Colonia--A geographic area that is located in a county some part of which is within 150 miles of the international border of this state that consists of 11 or more dwellings that are located in close proximity to each other in an area that may be described as a community or neighborhood, and that:

(A) Has a majority population composed of individuals and families of low income and very low income, based on the federal Office of Management and Budget poverty index, and meets the qualifications of an economically distressed area under §17.921, Texas Water Code; or

(B) Has the physical and economic characteristics of a Colonia, as determined by the department.

(21) Colonia Housing Standards--The Department's HUD approved housing standards that allow Colonia residents the opportunity to rehabilitate their homes when located in a designated Colonia.

(22) Community--Urban areas means one or several Neighborhoods, a city, a county, or a metropolitan area and for Rural Areas means one or several Neighborhoods, a town, a village, a county or multi-county area, but not the whole state. For purposes of this Chapter, the Applicant should clearly define the area. For example, the city of Dallas would not include all of Dallas and Collin counties but Dallas and Collin counties would include the city of Dallas.

(23) Community Housing Development Organization (CHDO)--A private nonprofit, community-based service organization that has obtained or intends to obtain staff with the capacity to develop affordable housing for the community it serves in accordance with 24 CFR §92.2 and which is certified as such by the Department. To be certified as a CHDO by the Department, the organization must act in the capacity of Developer, Owner or Sponsor as defined in this chapter.

(24) Community Housing Development Organization (CHDO) Developer--The CHDO:

(A) Either owns a Property and develops a Project, or has a contractual obligation to a property owner to develop a Project; and

(B) Performs all the functions typically expected of for-profit Developers, and assumes all the risks and rewards associated with being the Project Developer.

(i) For RHD, the CHDO must obtain financing, and Rehabilitate, Reconstruct or construct the Project. If it owns the Property, the CHDO may maintain ownership and manage the Project over the long term. If it does not own the Property, the CHDO must enter into a contractual obligation with the property owner. This contractual obligation is independent of the PJ.

(ii) For HBA, the CHDO must obtain Project financing, Rehabilitate, Reconstruct or construct the dwelling(s), and have title of the property and the HOME loan/grant obligations transferred to a HOME-qualified homebuyer within a specified timeframe. If it does not own the Property, the CHDO must enter into a contractual obligation with the property owner. This contractual obligation is independent of the PJ.

(25) Community Housing Development Organization (CHDO) Owner--The CHDO holds valid legal title to or has a long-term (99-year minimum) leasehold interest in a rental Property. The CHDO may be a Development Owner with one or more Persons. If it owns the Project in partnership, it or its wholly-owned nonprofit or for-profit subsidiary must be the managing General Partner with effective control (i.e., decision-making authority) of the Project. The CHDO may be both Development Owner and Developer, or may have another entity as the Developer.

(26) Community Housing Development Organization (CHDO) Sponsor--The CHDO:

(A) For RHD, the CHDO may develop a Project that it solely or partially owns and agrees to convey ownership to a second non-profit organization at a predetermined time prior to or during Development or upon completion of the Development of the Project. The HOME funds are invested in the Project owned by the CHDO. The CHDO Sponsor selects prior to commitment of HOME funds the non-profit organization that will obtain ownership of the Property. The non-profit assumes from the CHDO the HOME obligation (including any repayment of loans) for the Project at a specified time. If the Property is not transferred to the non-profit organization, the CHDO Sponsor remains liable for the HOME loan/grant obligation. The non-profit organization must be financially and legally separate from the CHDO Sponsor. The CHDO Sponsor must provide sufficient resources to the non-profit organization to ensure the Development and long-term operation of the Project.

(B) For HBA, the CHDO owns a Property, then shifts responsibility for the Project to another nonprofit at some specified time in the Development process. The second nonprofit, in turn, transfers title along with the HOME loan/grant obligations and recapture requirements to an Income Eligible Household within a specified timeframe. The HOME funds are invested in the Property owned by the CHDO. The other nonprofit being sponsored by the CHDO acquires the completed units, or brings to completion the Rehabilitation or construction of the Property. At completion of the Rehabilitation or construction, the second nonprofit is required to sell the Property along with the HOME loan/grant obligations to an Income Eligible Household.

(27) Community Housing Development Organization Pre-Development Loan--A form of assistance in which funds are made available as loans to cover those costs outlined in 24 CFR §92.301.

(28) Competitive Application Cycle--A defined period of time that Applications may be submitted according to a published Notice of Funding Availability (NOFA) that will include a submission deadline and selection or scoring criteria. Applications will be reviewed in accordance with the rules for application review published in the NOFA and the ASPM.

(29) Conflict of Interest--A conflict between the private interests and the official responsibilities of a Person in a position of trust, as specified in 24 CFR §92.356.

(30) Consolidated Plan--The State Consolidated Plan prepared in accordance with 24 CFR, Part 91, which describes the needs, resources, priorities and proposed activities to be undertaken with respect to certain HUD programs and is subject to approval annually by HUD.

(31) Contract--The executed written agreement between the Department and an Administrator or Development Owner performing an activity related to a program that outlines performance requirements and responsibilities assigned by the document.

(32) Control--The possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of any Person, whether through the ownership or voting securities, by contract or otherwise, including specifically ownership of more than 50% of the General Partner interest in a limited partnership, or designation as a managing General Partner of a limited liability company.

(33) Deobligated Funds--The funds released by an Administrator or Development Owner or recovered by the Department canceling a Contract or award involving some or all of a contractual financial obligation between the Department and an Administrator or Development Owner.

(34) Department--The Texas Department of Housing and Community Affairs.

(35) Developer--Any Person entering into a contract with the Development Owner to provide development services with respect to the Development and receiving a fee for such services and any other Person receiving any portion of such fee, whether by subcontract or otherwise.

(36) Development--A Project that has a construction component, either in the form of New Construction or Rehabilitation of multi-unit or single family residential housing.

(37) Development funding--

(A) A loan or grant; or

(B) An in-kind contribution, including a donation of real Property, a fee waiver for a building permit or for water or sewer service, or a similar contribution that:

(i) provides an economic benefit; and

(ii) results in a quantifiable cost reduction for the applicable Development.

(38) Development Owner--Any Person, General Partner, or Affiliate of a Person who owns or proposes a Development or expects to acquire Control of a Development under a purchase contract approved by the Department and is the Person responsible for performing under the Contract with the Department.

(39) Development Site--The area, or if scattered site, areas, for which the Development is proposed to be located and is to be under the Development Owner's Control.

(40) Executive Award and Review Advisory Committee (EARAC)--The Department committee that will develop funding priorities and make funding and allocation recommendations to the Board based upon the evaluation of an Application in accordance with the housing priorities as set forth in Chapter 2306 of the Texas Government Code, and as set forth herein, and the ability of an Applicant to meet those priorities.

(41) Expenditure--An approved expense evidenced by documentation submitted by the Administrator or Development Owner to the Department for purposes of drawing funds from HUD's IDIS for work completed, inspected and certified as complete, and as otherwise required by the Department.

(42) Family--Includes but is not limited to the following types of families as defined in 24 CFR §5.403:

(A) A family with or without children;

(B) An elderly family;

(D) A disabled family;

(E) A displaced family;

(F) The remaining member of a tenant family; or

(G) A single person who is not an elderly or displaced person or a person with disabilities or the remaining member of a tenant family.

(43) Feasibility Analysis--The process of performing a budgetary justification for Reconstruction which compares the cost of Rehabilitation to the replacement costs of a housing unit for the purposes of OCC.

(44) FHA §203(b) Mortgage Limits ("§203(b) Limits")--The mortgage limits established under §203(b) of the National Housing Act (12 USC §1709(b) which may be obtained from the HUD Field Office.

(45) Final Rule--The current final rule as published by HUD as 24 CFR, Part 92 with amendments.

(46) General Contractor--A Person who contracts for the construction or Rehabilitation of an entire Development, rather than a portion of the work. The General Contractor hires subcontractors, such as plumbing contractors, electrical contractors, etc., coordinates all work, and is responsible for payment to the subcontractors.

(47) General Partner--A Person or Persons who is identified as the general partner of the partnership that is the Development Owner and that has general liability for the partnership. In addition, unless the context shall clearly indicate the contrary, if the Development Owner in question is a limited liability company, the term "General Partner" shall also mean the managing member or other party with management responsibility for the limited liability company.

(48) Grant--Financial assistance that is awarded in the form of money to a housing sponsor for a specific purpose and that is not required to be repaid. For purposes of this Chapter, a grant includes a forgivable loan.

(49) Homebuyer Assistance Program (HBA)--A Program Activity for the purpose of providing HOME funds for acquisition, acquisition with Rehabilitation, down payment, closing costs, and gap financing assistance provided to Income Eligible Households. Rehabilitation may be combined with HBA to provide contract for deed conversions and assist Person with Disabilities.

(50) HOME--The HOME Investment Partnerships Program at 42 USC §§12701-12839 and the regulations promulgated thereafter at 24 CFR, Part 92.

(51) Household--One or more persons occupying a housing unit (24 CFR §92.2).

(52) HUD--The United States Department of Housing and Urban Development, or its successor.

(53) HUD's Maximum Per-unit Subsidy Amount ("221(d)(3) limits")--The per-unit dollar limitations established under §221(d)(3)(ii) of the National Housing Act for elevator-type projects that apply to the area in which the housing is located.

(54) IDIS--The electronic grants management information system named the Integrated Disbursement and Information System established by HUD to be used tracking and reporting HOME funding progress.

(55) Income Eligible Households--The federal definition which is:

(A) Low-Income Households--Households whose Annual Incomes do not exceed 80% of the AMFI.

(B) Very Low-Income Households--Households whose Annual Incomes do not exceed 50% of the AMFI.

(56) Intergenerational Housing--Housing that includes specific units that are restricted to the age requirements of a Qualified Elderly Development and specific units that are not age restricted in the same Development that:

(A) Have separate and specific buildings exclusively for the age restricted units;

(B) Have separate and specific leasing offices and leasing personnel exclusively for the age restricted units;

(D) Provide shared social service programs that encourage intergenerational activities but also provide separate amenities for each age group;

(E) Share the same Development site;

(F) Are developed and financed under a common plan and owned by the same Person for federal tax purposes; and

(G) Meet the requirements of the federal Fair Housing Act.

(57) Land Use Restriction Agreement (LURA)--An agreement between the Department and a Person related to a specific Property or Properties which is binding upon a Person's successors in interest, filed with the responsible recording authority, and encumbers the Property with respect to requirements in this Chapter, Chapter 2306 of the Texas Government Code and the Final Rule.

(58) Loan--Financial assistance that is awarded in the form of money and an executed written agreement between the Department and Person for a specific purpose and that is required to be repaid.

(59) Manufactured Housing Unit (MHU)--As defined by HUD is a structure transportable in one or more sections which, in traveling mode, is 8 body-feet or more in width or 40 body-feet or more in length, or when erected on site, is 320 square feet, and which is built on a permanent chassis and designed to be used as a dwelling with or without a permanent foundation when connected to the required facilities, and includes the plumbing, heating, air-conditioning, and electrical systems contained therein.

(60) Match--Eligible forms of non-federal contributions to a Program Activity or Project in the forms specified in 24 CFR §92.220, CPD Notice 97-03 and the Department's Match Guide.

(61) Material Noncompliance--as is defined in 10 TAC, Chapter 60, Subchapter A of this title.

(62) Modular Housing--As defined by HUD is a home built in sections in a factory to meet state, local, or regional building codes. Once assembled, the modular unit becomes permanently fixed to one site.

(63) Mortgagor--The Person who borrows money and uses his or her real property as collateral and security for the payment of the debt.

(64) Neighborhood--As defined by HUD, a geographic location designated in comprehensive plans, ordinances, or other local documents as a neighborhood, village, or similar geographical designation that is within the boundary but does not encompass the entire area of a Unit of General Local Government; except that if the unit of general local government has a population under 25,000, the neighborhood may, but need not, encompass the entire area of a Unit of General Local Government (24 CFR §92.2).

(65) New Construction--Any Development not meeting the definition of Rehabilitation.

(66) NOFA--Notice of Funding Availability, published in the Texas Register.

(67) Nonprofit organization--A public or private organization that:

(A) Is organized under state or local laws;

(B) Has no part of its net earnings inuring to the benefit of any member, founder, contributor, or individual;

(C) Has a current tax exemption ruling from the Internal Revenue Service (IRS) under §501(c)(3), a charitable, nonprofit corporation, or §501(c)(4), a community or civic organization, of the Internal Revenue Code of 1986, as evidenced by a certificate from the IRS that is dated 1986 or later. The exemption ruling must be effective on the date of the application and must continue to be effective throughout the length of any contract agreements; or classification as a subordinate of a central organization non-profit under the Internal Revenue Code, as evidenced by a current group exemption letter, that is dated 1986 or later, from the IRS that includes the Applicant. The group exemption letter must specifically list the Applicant; and

(D) A private nonprofit organization's pending application to the IRS for exemption status under §501(c)(3) or (c)(4) status cannot be used to comply with the tax status requirement.

(68) Open Application Cycle--A defined period of time during which Applications may be submitted according to a published NOFA and which will be reviewed on a first-come, first-served basis until all funds available are committed, or until the NOFA is closed.

(69) Owner-Occupied Housing Assistance (OCC)--A Program Activity for the purpose of providing HOME funds for the Rehabilitation of existing owner-occupied housing for Income Eligible Households. Housing assistance for disaster relief is provided under this Program Activity.

(70) Participating Jurisdiction (PJ)--Any state or Unit of General Local Government, including consortia as specified in 24 CFR §92.101, designated by HUD in accordance with 24 CFR §92.105.

(71) Person--Any individual, partnership, corporation, association, unit of government, community action agency, or public or private organization of any character.

(72) Persons with Disabilities--A Household composed of one or more Persons, at least one of whom is a Person, who has a disability that is a physical, mental, or emotional impairment that is expected to be of long-continued and indefinite duration, substantially impedes his or her ability to live independently, and is of such a nature that such ability could be improved by more suitable housing conditions. A Person will also be considered to have a disability if he or she has a developmental disability, which is a severe, chronic disability and as further defined at 24 CFR §92.2.

(73) Persons with Special Needs--Individuals or categories of individuals determined by the Department to have unmet housing needs consistent with 42 USC §§12701, et seq. and as provided in the Consolidated Plan and may include any households composed of one or more persons with alcohol and/or drug addictions, Colonia residents, Persons with Disabilities, victims of domestic violence, persons with HIV/AIDS, homeless populations and migrant farm workers.

(74) Predevelopment Costs--Costs related to a specific eligible Project including:

(A) Predevelopment housing project costs that the Department determines to be customary and reasonable, including but not limited to consulting fees, costs of preliminary financial applications, legal fees, architectural fees, engineering fees, engagement of a development team, site control, and title clearance;

(B) Pre-construction housing project costs that the Department determines to be customary and reasonable, including but not limited to, the costs of obtaining firm construction loan commitments, architectural plans and specifications, zoning approvals, engineering studies and legal fees;

(75) Principal--A Person, or Persons, that will exercise Control over a partnership, corporation, limited liability company, trust, or any other private entity. In the case of:

(A) Partnerships, Principals include all General Partners, special limited partners and Principals with ownership interest;

(B) Corporations, Principals include any officer authorized by the board of directors to act on behalf of the corporation, including the president, vice president, secretary, treasurer and all other executive officers, and each stock holder having a ten percent or more interest in the corporation; and

(C) Limited liability companies, Principals include all managing members, members having a ten percent or more interest in the limited liability company or any officer authorized to act on behalf of the limited liability company.

(76) Principal Residence--The primary housing unit a Person or Household inhabits.

(77) Program Activity--The specific purposes for which HOME funds are used and required in the Contract with the Administrator.

(78) Program Income--The gross income received by the Department, Development Owners or Administrators directly generated from the use of HOME funds or matching contributions as further described in 24 CFR §92.2.

(79) Project--A site or an entire building (including a manufactured housing unit), or two or more buildings, together with the site or sites on which the building or buildings are located, that are under common ownership, management, and financing and are to be assisted with HOME funds, under a commitment by the owner, as a single undertaking under 24 CFR §92.2.

(80) Property--The real estate and all improvements thereon which are the subject of the Application (including all items of personal property affixed or related thereto), whether currently existing or proposed to be built thereon in connection with the Application.

(81) Qualified Elderly Development--A Development which meets the requirements of the federal Fair Housing Act and:

(A) Is intended for, and solely occupied by, individuals 62 years of age or older; or

(B) Is intended and operated for occupancy by at least one individual 55 years of age or older per unit, where at least 80% of the total housing units are occupied by at least one individual who is 55 years of age or older; and where the Development Owner publishes and adheres to policies and procedures which demonstrate an intent by the owner and manager to provide housing for individuals 55 years of age or older.

(82) Qualified Market Analyst--A real estate appraiser certified or licensed by the Texas Appraiser Licensing and Certification Board, a real estate consultant, or other professional currently active in the subject property's market area who demonstrates competency, expertise, and the ability to render a high quality written report. The individual's performance, experience, and educational background will provide the general basis for determining competency as a market analyst. Competency will be determined by the Department, in its sole discretion. The Qualified Market Analyst must be a Third Party.

(83) Received Date--The date and time that an Application is physically received by the Department.

(84) Rehabilitation--The improvement or modification of an existing residential development through an alteration, addition, or enhancement. The term includes the demolition of an existing residential development and the Reconstruction of any development units, but does not include the improvement or modification of an existing residential development for the purpose of an adaptive reuse of the development. In accordance with the federal definition of Reconstruction at 24 CFR §92.2, the term also means the demolition and rebuilding, on the same lot, of housing standing on the site at the time of commitment of HOME funds. The number of units on the lot may not be decreased or increased as part of the rehabilitation, but the number of rooms per unit may be increased or decreased. Rehabilitation also includes replacing an existing substandard MHU with a new MHU.

(85) Rental Housing Development (RHD)--A Program Activity and Project for the purpose of providing HOME funds for the acquisition, New Construction or Rehabilitation of multi-family or single family rental housing, or conversion of commercial property to rental housing for Income Eligible Households.

(86) Rural area--An area that is located:

(A) Outside the boundaries of a primary metropolitan statistical area or a metropolitan statistical area;

(B) Within the boundaries of a primary metropolitan statistical area or a metropolitan statistical area, if the statistical area has a population of 25,000 or less and does not share a boundary with an urban area; or

(C) In an area that is eligible for funding by the Texas Rural Development Office of the United States Department of Agriculture, other than an area that is located in a municipality with a population of more than 50,000.

(87) Rural Development--A Development or proposed Development that is located in a Rural Area, other than rural New Construction Developments with more than 80 units.

(88) Service Area--The city, county and/or place identified in the Contract that the Administrator will serve.

(89) Set-Aside--A statutory or federally mandated reservation of a portion of available funds or units for specific types of housing priorities, Program Activities or geographic locations.

(90) Single Family Housing Development--A Program Activity and Project for the purpose of providing HOME funds for the acquisition, and/or New Construction or Rehabilitation of affordable single family housing units Income Eligible Households to acquire homeownership.

(91) State Recipient--A Unit of General Local Government designated by the Department to receive HOME funds.

(92) Subrecipient--A public agency or nonprofit organization selected by the Department to administer all or a portion of the Department's HOME program. A public agency or nonprofit that receives HOME funds solely as a developer or owner of housing is not a Subrecipient. The Department's selection of a Subrecipient is not subject to the procurement procedures and requirements.

(93) TAC--Texas Administrative Code.

(94) Tenant-Based Rental Assistance (TBRA)--A Program Activity for the purpose of providing HOME funds for rental subsidy and security and utility deposit assistance to Income Eligible Households.

(95) Texas Minimum Construction Standard (TMCS)--The program standard used to determine the minimum acceptable housing condition for the purposes of Rehabilitation and acquisition.

(96) Third Party--A Person who is not:

(A) An Applicant, Administrator, Borrower, General Partner, Developer, Development Owner, or General Contractor; or

(B) An Affiliate, Affiliated Party to the Applicant, Administrator, Borrower, General Partner, Developer, Development Owner or General Contractor; or

(97) Unit of General Local Government--A city, town, county, or other general purpose political subdivision of the State; a consortium of such subdivisions recognized by HUD in accordance with 24 CFR §92.101 and any agency or instrumentality thereof that is established pursuant to legislation and designated by the chief executive to act on behalf of the jurisdiction. An urban county is considered a unit of general local government under the HOME Program.

(98) Urban Area--The area that is located within the boundaries of a primary metropolitan statistical area other than an area that is described by paragraph (86) of this section.

(99) USC--The United States Code.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on December 21, 2007.

TRD-200706624

Michael Gerber

Executive Director

Texas Department of Housing and Community Affairs

Effective date: January 10, 2008

Proposal publication date: October 5, 2007

For further information, please call: (512) 475-3916

Subchapter B. ALLOCATION OF FUNDS

10 TAC §53.20, §53.21

The Texas Department of Housing and Community Affairs (the Department) adopts new Chapter 53, Subchapter B, §53.20 and §53.21, concerning HOME Rules without changes to the proposed text as published in the October 5, 2007, issue of the Texas Register (32 TexReg 6938) and will not be republished.

SUMMARY OF COMMENTS, STAFF RESPONSE AND BOARD ACTION

Comments were received from: (56) Langford Community Management Svcs; (60) Advocacy Incorporated; (61) Hunter & Hunter Consultants; (62) Grantworks; (64) Texas Association of Community Development Corporations (TACDC); (65) ADAPT; (66) UCP of Texas; (67) Community Development Corporation of Brownsville; (68) City of Corrigan; (69) HOME Task Force.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on December 21, 2007.

TRD-200706626

Michael Gerber

Executive Director

Texas Department of Housing and Community Affairs

Effective date: January 10, 2008

Proposal publication date: October 5, 2007

For further information, please call: (512) 475-3916

Subchapter C. PROGRAM ACTIVITIES

10 TAC §§53.30 - 53.37

The Texas Department of Housing and Community Affairs (the Department) adopts new Chapter 53, Subchapter C, §§53.30 - 53.37, concerning HOME Rules. Sections 53.31 and 53.32 are adopted with changes to the proposed text as published in the October 5, 2007, issue of the Texas Register (32 TexReg 6939). Sections 53.33 - 53.37 are adopted without changes and will not be republished.

SUMMARY OF COMMENTS, STAFF RESPONSE AND BOARD ACTION

STAFF COMMENT: Section 53.31(c)(2). Staff recommends an administrative change to delete the word'down' for more accurate wording.

COMMENT (62): Section 53.31(b). Commenter requests further clarification of ownership documents that must be provided in this section of the rule since Warranty Deeds, Deeds of trust, and Life Estates are not specifically stated.

STAFF RESPONSE: The commenter seems to be referring to documents that may be used as evidence of ownership. However, this section of the rule provides what forms of ownership are acceptable to receive HOME assistance. Acceptable evidence of homeownership is provided in the HOME Program Manual. No change to proposed rule is recommended.

COMMENT (62): Section 53.31(g). Language in Draft Rule: "(g) The maximum amount of assistance to an eligible Household is based on Household size:

Rehabilitation that is Reconstruction for 1-4 person Household, $60,000

Rehabilitation that is Reconstruction for 5-6 person Household, $67,500

Rehabilitation that is Reconstruction for 7 or more person Household, $75,000

Rehabilitation that is not Reconstruction, $30,000"

Commenter requests increases be taken into consideration for situations such as On Site Sewer Facilities (OSSF) and historic properties. Comments include that if a septic system needs to be replaced, these figures should adjust up $5,000 for a standard system and $7,500 for an anaerobic system. Additionally, if the home being assisted must be rehabilitated due to a historical determination from the Texas Historical Commission, then the above figures plus an additional $10,000 should apply to rehabilitation without reconstruction. Lastly, commenter suggests using the CPI index for residential construction in Texas for these limits with automatic adjustments upward each year, requiring no Board action.

STAFF RESPONSE: As has been allowed in the past, Department management will continue to review and allow budget revisions on a case-by-case basis for On Site Sewer Facilities. Staff does not believe the intent of the program is to rehabilitate historic homes and does not recommend an increase. Staff does not recommend using the CPI index for annual, automatic adjustments to these assistance limits. These limits can be reviewed during the rulemaking process or adjusted through Board action at any time during the year, if necessary. No recommended change to the proposed rule.

COMMENT (62): Section 53.31(j). Language in Draft Rule: "(j) The form of assistance to an eligible Household is based on AMFI except in the instances of a MHU being replaced with newly constructed housing (site-built) on the same site or any housing unit being replaced on an alternate site. For Rehabilitation that is Reconstruction (excluding contract for deed conversion), the Loan amount is based upon the amount of assistance minus the appraised value of the existing housing unit. Upon completion of the Reconstruction, the Department will reduce the Loan amount with a principal reduction for any change orders that resulted in a net decrease in the amount of assistance, a new decrease of the after-improved value and 10% of the after improved value of the Housing unit."

Commenter questioned why this language is being changed from the 2006 program rules of including the value of the land when calculating the loan balance. If this program is to remain a loan program, instead of a grant program, the appraised value used to calculate the loan basis should include the land value.

STAFF RESPONSE: The appraised value of the existing housing unit cited in the rule does include the land value. Staff has reviewed the Board transcripts and is recommending the following administrative revision to correctly calculate the original loan amount and final loan balance after adjustments are made for equity, as was intended by the Board:

Section 53.31(j). The form of assistance to an eligible Household is based on AMFI except in the instances of a MHU being replaced with newly constructed housing (site-built) on the same site or any housing unit being replaced on an alternate site. In accordance with Rider 5 of the Department's Legislative Appropriation, the Department shall use the state average median family income in determining the form of assistance as prescribed in Figure: 10 TAC §53.31(j) for eligible Households living in those counties where the area median family income is lower than the state average median family income. For Rehabilitation (excluding contract for deed conversion), the Loan amount is based upon the amount of assistance to be provided to the household. Once construction is complete, the loan balance will be determined by subtracting from the'as complete' final appraised value of the housing unit, the appraised value of the existing housing unit (initial appraisal) and 10% of the 'as complete' final appraised value. To ensure the correct equity credit is provided, the Department will reduce the Loan amount with a principal reduction in the amount necessary to arrive at the correct loan balance, taking into account any change orders that resulted in a net decrease or increase in the amount of assistance.

COMMENT (62): Section 53.31(j). Commenter states that requiring repayment for people below 50% AMFI should not be the goal of the program. In many Texas counties a family of two, just over 30% AMFI, with a gross income as low as $863 a month should receive assistance in the form of a grant. Households with incomes below the State of Texas 50% AMFI (table below) should receive assistance in the form of a grant. Households between 50% AMFI and the following annual incomes should receive assistance in the form of a 5-year forgivable loan that is secured with a simple promissory note:

Household size of 1, Annual Income of $24,900

Household size of 2, Annual Income of $28,450

Household size of 3, Annual Income of $32,000

Household size of 4, Annual Income of $35,550

Household size of 5, Annual Income of $38,400

Household size of 6, Annual Income of $41,250

Household size of 7, Annual Income of $44,100

Household size of 8, Annual Income of $46,950

Commenter suggests that these figures be adjusted up in an amount equal to the increase in Social Security benefits at the beginning of each calendar year. Any households assisted under a Disaster Relief Activity should receive assistance in the form of a grant, as should any household with a disabled member or household with an elderly (over 62) member.

STAFF RESPONSE: It appears that the commenter is referring to counties affected by Rider 5 of the Department's Legislative Appropriation since the State of Texas 50% AMFI is referenced. Language used in this rider in previous years established income limits that were closest to the State of Texas 50% AMFI. However, staff is uncertain which AMFI levels are referenced in the chart provided by the commenter. The Board established the loan policy for the OCC Program in February 2006 and staff agrees with the policy established. HUD is supportive of utilizing loans to provide a Participating Jurisdiction (PJ) the ability to recapture funds. Furthermore, numerous local Texas PJ's and large State PJ's require secured loans as the form of assistance for their owner occupied rehabilitation programs. Staff recommends the following language to address Rider 5 eligible households.

COMMENT (66): Section 53.31(j). Based on the added expenses and administrative burden to the contract administrator and consumers for the requirement of a closing, termed deferred forgivable loans for the Owner-Occupied Activity are recommended--particularly for serving households with a member with a disability.

STAFF RESPONSE: Staff understands the concerns expressed by commenters requesting a return to grants and the potential hardship created with repayable, amortizing loan for households at or below 60% AMFI, especially when taking into consideration that elderly or disabled households' incomes are typically declining when the assistance is provided and considering the current foreclosure rates nationwide. Since a deferred, forgivable loan will ensure an enforceable lien against the property assisted and an ability to recapture funds, staff recommends changing Figure: 10 TAC §53.31(j) to include the following:

For Rehabilitation or Reconstruction, where AMFI is less than or equal to 30%, the loan is a 0% interest, 5 year deferred, forgivable Loan.

For Rehabilitation or Reconstruction, where AMFI is greater than 30% and less than or equal to 50%, the loan is a 0% interest, 15 year deferred, forgivable Loan.

For Rehabilitation or Reconstruction, where AMFI is greater than 50% and less than or equal to 60%, the loan is a 0% interest, 20 year deferred, forgivable Loan.

For Rehabilitation or Reconstruction, where AMFI is greater than 60% and less than or equal to 80% AMFI, the loan is a 0% interest, 20 year term repayable Loan.

COMMENT (68): Section 53.31(j). Commenter states, regarding the OCC Program, that changes in match requirements and form of assistance provided have made it difficult to assist the poor in the community. Most of the potential applicants are elderly and cannot commit to five-year forgivable loans or mortgages.

STAFF RESPONSE: Match requirements will be described in each NOFA and staff agrees with the recommendations made by the HOME Task Force regarding adjustments for population in determining the city or county's match requirement. Additional analysis must be performed in order to ensure that this method of determining the match requirement of Contract Administrators will allow the Department to meet its Federal match requirement.

The Board established the loan policy for the OCC Program in February 2006 and staff agrees with the policy established. HUD is supportive of utilizing loans to provide a Participating Jurisdiction (PJ) the ability to recapture funds. Furthermore, numerous local Texas PJ's and large State PJ's require secured loans as the form of assistance for their owner occupied rehabilitation programs. No change to proposed rule is recommended.

COMMENT (56, 61): Section 53.31(j). Commenter states the HOME Task Force recommended a return to a grant program for those at 30% or less AMFI and those on Rider 5 (which allows those at 50% or less to be assisted as if they are 30% or lower in cases where the County's AMFI is lower than that of the State). We ask the Board to adopt the HOME Task Force recommendations, retaining a 5-year deferred forgivable loan for those at 31%-50% AMFI (non-Rider 5). Under their recommendation, those at 51-80% would require an amortized direct loan with monthly payment of principal and interest with a maximum rate of 2% per year.

STAFF RESPONSE: Staff is recommending a change to the proposed rule to address Rider 5 eligible households as noted earlier. The Board established the loan policy for the OCC Program in February 2006 and staff agrees with the policy established. HUD is supportive of utilizing loans to provide a Participating Jurisdiction (PJ) the ability to recapture funds. Furthermore, numerous local Texas PJ's and large State PJ's require secured loans as the form of assistance for their owner occupied rehabilitation programs.

COMMENT (62): Section 53.31(m). Commenter stated the Department does a disservice by penalizing householder family members who earn less than 80% AMFI by placing their home at risk should the original assisted homeowner be forced to relocate due to medical reasons. To reduce the unnecessary burden on TDHCA staff, it is strongly recommended that any loan balance (forgivable or otherwise) be forgiven upon the death of the head of household, if the head of household has to move due to incapacitation (i.e. nursing home, with a child, etc.), or if the home must be sold due to unexpected medical expenses. In addition, the HOME program eligibility is based on 80% AMFI and this should be the standard for loan forgiveness when a low or moderate-income household obtains the house after the death of the initial party assisted.

STAFF RESPONSE: Through Rider 5 of the Department's Legislative Appropriation, the State Legislature has adopted an express goal of assuring that a significant portion of the funds provided under the HOME Program go to persons whose income is 30% of the statewide AMFI or below. The Department has expressed its desire to meet this requirement by developing rules that encourage administrators to seek out program participants who meet these objectives. The purpose of having a length of time to live in the home encourages that the program will go directly to those who need it the most by creating an "affordability period" type requirement. While all persons eligible for this program should be able to benefit, where the state has identified target populations, the Department will follow that guidance. Where possible, the Department also looks to recycle funds for those persons who can afford to repay a portion of their loan and has created a tiered system to promote that goal as well. This section of the proposed rule was also written to be consistent with general HUD affordability requirements. No change to proposed rule is recommended.

COMMENT (62): Section 53.31(n). Commenter stated, to reduce the unnecessary burden on TDHCA staff, it is strongly recommended that any loan balance (forgivable or otherwise) be forgiven upon the death of the head of household, if the head of household has to move due to incapacitation (i.e. nursing home, with a child, etc.), or if the home must be sold due to unexpected medical expenses.

STAFF RESPONSE: Staff does not recommend a change to the proposed rule.

STAFF COMMENT: Section 53.32(b). Staff recommends an administrative change to delete the word'down' for more accurate wording.

COMMENT (61): Section 53.32(e) Commenter questioned the allowability of homebuyer assistance up to $15,000 for a disabled person. Commenter indicates that this is confusing because homebuyer assistance is a mathematical formula and has nothing to do with a person's physical ability. The maximum should be the same, either $15,000 or $10,000. If more money is needed to change the house to make it accessible, it is fine and it is indicated in rule to be $25,000.

STAFF RESPONSE: Based on staff discussion with organizations that serve Persons with Disabilities, the household income that includes a person with a disability is typically affected if they attempt to save money. This may result in a reduction in benefits or income received. Furthermore, most of these organizations tier the level of assistance based on income level. Therefore, households with a lower income level, received the greatest amount of assistance and households with a higher income level, receive the least amount of assistance, typically $3,000 max. Staff does not recommend a change to the proposed rule.

STAFF COMMENT: Section 53.32(j). Staff would like to meet federal affordability requirements for the Homebuyer Assistance Program as defined in 24 CFR §92.254. Staff recommends deleting subsection (j) in order meet federal affordability requirements. This deletion requires a renumbering of this section and a revision to the subsection (m) as noted above.

BOARD COMMENT: Section 53.31(m) Per Board member discussion during the Action Item to adopt the proposed rule at the December 20, 2007 Board meeting, the following language was added to this section: the Department shall use the state average median family income for eligible Households living in those counties where the area median family income is lower than the state average median family income, as defined in Rider 5 of the Department's Legislative Appropriation, to apply this subsection.

§53.31.Owner-Occupied Housing Assistance Program (OCC).

(a) Eligible activities are limited to the Rehabilitation or Reconstruction of existing owner-occupied housing. The Rehabilitation of a MHU is not an eligible activity.

(b) Eligible forms of homeownership are limited to fee simple title to the real property, a 99-year leasehold interest in the real property, a 50-year leasehold interest on trust, a 50-year leasehold on restricted Indian lands, or ownership or membership in cooperative or a mutual housing project that constitutes homeownership under Texas law.

(c) Eligible property types are limited to single family dwellings, condominium units and cooperative units in mutual housing projects. A MHU is not an eligible property type for Rehabilitation. HOME funds may be used to replace (Reconstruct) an owner-occupied housing unit with a MHU or Modular Home if:

(1) the unit complies with standards at 24 CFR §92.205 and with the Texas Manufactured Housing Standards Act, §19(1);

(2) the unit is permanently installed;

(3) the unit is permanently attached to utilities; and

(4) the ownership of the unit is recorded in the taxing authority of the county in which it is located.

(d) The Household must comply with the following initial eligibility requirements:

(1) own and occupy the single family unit as its Principal Residence;

(2) be an Income Eligible Household;

(3) be located within the Administrator's Service Area; and

(4) meet all other eligibility requirements.

(e) Real property taxes assessed on the housing unit must be current and/or the Household must be participating in an approved payment plan with the taxing authority.

(f) The property must not be encumbered with tax liens, child support liens, or mechanic or materialmen's liens.

(g) The maximum amount of assistance to an eligible Household is based on Household size:

(1) Rehabilitation that is Reconstruction for 1 - 4 person Household: $60,000

(2) Rehabilitation that is Reconstruction for 5 - 6 person Household: $67,500

(3) Rehabilitation that is Reconstruction for 7 or more person Household: $75,000

(4) Rehabilitation that is not Reconstruction: $30,000

(h) The minimum amount of assistance to an eligible household is $1,000.

(i) The estimated value of the housing unit, after Rehabilitation or Reconstruction, must not exceed the HUD 203(b) Limits.

(j) The form of assistance to an eligible Household is based on AMFI except in the instances of a MHU being replaced with newly constructed housing (site-built) on the same site or any housing unit being replaced on an alternate site. In accordance with Rider 5 of the Department's Legislative Appropriation, the Department shall use the state average median family income in determining the form of assistance as prescribed in Figure: 10 TAC §53.31(j) for eligible Households living in those counties where the area median family income is lower than the state average median family income. For Rehabilitation (excluding contract for deed conversion), the Loan amount is based upon the amount of assistance to be provided to the household. Once construction is complete, the loan balance will be determined by subtracting from the'as complete' final appraised value of the housing unit, the appraised value of the existing housing unit (initial appraisal) and 10% of the 'as complete' final appraised value. To ensure the correct equity credit is provided, the Department will reduce the Loan amount with a principal reduction in the amount necessary to arrive at the correct loan balance, taking into account any change orders that resulted in a net decrease or increase in the amount of assistance.

Figure: 10 TAC §53.31(j)

(k) When a MHU is being replaced with newly constructed housing (site-built) or any housing unit being replaced on an alternate site, the activity is considered acquisition and will trigger affordability requirements for homeownership as defined by 24 CFR §92.254. (Refer to §53.14 of this chapter.)

(l) In the event that the housing unit ceases to be the Principal Residence of the Household, the Department has established that the federal recapture requirements as defined in 24 CFR §92.254 will be imposed.

(m) In the event that the housing unit ceases to be the Principal Residence of the Household, the forgiveness of the Loan, if applicable, will cease, unless the Property is transferred by devise, descent or operation of law upon the death of the homeowner that is a Household whose Annual Income does not exceed 30% of the AMFI. The Department shall use the state average median family income for eligible Households living in those counties where the area median family income is lower than the state average median family income, as defined in Rider 5 of the Department's Legislative Appropriation, to apply this subsection.

(n) In the event that the housing unit is sold, the Department will recapture the shared net proceeds available based on the requirements of 24 CFR §92.254 and the housing unit must be sold for an amount not less than the current appraised value as then appraised by the appropriate governmental authority without prior written consent of the Department unless the balance on the Loan will be paid at closing.

(o) Housing units assisted with HOME funds must meet or exceed the TMCS or CHS, as applicable, and all applicable codes and standards. In addition, housing that is Rehabilitated under this Chapter must meet all applicable local codes, rehabilitation standards, ordinances, and zoning ordinances in accordance with the Final Rule.

§53.32.Homebuyer Assistance Program (HBA).

(a) Eligible activities are limited to the acquisition or acquisition and Rehabilitation of single family housing units.

(b) Eligible property types are limited to single family dwellings, condominium units and cooperative units in mutual housing projects. A MHU is not an eligible property type for Rehabilitation. HOME funds may be used to replace (Reconstruct) an owner-occupied housing unit with a MHU or Modular Home if:

(1) the unit complies with standards at 24 CFR §92.205 and with the Texas Manufactured Housing Standards Act, §19(1);

(2) the unit is permanently installed;

(3) the unit is permanently attached to utilities; and

(4) the ownership of the unit is recorded in the taxing authority of the county in which it is located.

(1) occupy the single family unit as its Principal Residence;

(2) be an Income Eligible Household and for contract for deed conversion, the Households Annual Income must not exceed 60% AFMI;

(3) be located within the Administrator's Service Area; and

(4) meet all other eligibility requirements.

(d) The Property must not be encumbered with tax liens, child support liens, or mechanic or materialmen's liens.

(e) The maximum amount of assistance to an eligible Household for downpayment and closing cost assistance is the lesser of:

(1) $15,000 for Persons with Disabilities; or

(2) $10,000.

(f) The maximum amount of assistance for Rehabilitation that is not Reconstruction to an eligible PWD Household that is also using funds for acquisition is $20,000.

(g) The maximum amount of assistance to an eligible Household for acquisition and closing costs for a contract for deed conversion is $25,000. In the case of a contract for deed conversion housing unit that involves both the acquisition of a loan on an existing MHU and the associated land, the Executive Director may grant an exception to exceed this amount, however, the Executive Director will not grant an exception to exceed $40,000 of assistance.

(h) The maximum amount of assistance for Rehabilitation to an eligible Household for a contract for deed conversion is limited to the OCC Program Activity requirements in §53.13(g) of this chapter.

(i) When a MHU is being replaced with newly constructed housing (site-built) or any housing unit being replaced on an alternate site, the maximum amount of assistance to an eligible Household is based on Household size:

(1) Rehabilitation that is Reconstruction for 1 - 4 person Household: $60,000

(2) Rehabilitation that is Reconstruction for 5 - 6 person Household: $67,500

(3) Rehabilitation that is Reconstruction for 7 or more person Household: $75,000

(j) The minimum amount of assistance to an eligible Household is $1,000.

(k) The purchase price of the housing unit, plus the value of the Rehabilitation or Reconstruction if applicable, must not exceed 95% of the area's median purchase price as specified in the HUD 203(b) Limits.

(l) The total amount of assistance under this section and Program Activity, including Rehabilitation and activities involving contract for deed conversion, a MHU being replaced with newly constructed housing (site-built), and a housing unit being replaced on an alternate site, will be provided in the form of a zero percent (0%) deferred, forgivable Loan with a term based on the federal affordability requirements as defined in 24 CFR §92.254.

(m) Any forgiveness of the Loan occurs upon the anniversary date of the Household's continuous occupancy as its Principal Residence and continues on an annual pro-rata basis until maturity of the Loan.

(n) In the event that the housing unit ceases to be the Principal Residence of the Household, the Department has established that the federal recapture requirements as defined in 24 CFR §92.254 will be imposed.

(o) In the event that the housing unit ceases to be the Principal Residence of the Household, the forgiveness of the Loan, if applicable, will cease.

(p) In the event that the housing unit is sold, the Department will recapture the shared net proceeds available based on the requirements of 24 CFR §92.254 and the housing unit must be sold for an amount not less than the current appraised value as then appraised but the appropriate governmental authority without prior written consent of the Department unless the balance on the Loan will be paid at closing.

(q) Housing units assisted with HOME funds must meet or exceed the TMCS or CHS, as applicable, and all applicable codes and standards. In addition, housing that is Rehabilitated under this Chapter must meet all applicable local codes, rehabilitation standards, ordinances, and zoning ordinances in accordance with the Final Rule.

(r) This Program Activity is a CHDO-eligible activity.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on December 21, 2007.

TRD-200706627

Michael Gerber

Executive Director

Texas Department of Housing and Community Affairs

Effective date: January 10, 2008

Proposal publication date: October 5, 2007

For further information, please call: (512) 475-3916

Subchapter D. APPLICATION REQUIREMENTS AND PROCEDURES

10 TAC §§53.40 - 53.49

The Texas Department of Housing and Community Affairs (the Department) adopts new Chapter 53, Subchapter D, §§53.40 - 53.49, concerning HOME Rules as published in the October 5, 2007, issue of the Texas Register (32 TexReg 6942). Section 53.48 is adopted with changes to the proposed text. Sections 53.40 - 53.47 and §53.49 are adopted without changes and will not be republished.

SUMMARY OF COMMENTS, STAFF RESPONSE AND BOARD ACTION

COMMENT (62): Section 53.47. Commenter state the Department should allow the maximum award amount of $525,000 [7 x $75,000] for disaster relief instead of $500,000.

STAFF RESPONSE: A maximum award amount of $500,000 allows a Contract Administrator to serve 5-8 households with reconstruction depending on the maximum unit level of assistance. Staff does not recommend a change to the proposed rule.

STAFF COMMENT: Section 53.48. Staff did not clearly define a deadline date for deficiencies during Phase One, Two, or Three of the Open or Closed Cycle, Application Review Process in the initial Rule posting. In an effort to provide clarification on the review process, staff would like to make and administrative change adding to the proposed rule a deadline of 45 days from Received Date for Administrative Deficiencies during Phase One, a deadline of 45 days upon entering during Phase II, and a deadline of 30 days upon entering Phase Three for Open Cycle Application Review Process. Additionally, a recommended change of a deadline of 45 days from Received Date for Administrative Deficiencies for Phase One during Competitive Application Cycle.

The Board approved the final order adopting these amendments, as well as administrative changes as needed for consistency within this Chapter, on December 20, 2007. The new rule ensures compliance with statutory requirements as per changes in Chapter 2306, Texas Government Code during the 80th legislative session. In order to offer consistency and uniformity among housing programs, changes were made to the rule in the areas of definition. To provide clarity regarding administrative processes, additional sections were added to assist in formalizing those program processes. Finally, to streamline and update certain processes, some sections were removed or collapsed with other relevant sections.

The new chapter is adopted pursuant to authority granted in Chapter 2306, Texas Government Code; specifically §2306.053 which grants the Department general rulemaking authority to carry out the powers expressly granted or necessarily implied by Chapter 2306, and §2306.111(a) which requires the Department to administer all federal housing funds provided to the state under the Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. §§12704 et seq.) or any other affordable housing program.

§53.48.Application Review Process.

(a) Applications received by the Department in response to an Open Application Cycle NOFA will be handled in the following manner:

(1) The Department will accept Applications on an ongoing basis, until such date when the Department makes notice to the public that an Open Application Cycle has been closed; and

(2) Each Application will be handled on a first-come, first-served basis as further described in this section. Each Application will be assigned a Received Date based on the date and time it is physically received by the Department. Then each Application will be reviewed on its own merits in three review phases, as applicable. Applications will continue to be prioritized for funding based on its Received Date unless it does not proceed into the next phase(s) of review. Applications proceeding in a timely fashion through a phase will take priority over Applications that may have an earlier Received Date but that did not timely complete a phase of review.

(A) Phase One will begin as of the Received Date and will include a review of eligibility and threshold criteria and all Application requirements. The Department will ensure review of materials required under the NOFA and ASPM and will issue a notice of any Administrative Deficiencies for threshold criteria and eligibility within 45 days of the Received Date. Applicants who are able to resolve their Administrative Deficiencies within five (5) business days will be forwarded into Phase Two, if applicable, and will continue to be prioritized by their Received Date. Applications with Administrative Deficiencies not cured within five (5) business days, will be terminated and must reapply for consideration of funds. Applications that have completed this Phase and do not require additional review in Phase Two or Three will be reviewed for recommendation to the Board by the Committee.

(B) Phase Two will include a comprehensive review for financial feasibility for RHD and Single Family Development Program Activities. Financial feasibility reviews will be conducted by the Real Estate Analysis (REA) Division consistent with §1.32 of this title. REA will create an underwriting report identifying staff's recommended Loan terms, the Loan or Grant amount and any conditions to be placed on the Development. The Department will issue a notice of any Administrative Deficiencies within 45 days of the date the Application enters Phase Two. Applicants who are able to resolve their Administrative Deficiencies within five (5) business days will be forwarded into Phase Three, if applicable, and will continue to be prioritized by their Received Date. Applications with Administrative Deficiencies not satisfied within five (5) business days, will be terminated and must reapply for consideration of funds. Applications that have completed this Phase and do not require additional review in Phase Three will be reviewed for recommendation to the Board by the Committee.

(C) Phase Three will only entail the review of the CHDO Certification Application. The Department will ensure review of these materials and issue notice of any Administrative Deficiencies on the CHDO Certification Application within 30 days of the Application enters Phase Three. Applicants who are able to resolve their Administrative Deficiencies within five (5) business days will be forwarded into the final review phase of the Application process and will continue to be prioritized by their Received Date. Applications with Administrative Deficiencies not cured within five (5) business days, will be terminated and must reapply for consideration of funds. Only upon satisfaction of all Administrative Deficiencies will the Application be forwarded to the final phase of the Application process. Upon completion of the applicable final review phase, the Application will be reviewed for recommendation to the Board by the Committee.

(3) Because Applications are processed in the order they are received by the Department, it is possible that the Department will expend all available HOME funds before an Application has completed all phases of its review. In the case that all HOME funds are committed before an Application has completed all phases of the review process, the Department will notify the applicant that their application will remain active for ninety (90) days in its current phase. If new HOME funds become available, Applications will continue onward with their review without losing their Received Date priority. If HOME funds do not become available within ninety (90) days of the notification, the Applicant will be notified that their Application is no longer under consideration. The Applicant must reapply to be considered for future funding. If on the date an Application is received by the Department, no funds are available under this NOFA, the Applicant will be notified that no funds exist under the NOFA and the Application will not be processed.

(b) Applications received by the Department in response to a Competitive Application Cycle NOFA will be handled in the following manner:

(1) The Department will accept Applications on an ongoing basis during the Application Acceptance Period as specified in the NOFA;

(2) Applications submitted and accepted by the Department will be reviewed for eligibility, threshold and selection criteria and all Application requirements. The Department will ensure review of materials required under the NOFA and ASPM. A comprehensive review of financial feasibility for RHD and Single Family Development Program Activities will be conducted by the Real Estate Analysis (REA) Division consistent with §1.32 of this title. REA will create an underwriting report identifying staff's recommended Loan terms, the Loan or Grant amount and any conditions to be placed on the Development. If applicable, a review of the CHDO Certification Application will be performed. The Department will issue a notice of any Administrative Deficiencies for items reviewed within 45 days of the Received Date. If Administrative Deficiencies are not cured to the satisfaction of the Department within five (5) business days of the deficiency notice date, then five (5) points shall be deducted from the selection score for each additional day the Administrative Deficiency remains unresolved. If Administrative Deficiencies are not clarified or corrected within seven (7) business days from the deficiency notice date, then the Application shall be terminated; and

(3) Upon completion of review and no unresolved Administrative Deficiencies, the Application will be reviewed for recommendation to the Board by the Committee.

(c) Administrative Deficiencies. If an application contains deficiencies which, in the determination of the Department staff, require clarification or correction of information submitted at the time of the Application, the Department staff may request clarification or correction of such Administrative Deficiencies including threshold and/or selection criteria documentation and/or financial feasibility analysis. The Department staff may request clarification or correction in a deficiency notice in the form of a facsimile and a telephone call to the Applicant advising that such a request has been transmitted. The time period for responding to a deficiency notice begins at the start of the business day following the deficiency notice date. To cure an Administrative Deficiency, an Applicant must provide a clarification, further definition or exposition of an issue, an explanation as to why an Applicant has provided certain information, or resolution of a discrepancy where an Applicant has provided conflicting information. An Administration Deficiency may not be cured by substantially changing an Application or providing any new unrequested information. An Applicant may not change or supplement any part of an Application in any manner after submission to the Department, and may not add any Set-asides, increase their award amount, or revise their unit mix (both income levels and bedroom mixes), except in response to a direct request from the Real Estate Analysis Division to remedy an Administrative Deficiency as further described in this title or by amendment of an Application after a commitment or allocation of HOME funds.

(d) Decline to Fund. The Department may decline to fund any Application if the proposed activities do not, in the Department's sole determination, represent a prudent use of the Department's funds. The Department is not obligated to proceed with any action pertaining to any Applications which are received, and may decide it is in the Department's best interest to refrain from pursuing any selection process. The Department reserves the right to negotiate individual elements of any Application.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on December 21, 2007.

TRD-200706628

Michael Gerber

Executive Director

Texas Department of Housing and Community Affairs

Effective date: January 10, 2008

Proposal publication date: October 5, 2007

For further information, please call: (512) 475-3916

Subchapter E. COMMUNITY HOUSING DEVELOPMENT ORGANIZATION (CHDO)

10 TAC §53.50

The Texas Department of Housing and Community Affairs (the Department) adopts new Chapter 53, Subchapter E, §53.50, concerning HOME Rules as published in the October 5, 2007, issue of the Texas Register (32 Tex. Reg. 6945). Section 53.50 is adopted without changes and will not be republished.

SUMMARY OF COMMENTS, STAFF RESPONSE AND BOARD ACTION

The Board approved the final order adopting these amendments, as well as administrative changes as needed for consistency within this Chapter, on December 20, 2007. The new rule ensures compliance with statutory requirements as per changes in Chapter 2306, Texas Government Code during the 80th legislative session. In order to offer consistency and uniformity among housing programs, changes were made to the rule in the areas of definition. To provide clarity regarding administrative processes, additional sections were added to assist in formalizing those program processes. Finally, to streamline and update certain processes, some sections were removed or collapsed with other relevant sections.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on December 21, 2007.

TRD-200706629

Michael Gerber

Executive Director

Texas Department of Housing and Community Affairs

Effective date: January 10, 2008

Proposal publication date: October 5, 2007

For further information, please call: (512) 475-3916

Subchapter F. AWARD AND CONTRACTS

10 TAC §§53.70 - 53.73

The Texas Department of Housing and Community Affairs (the Department) adopts new Chapter 53, Subchapter F, §§53.70 - 53.73, concerning HOME Rules. Section 53.73 is adopted with changes to the proposed text as published in the October 5, 2007, issue of the Texas Register (32 TexReg 6948). Sections 53.70 - 53.72 are adopted without changes and will not be republished.

SUMMARY OF COMMENTS, STAFF RESPONSE AND BOARD ACTION

COMMENT (56)(62): Sections 53.72 - 53.73. Commenter stated that this appears to be intended solely as a punitive measure with no purpose other than to create additional paperwork and "hoops" for the Administrators. Additionally, there is no technical assistance associated with an Administrator missing a benchmark. Commenter also stated the agency takes a period of several months to approve contract amendments. If this continues, benchmarks and contracts will expire while waiting for approval of contract amendment. Commenter asks the Board to replace this contract amendment policy regarding benchmarks with the policy recommended by the HOME Task Force for dealing with failure to meet benchmarks, as follows:

(1) If the first benchmark is missed by more than 30 days, the Department will contract the Administrator and their consultant (if any) to arrange a technical assistance visit.

(2) If the second benchmark is missed by more than 30 days and the plan of action agreed to by all parties has not been implemented, the Department will contact the Administrator and their consultant (if any), and the administrator will be required to provide full explanation of the reason(s), including extenuating circumstances, which have caused the second delay.

(a) If a reasonable explanation for the delay has been missed more than 30 days, the Administrator will continue to keep the Department informed of their progress on a monthly basis.

(b) If no reason can be provided for the second delay, the Department may de-obligate any unexpended funds, provided that demolition has not begun on home:

(i) For homes on which demolition has begun, and it is reasonable to assume completion prior to contract expiration, fund for those homes will not be de-obligated.

(ii) Any projects that have had no work started may have their funds de-obligated by the Department.

(3) De-obligation of funds due to expenditure issues will not prohibit the Administrator from participating in future HOME program funding cycles.

(4) Voluntary de-obligation of unexpended contract balance by the administrator will have no adverse effect on future participation in the HOME program.

STAFF RESPONSE: With the reorganization of the HOME Division and the institution of a Performance Management Team, Contract Administrators will be provided more timely responses to amendment requests, technical assistance and performance oversight. The team will be reviewing performance based on the benchmarks established in the proposed rule, providing technical assistance to help the CA reach the benchmark and recommend possible action regarding continued delays in progress or lack of performance. No change to proposed rule recommended.

COMMENT (56): §53.72(a)(1). Commenter states the HOME Task Force recommended a return to the 24-month contract length plus the 60 day grace period for OCC contracts. However, the proposed rules set a 22-month contract length, with a 20-month benchmark for completion of all work. Essentially, the 60-day grace period has been incorporated into the contract term itself. Commenter asks the board to act on the HOME Task Force's recommendation to change the proposed rules to reflect the 24-month contract term that is most realistic and appropriate for actual time required to implement a HOME project.

STAFF RESPONSE: Staff is confident that a 22-month contract term for the OCC Program is adequate since Contract Administrators will typically reconstruct or rehabilitate 5 homes under this program as the current maximum award amount is structured. No change to the proposed rule is recommended.

COMMENT (56)(62): Commenter asks the Board to change the proposed rules to reflect the recommendations of the HOME Task Force as seen below:

(1) Contract start date on the date it is executed by the TDHCA Executive Director

(2) Procurement of professional services should be allowed prior to the contract award.

(3) The following benchmark targets should apply to all contracts:

(a) 6 months - contract environmental clearance complete

(b) 12 months - application intake complete

(d) 20 months - all set-up documentation submitted to TDHCA, committing 100% of the funds to be expended

(e) 24 months - All funds expended and all match supplied. (Follow with a 60-day grace period to submit trailing documents and draws.)

STAFF RESPONSE: §53.71 of the proposed rule states the contract will be effective when executed by all parties as requested by the Task Force. Additionally, staff has already administratively implemented this change in the 2007 contracts. The contract templates have been modified to allow the effective date of the contract to occur upon execution by the Department's Executive Director. The current contract provisions do not prohibit the procurement for professional services prior to the contract award, however, in order for the Contract Administrator to be aware of and correctly perform the necessary procurement procedures to ensure eligibility of the costs associated with the procurement itself and/or the goods and services obtained, the Contract Administrator should contact Department staff for information, technical assistance and/or training to ensure the ability to be reimbursed for those costs. Staff deem the benchmarks established in the proposed rule more accurately reflect the required performance targets to ensure contractual compliance within the contract term. No change to the proposed rule is recommended.

BOARD COMMENT: §53.73(b). The following language was added to this section per Board member discussion during the Action Item to adopt the proposed rule at the December 20, 2007 Board meeting: if the Administrator or Development Owner fails to meet a benchmark requirement and does not seek, or is not granted, an extension of a benchmark, the awarded funds related to the lack of performance may be entirely or partially deobligated at the Department's sole discretion.

The Board approved the final order adopting these amendments, as well as administrative changes as needed for consistency within this Chapter, on December 20, 2007. The new rule ensures compliance with statutory requirements as per changes in Chapter 2306, Texas Government Code during the 80th legislative session. In order to offer consistency and uniformity among housing programs, changes were made to the rule in the areas of definition. To provide clarity regarding administrative processes, additional sections were added to assist in formalizing those program processes. Finally, to streamline and update certain processes, some sections were removed or collapsed with other relevant sections.

§53.73.Contract Amendments.

(a) Amendment requests to be approved by the Executive Director of the Department are allowable under the following circumstances:

(1) Time extensions. The Executive Director may collectively provide up to one six-month extension to the end date of any Contract. Any additional time extension granted by the Executive Director shall include a statement by the Executive Director relating to unusual and non foreseeable circumstances that warrant more than a six-month extension. If the extension is longer than six months and the Executive Director determines that a statement related to unusual or non-foreseeable circumstances can not be issued, it will be presented to the Board for approval, approval with modifications, or denial of the requested extension; and

(2) Increase in funds. In the case of a modification or amendment to the dollar amount of the Contract, such modification or amendment does not increase the dollar amount by more than 25% of the original Contract or $50,000, whichever is greater. Modifications and/or amendments that increase the dollar amount by more than 25% of the original Contract or $50,000, whichever is greater; or significantly decrease the benefits to be received by the Department, in the estimation of the Executive Director, will be presented to the Board for approval.

(b) If the Administrator or Development Owner fails to meet a benchmark requirement and does not seek, or is not granted, an extension of a benchmark, the awarded funds related to the lack of performance may be entirely or partially deobligated at the Department's sole discretion.

(c) Waiver. The Board, in its discretion and within the limits of federal and state law, may waive any one or more of the requirements of this Chapter if the Board finds that waiver is appropriate to fulfill the purposes or policies of Chapter 2306, Texas Government Code, or for good cause, as determined by the Board.

(d) Accounting Requirements. Within 60 days after the Contract end date, the Administrator or Development Owner shall provide a full accounting of funds expended under the terms of the Contract. Failure of an Administrator or Development Owner to provide full accounting of funds expended under the terms of a Contract shall be sufficient reason for the Department to deny any future Contract to the Administrator or Development Owner.

(e) Individual benchmarks. Each benchmark is an individual term and subject to the amendment processes. An interim benchmark extension may or may not extend the entire Contract at the Department's discretion.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on December 21, 2007.

TRD-200706630

Michael Gerber

Executive Director

Texas Department of Housing and Community Affairs

Effective date: January 10, 2008

Proposal publication date: October 5, 2007

For further information, please call: (512) 475-3916

Subchapter G. LOANS AND CONTRACT ADMINISTRATION

10 TAC §§53.80 - 53.86

The Texas Department of Housing and Community Affairs (the Department) adopts new Chapter 53, Subchapter G, §§53.80 - 53.86, concerning HOME Rules as published in the October 5, 2007, issue of the Texas Register (32 TexReg 6950). Section 53.81 and §53.85 are adopted with changes. Sections 53.80, 53.82 - 53.84, and 53.86 are adopted without changes and will not be republished.

SUMMARY OF COMMENTS, STAFF RESPONSE AND BOARD ACTION

COMMENT (62): §53.80. Commenter indicates that this section appears to be helpful in reducing a little of the additional burden than the 2006 HOME Program rule changes placed on the Administrators. Commenters support the change of allowing the use of an as-built appraisal combined with the as-is appraisal and recommend allowing for an as-built appraisal, as presented in the proposed rules.

STAFF RESPONSE: Staff has reevaluated the use of an as-built appraisal and recommends changing this section to only allowing the final appraisal or as-complete appraisal since this ensures the most accurate market value of the housing unit once it is constructed and takes into account and change orders that may have increased or decreased the final value of the property. Please note that the final as-complete appraisal will be required to be submitted before the release of retainage to ensure the correct loan balance is calculated. Staff recommends deleting the language "and final appraisal or an as is and as built" from §53.80(e)(1).

COMMENT (62): §53.81(18). Commenter states the 4-month rule for demolition does not take into account the actual amount of time it takes to construct a unit (average time from construction demolition is 45 to 60 days). The recommendation is to ensure that the demolition of any housing unit does not occur less than the time allowed in the construction contract plus 15 calendar days (or, in the case of a MHU, the time allowed in the purchase, delivery, and set-up contract) to complete said home.

STAFF RESPONSE: Staff recommends changing this requirement to no less than 6 (six) months prior to the Contract end date since a loan closing will typically be required and this period of time will allow for document preparation, loan closing, demolition and completion of construction well in advance of the Contract end date.

STAFF COMMENT: §53.81(23). In order to allow enough time for loan closing and construction, staff recommends the following administrative change by adding language in §53.81(23) that also states "In the event that a loan closing is required for single family Rehabilitation or Reconstruction, non-development activities, all Project setups and support documentation must be submitted no later than one hundred eighty (180) days prior to the Contract end date."

COMMENT (66): §53.85. Commenter expresses concern that there was a lack of attention to soft costs related to barrier removal modification write-ups in the Owner-Occupied activity.

STAFF RESPONSE: The proposed limitations include both an initial inspection of $500 and a final inspection of $200 for units requiring rehabilitation (and reconstruction). Staff review of historical disbursement requests for architectural barrier removal reveals invoices indicating a charge of $550 for both the initial work write-up and final inspection. It is unclear why the commenter is concerned since the limitations proposed for this soft cost item allow a combined maximum of $700. No change is proposed.

COMMENT (68): Regarding the HOME Program Owner-Occupied activity, cities of comparable population and budget size were able to come up with required match and soft costs under the rules of the program in 2005, but may not be able to meet these requirements should match percentages and soft costs be adjusted as proposed. Commenter recommends restoring the program rules implemented in 2005.

STAFF RESPONSE: While match requirements will be considered in future Notices of Funding Availability (NOFA's), the proposed rule does not include any match requirements. Therefore, as this comment relates to required match, staff has no response. As it relates to soft costs limitations, staff recommendations are being proposed in the rule to increase some of the project costs and the overall maximum percentage of hard costs.

COMMENT (67): §53.85(a)(4). Commenter states the soft cost schedule as provided in Figure: 10 TAC §53.85(a)(4) requires the individualizing of over twenty (20) soft costs, project costs, and administrative costs with a price point which places non-profit corporation seeking to administer OCC or HBA programs at a disadvantage to third-party providers of such services. Non-profit housing corporations seeking to administer OCC or HBA programs would be required to track time and effort of individual in-house personnel, benefits associated with time, as well as associated direct expenses for each item listed in Figure: 10 TAC §53.85(a)(4), while no such burden would be placed on third party consultants or other providers who simply provide a bill for services to the Contact Administrator. The rule should be amended to provide that non profit corporations that are also an administrative entity, only be required to track project related soft costs as a general category by project and that they individual line item tracking listed in Figure: 10 TAC §53.85(a)(4) to be reduced to "project specific soft costs".

STAFF RESPONSE: Staff understands the commenter's request, however Contract Administrators that are performing these services in the administration of their Contract will also be subject to the line item caps but will be allowed to provide acceptable documentation to evidence that the costs are incurred by using a general soft cost category for the project that evidences conformance with the cost limitations. No change to the proposed rule is necessary.

COMMENT (56): Commenter asks the Board to curb the effort to limit soft costs and administrative costs from their present levels. Soft costs and administrative costs should be left at 12% and 4% respectively. In addition, commenter asks the Board to consider putting soft cost and administrative costs limitation and cap information in the Implementation Manual instead of the rules. If left in the rules, commenter requests the addition of a statement clearly explaining that there are other costs allowable and not capped. We ask that the list and caps, if not eliminated, be changed to reflect a realistic and comprehensive list of tasks and costs associated with managing a HOME OCC contract.

STAFF RESPONSE: Since the HOME Program Manual (Implementation Manual) is not a binding document, the Department believes the caps are properly located in the proposed rule. While the cost categories identified were based on a review of historical project soft cost and administrative draw requests, the Department may approve, solely at the Department's discretion, cost categories and limitations not identified in the proposed rule. As it relates to soft costs limitations, staff recommendations are being proposed in the rule to increase some of the project costs and the overall maximum percentage of hard costs. Staff recommends adding the following language to the proposed rule "and cost categories and limitations not identified in the proposed rule.

COMMENT (61): Commenter raised issue with the cap for soft costs at 5% for manufactured housing. An example cited is in the situation when a manufactured housing unit averages about $43,000. Five percent (5%) is $2,200. Two appraisals and inspections can expend over $2,200 without preconstruction activities. A recommendation would be to move it back to ten percent (10%), otherwise manufactured housing will be taken out of the housing arena because they are not going to pay for those soft costs.

STAFF RESPONSE: Staff recognizes this issue, concurs and recommends a change to the proposed rule (Figure: 10 TAC §53.85(c)) to include:

Where Max Assistance is $60,000 for OCC - Reconstruction (includes MHU to site-built and contract for deed conversions), Max Percentage for soft costs based on Hard Costs or Project Costs is allowed at 16% and Max Percentage for administrative costs based on Total Project Costs is allowed at 2%

Where Max Assistance is $67,500 for OCC - Reconstruction (includes MHU to site-built and contract for deed conversions), Max Percentage for soft costs based on Hard Costs or Project Costs is allowed at 14% and Max Percentage for administrative costs based on Total Project Costs is allowed at 2%

Where Max Assistance is $75,000 for OCC - Reconstruction (includes MHU to site-built and contract for deed conversions), Max Percentage for soft costs based on Hard Costs or Project Costs is allowed at 12% and Max Percentage for administrative costs based on Total Project Costs is allowed at 2%

Where OCC or HBA is Rehabilitation only, Max Percentage for soft costs based on Hard Costs or Project Costs is allowed at 24% and Max Percentage for administrative costs based on Total Project Costs is allowed at 2%

Where Max Assistance is $60,000 OCC is a Reconstruct (replacement) with MHU, Max Percentage for soft costs based on Hard Costs or Project Costs is allowed at 12% and Max Percentage for administrative costs based on Total Project Costs is allowed at 2%

Where Max Assistance is $67,500 OCC is a Reconstruct (replacement) with MHU, Max Percentage for soft costs based on Hard Costs or Project Costs is allowed at 10% and Max Percentage for administrative costs based on Total Project Costs is allowed at 2%

Where Max Assistance is $75,000 OCC is a Reconstruct (replacement) with MHU, Max Percentage for soft costs based on Hard Costs or Project Costs is allowed at 8% and Max Percentage for administrative costs based on Total Project Costs is allowed at 2%

Where HBA is Acquisition only for contract for deed conversion, Max Percentage for soft costs based on Hard Costs or Project Costs is allowed at 10% and Max Percentage for administrative costs based on Total Project Costs is allowed at 4%

Where HBA is Downpayment and closing costs only, the Max Percentage for soft costs based on Hard Costs or Project Costs is allowed at 10% and Max Percentage for administrative costs based on Total Project Costs is allowed at 2%

COMMENT (61): Commenter requests clarification in the charts to delineate those costs which are contract based rather than project or activity based.

STAFF RESPONSE: Staff recommends a clarification in the chart headers in Figure: 10 TAC §53.85(a)(4) and recommends adding language to §53.85(a)(1) as follows: "With the exception of Administrative Costs per Contract," these costs are maximums per Activity or Project and may not be exceeded without approval by the Department. Upon prior approval of the Department, exceptions may be allowed in the case of Rehabilitation activities for lead-based paint hazard reduction and/or relocation "and cost categories and limitations not identified in the proposed rule".

COMMENT (62): Commenter states that limiting the number of inspections to four (4) is a very poor management decision. There will be no way for the Administrator to verify the construction quality if they are limited to only four (4) inspections. Commenter asks if TDHCA will accept responsibility for items covered-up or incorrectly installed due to the lack of oversight that this policy dictates?

The dollar value associated with many of these activities is less than the cost of providing the service, for example, $75.00 for recordkeeping; $75.00 will not even pay for the amount of copying that is required for each project file. Nor will this cap cover the labor involved with obtaining documents, filing documents, submitting documents to TDHCA and other agencies as required; the same can be said for the construction documentation, information services, financial management, and the required initial work write-up that is sometimes needed to demonstrate that reconstruction is necessary.

Finally, the above table does not include a complete list of the processes and activities that go into implementing a HOME Owner-Occupied Program. The costs for surveys (multiple if in a floodplain), insurance (homeowner's and flood), title commitment, title searches, document re-verification, monitoring, etc. are all left off of the above list. Considering the complexity of these projects, a comprehensive list is impractical to be included in the rules as this severely limits the ability for flexibility. We recommend the Department remove this list from the rules. The above can be part of the Implementation Manual, where items can be added as needed, as well as adjusted with market conditions. The additional costs associated with the loan program, implemented in the 2006 HOME Rules should be borne by TDHCA, not by the Administrators, therefore, all items required for loan closing that were not previously required, should be paid for with additional soft cost funds.

The commenter provided a proposed table for Project Soft cost or Administrative costs that they believed to be much more in line with the reality of implementing the OCC HOME Program:

For OCC Reconstruction, allowable Project or Administrative Cost for Application intake and processing should be $500

For OCC Rehabilitation, allowable Project or Administrative Cost for Application intake and processing should be $500

For OCC Reconstruction, allowable Project or Administrative Cost for Appraisal (limited to 2 at $500 max each) should be $1,000

For OCC Rehabilitation, allowable Project or Administrative Cost for Appraisal is N/A

For OCC Reconstruction, allowable Project or Administrative Cost for Appraisal services coordination and management $200

For OCC Rehabilitation, allowable Project or Administrative Cost for Appraisal services coordination and management $200

For OCC Reconstruction, allowable Project or Administrative Cost for Surveying Services for Deferred Loan $1,000

For OCC Rehabilitation, allowable Project or Administrative Cost for Surveying Services for Deferred Loan $1,000

For OCC Reconstruction, allowable Project or Administrative Cost for Surveying Services coordination and management (Loan) $200

For OCC Rehabilitation, allowable Project or Administrative Cost for Surveying Services coordination and management (Loan) $200

For OCC Reconstruction, allowable Project or Administrative Cost for Surveying Services for Flood Insurance $500

For OCC Rehabilitation, allowable Project or Administrative Cost for Surveying Services for Flood Insurance $500

For OCC Reconstruction, allowable Project or Administrative Cost for Surveying Services coordination and management (Flood) $200

For OCC Rehabilitation, allowable Project or Administrative Cost for Surveying Services coordination and management (Flood) $200

For OCC Reconstruction, allowable Project or Administrative Cost for Homeowners Insurance $700

For OCC Rehabilitation, allowable Project or Administrative Cost for Homeowners Insurance $700

For OCC Reconstruction, allowable Project or Administrative Cost for Homeowners Insurance coordination and management $200

For OCC Rehabilitation, allowable Project or Administrative Cost for Homeowners Insurance coordination and management $200

For OCC Reconstruction, allowable Project or Administrative Cost for Title Searches $200

For OCC Rehabilitation, allowable Project or Administrative Cost for Title Searches $200

For OCC Reconstruction, allowable Project or Administrative Cost for Title Searches coordination and management $200

For OCC Rehabilitation, allowable Project or Administrative Cost for Title Searches coordination and management $200

For OCC Reconstruction, allowable Project or Administrative Cost for Loan Closing coordination and management $500

For OCC Rehabilitation, allowable Project or Administrative Cost for Loan Closing coordination and management $500

For OCC Reconstruction, allowable Project or Administrative Cost for Document re-verification (income, taxes)$200

For OCC Rehabilitation, allowable Project or Administrative Cost for Document re-verification (income, taxes)$200

For OCC Reconstruction, allowable Project or Administrative Cost for Preparation of Site Plans $300

For OCC Rehabilitation, allowable Project or Administrative Cost for Preparation of Site Plans $300

For OCC Reconstruction, allowable Project or Administrative Cost for Construction and disbursement documentation preparation $200

For OCC Rehabilitation, allowable Project or Administrative Cost for Construction and disbursement documentation preparation $200

For OCC Reconstruction, allowable Project or Administrative Cost for Environmental review $500

For OCC Rehabilitation, allowable Project or Administrative Cost for Environmental review $500

For OCC Reconstruction, allowable Project or Administrative Cost for Exempt administrative environmental $100

For OCC Rehabilitation, allowable Project or Administrative Cost for Exempt administrative environmental $100

For OCC Reconstruction, allowable Project or Administrative Cost for Final inspection $300

For OCC Rehabilitation, allowable Project or Administrative Cost for Final inspection $300

For OCC Reconstruction, allowable Project or Administrative Cost for Information services $300

For OCC Rehabilitation, allowable Project or Administrative Cost for Information services $300

For OCC Reconstruction, allowable for Initial inspection $500

For OCC Rehabilitation, allowable for Initial inspection $500

For OCC Reconstruction, allowable Project or Administrative Cost for Procurement of contractor $300

For OCC Rehabilitation, allowable Project or Administrative Cost for Procurement of contractor $300

For OCC Reconstruction, allowable Project or Administrative Cost for Progress inspections $250

For OCC Rehabilitation, allowable Project or Administrative Cost for Progress inspections $250

For OCC Reconstruction, allowable Project or Administrative Cost for Pre-construction conference $300

For OCC Rehabilitation, allowable Project or Administrative Cost for Pre-construction conference $300

For OCC Reconstruction, allowable Project or Administrative Cost for Project document preparation $300

For OCC Rehabilitation, allowable Project or Administrative Cost for Project document preparation $300

For OCC Reconstruction, allowable Project or Administrative Cost for Punch list verification inspection $300

For OCC Rehabilitation, allowable Project or Administrative Cost for Punch list verification inspection $300

For OCC Reconstruction, allowable Project or Administrative Cost for Schedule of values $100

For OCC Rehabilitation, allowable Project or Administrative Cost for Schedule of values $100

For OCC Reconstruction, allowable Project or Administrative Cost for Work write-up $500

For OCC Rehabilitation, allowable Project or Administrative Cost for Work write-up $300

For OCC Reconstruction, allowable Project or Administrative Cost for Work write-up summary/cost estimate $400

For OCC Rehabilitation, allowable Project or Administrative Cost for Work write-up summary/cost estimate $400

For OCC Reconstruction, allowable Administrative Cost Only for Affirmative marketing plan $100

For OCC Rehabilitation, allowable Administrative Cost Only for Affirmative marketing plan $100

For OCC Reconstruction, allowable Administrative Cost Only for Financial management $300

For OCC Rehabilitation, allowable Administrative Cost Only for Financial management $300

For OCC Reconstruction, allowable Administrative Cost Only for Procurement of professional service provider $30

For OCC Rehabilitation, allowable Administrative Cost Only for Procurement of professional service provider $30

For OCC Reconstruction, allowable Administrative Cost Only for Recordkeeping $300

For OCC Rehabilitation, allowable Administrative Cost Only for Recordkeeping $300

For OCC Reconstruction, allowable Project Cost Only for Plans (market value) is N/A

For OCC Rehabilitation, allowable Project Cost Only for Plans (market value) is $200

For OCC Reconstruction, allowable Project Cost Only for Plans and specification manual (market value) is $1,500

For OCC Rehabilitation, allowable Project Cost Only for Plans and specification manual (market value) is N/A

For OCC Reconstruction, allowable Project Cost Only for Specification manual is N/A

For OCC Rehabilitation, allowable Project Cost Only for Specification manual is $200

STAFF RESPONSE: Other state Participating Jurisdictions allow typically 10-15% in soft costs and while they require loans, they do not have the typical expenses and legal requirements for loan closings as we do in Texas. For example, the appraisals add roughly $1,000 and a survey can require another $500 or more if the property has not been platted. The total project soft costs based on the caps is approximately 11% of the average hard cost of the unit. Once closing costs are included, the total project costs based on the caps is approximately 16% of the average hard cost of the unit. Since many of the soft costs can also be categorized as administrative costs, staff is recommending a reduction to the administrative costs percentage from 4% to 2% for any Rehabilitation or Reconstruction Projects or Activities (including replacement with a MHU). Additionally, staff recommends allowing the administrator to draw up to half of the total administrative costs percentage upon award of the contract for training, travel related to attend training and other expenses such as hiring a staff person to administer the program and/or procurement activities related to the obtaining a service provider. Staff is also recommending an increase in the Construction and disbursement document preparation category to allow for costs incurred in the coordination and management of requirements for the loan closing process such as title commitments, surveys, and appraisal.

Staff recommends that third-party closing costs have no cap imposed since they must be obtained at market value and recommends the following language: §53.85(a)(5) Third-party project costs related to loan closing requirements, such as appraisals, title insurance, tax certificates, and recording fees, are not subject to a maximum per Activity or Project. However, these costs are subject to the limitations of the maximum percentage of hard or project costs identified in subsection (c) of this section.

Therefore, the appraisal limitation was removed from Figure: 10 TAC §53.85(a)(4). However, staff is recommending a change to the proposed rule that limits the overall maximum percentage for soft costs, which will allow and include closing costs.

COMMENT (62): §53.85(b)(1). Commenter states that in rural communities, effective affirmative marketing can be a challenging, time consuming project. There are often limited media outlets, requiring a more "hands-on" approach than in a larger market. The additional costs associated with these challenges should be considered when capping fees. Commenter recommends an increase to $100.

STAFF RESPONSE: Staff concurs and has increased this cap to $100 per Contract.

COMMENT (62): §53.85(b)(2). Commenter states that in rural communities, it is often difficult to obtain documentation, requiring multiple trips to the courthouse and/or social security administration, both of which may be many miles away from the Administrators location. Often multiple trips are required to obtain an adequate number of qualified applicants; particularly with the new deferred forgivable loan and with new partially repayable and repayable loans, the application intake effort will only become more burdensome. Furthermore, the fees do not take into account that many more applicants are reviewed than are actually eligible and this situation will be magnified with all the new conditions. Commenter recommends an increase to the cap on this line item to $500.

STAFF RESPONSE: Staff concurs with this request and has increased this cap to $500, as recommended by commenter.

COMMENT (62): §53.85(b)(3). Commenter states that in rural communities, identifying appraisers willing to do this sort of work is a challenge, obtaining bids, and coordinating this service is time consuming and costly. The additional costs associated with these challenges should be considered when capping fees.

STAFF RESPONSE: A direct price quote method is typically what is required to procure an appraiser. Staff agrees in part with this request and is recommending an increase in the Construction and disbursement document preparation category to allow for costs incurred in the coordination and management of requirements for the loan closing process such as title commitments, surveys, and appraisal.

COMMENT (62): §53.85(b)(4). Commenter states most of the disbursement forms are not included in the above reference. Disbursement documentation is voluminous, raising both the cost of construction and the cost of implementation. None of this even takes into account the amount of time online input, approval process, and distribution to TDHCA takes. Commenter recommends an increase to the cap on this line item to $200.

STAFF RESPONSE: Staff agrees in part with this request and has recommended an increase to this item to $250.

COMMENT (62): §53.85(b)(5). Commenter states a member of the TDHCA monitoring staff has recently said that they are going to change they way they monitor the environmental files. Apparently all files will have to be put in a different order from what was previously described in the HOME Implementation manual (and had been previously accepted by TDHCA monitoring staff). Unfortunately, this is not an unusual occurrence; the Department should recognize that it costs time and money to re-arrange documents in a file. The additional costs associated with these challenges should be considered when capping fees. We recommend the Department increase the cap on this line item to more accurately reflect the cost incurred when conducting the environmental clearances and documentation of said clearances: $500 for project clearance and $100 for exempt administrative.

STAFF RESPONSE: Staff agrees in part with this request and has recommended an increase to this item to $400. However, exempt administrative is only one form that must be completed and staff has not recommended an increase to the item. The $400 cap is also in-line with draw documentation submitted in the past and the average number of required hours to complete on an average project.

COMMENT (62): §53.85(b)(7). Commenter states final inspections are very time consuming as they involve the inspector, the Administrator, the contractor and the Homeowner. It is during the final inspection that the homeowner is given detailed instruction on how to operate and maintain each piece of equipment in the home (HVAC, Water Heater, Filters, Drain Lines, Range, Refrigerator, Attic Access, GFCI, etc.). It is also at this time that the warranty process is gone over in detail; any questions regarding construction are addressed, the punch list is signed-off on, draws are approved, and pictures are taken by happy family members. It is not a time to rush and, as such, the costs associated with doing a proper final walk-through should be considered when capping fees. Our recommendation is to increase the cap on this line item to reflect the importance of the final walk through and the amount of time it takes to do in a proper manner.

STAFF RESPONSE: Due to the total number of inspections allowed throughout construction, staff believes this limitation is adequate and does not recommend a change to the proposed rule.

COMMENT (62): §53.85(b)(8). Commenter states the records required for financial management are much greater than a "journal of all transactions". Proper Financial Management will result in a timely request for payments, disbursements, and a clean Single Audit. We would recommend the paperwork required by the HOME Program for a single draw is voluminous. The costs associated with doing proper financial management (not just keeping a journal) should be considered when capping fees.

STAFF RESPONSE: Staff agrees in part with this request and has increased this cap to $150 per Contract.

COMMENT (62): §53.85(b)(10). Commenter states Administrators have heard repeatedly from the TDHCA Board that we need to be doing more education of the consumers/beneficiaries of the HOME Program. Education is expensive/it is time consuming, printed materials are expensive to produce and update on a regular basis, and the instruction given to each applicant must be tailored to their knowledge and experiences. All of this requires knowing your consumer, spending time with them, providing them with understandable materials, and a commitment to foster a learning environment; none of which is cheap. The recommendation is to increase the capon this line item. The costs associated with doing information services, and providing the education requested by the Board, should be considered when determining fees.

STAFF RESPONSE: Staff agrees in part with this request and has increased this cap to $100.

COMMENT (62): §53.85(b)(13). Commenter states the pre-construction conference is very important to a successful program. Placing such a low dollar value on this meeting sends the message that TDHCA believes it can be done quickly with little discussion. We recommend an increase to the cap on this line item to reflect the amount of time and preparation that a successful pre-construction conference requires.

STAFF RESPONSE: Staff believes this limitation of $200 is adequate and does not recommend a change to the proposed rule.

COMMENT (62): §53.85(b)(14). Commenter states that this is a lot of work for not much money: mail outs, paying for advertisements, verification of certifications, conducting the walk-through, vetting the builder, conducting a bid opening and tabulating bids, plus any/all Department required forms. In rural communities, identifying qualified contractors who are willing to do "government" work can be difficult at best. Often multi-county searches are required to obtain more than a single bid. The additional costs with these challenges should be considered when capping fees. Our recommendation is to increase the cap on this line item to better serve rural communities.

STAFF RESPONSE: Staff believes this limitation of $300 is adequate and does not recommend a change to the proposed rule.

COMMENT (62): §53.85(b)(16). Commenter states logic would dictate that the more inspections that are done during the construction process, the better quality product you will get. Things get covered up quickly on a construction site and if the Department is limiting the Administrator to only four (4) inspections, quality will suffer. Additionally, item (A) Foundation is two inspections. Pre-pour and post curing are either two inspections or a single inspection that takes at a minimum 8-12 hours to conduct (more probably would require spending the night at the site). Additionally, commenter cites previous TDHCA and HUD publications indicating the need for a great deal more inspections than the four (4) listed in Figure: 10 TAC §53.85(a)(4). Additional resources are included in the written public comment.

Commenter suggests the following milestone inspections should be performed by a rehabilitation/reconstruction inspector (in addition to unscheduled "drop-in": inspections):

1. Slab - pre-pour

2. Slab - post-pour

3. Framing

4. Roof Decking

5. Roof Felt

6. Shingle Installation

7. Plumbing - rough

8. Plumbing - top-off

9. Electrical - rough

10. Electrical - top off

11. Sheet rock hang

12. Sheet rock tape, float, and texture

13. Painting - interior

14. Exterior siding

The proposed amount of inspection limitations will only result in poor quality and higher maintenance costs for the homeowners that we are trying to assist. Having the homeowner and Contract Administrator sign each inspection is simply an exercise in bureaucracy and shows a lack of understanding about construction and how the Program is implemented in the field. Often homeowners move out of town during the construction phase, living with children in other towns or states. Inspections are routinely conduction in the evenings and over the weekend, contractors do not follow City Hall hours; waiting until normal business hours for an inspection will cause further delays in the process. Our recommendation is to allow for as many inspections as deemed necessary by the Administrator to ensure a high quality product and increase the amount allowed, recognizing the effects of inflation and much higher travel costs since the original cap was put into place. This cap has remained unchanged over the years.

STAFF RESPONSE: Staff agrees in part with the comment and has recommended adjusting the number of allowable inspections to 7, with a minimum of 3 required. However, staff recommends decreasing the line item cap since the inspections are limited to one particular construction activity and some inspections can be combined with others. Additionally, the Department encourages the Contract Administrator, who is now the responsible contractor, to perform these inspections and potentially incur cost savings since the housing units to be inspected are in closer proximity to the Contract Administrator. Furthermore, when considering the initial inspection, the final inspection and the punch list verification inspection, there are a total of 10 inspections allowed. The Contract Administrator is encouraged to drop-in to perform inspections at any time based on their own level of risk assessment. While there may be some delay in having the homeowner sign forms, it will be more than offset by insuring that the homes are being constructed and that the homeowner is aware of the process as it is ongoing.

Additionally, staff recommends an administrative change to allow only two progress inspections in the case of a MHU replacement since the housing unit is not being constructed on-site.

COMMENT (62): §53.85(b)(17). Commenter states that not all inspections will need sketches. On many inspections, photos should suffice.

STAFF RESPONSE: Staff agrees and recommends add to allow sketches "and/or" photographs adequate for verification.

COMMENT (62): §53.85(b)(18). Commenter states project documentation is voluminous and proposes that each home will have at least 2" of paper that is not related to construction or income eligibility. Commenter believes that listing only a few documents is misleading and appears to be an attempt to justify the $50.00 cap for Project Documentation. All of the paperwork contained in each project file is required by TDHCA (many items contain duplicate information or do not apply but must be completed and filed). With each change implemented by the Department, the number of documents grows exponentially. It is not unusual for the Department to come out with a new form and for monitors to require the Administrator to retroactively use this form (often meaning that the same information must be captured twice so that it can be transferred from the old to the new form). We have even seen this requirement when no more than the date on the bottom of the form, or formatting changed. The $50.00 cap will not cover the cost of copying the documentation, much less the cost of document preparation. We recommend increasing the cap on this line item to adequately cover the reality of the work involved in preparing and filing the documentation.

STAFF RESPONSE: Staff agrees in part with this comment and recommends increasing the item to $100.

COMMENT (62): §53.85(b)(20). Commenter states the punch list verification inspections may have to be performed multiple times. If the Department will not allow for multiple inspections it will be difficult to show the work has been completed. If not, the Department will have to assume responsibility for unsatisfactory work. Our recommendation is to allow the Administrators to conduct as many follow-up inspections as necessary to ensure that all punch list work has been completed properly and increase the line item amount for the initial punch list inspection, to more adequately reflect the amount of time that it takes to compile a complete/detailed punch list.

STAFF RESPONSE: Staff does not recommend a change to the proposed rule. If more than one punch list verification inspection is required, the Contract Administrator should hold the Contractor liable for the cost incurred with multiple inspections as routinely occurs in the industry.

COMMENT (62): §53.85(b)(21). Administrators are required to maintain and adapt to ever-changing Department requirements (order of documents, new forms, tab each item, individual staff requirements, etc.). The amount of paper required for each project is massive. In the past, with the continual changes made by the Department's compliance division, Administrators have been required to re-order and update files months after projects have been completed. Additionally, certain monitors have their own unwritten requirements; different order for the environmental documents, each item on their checklist must have a numbered tab in the file so they do not have to look through the whole file (of course, if a checklist changes, the files for this monitor must be re-tabbed), etc. All of these evolving requirements are costly and labor-intensive. The $75.00 cap for Recordkeeping does not even cover the cost of copying program and environmental files. Our recommendation is to increase the cap on this line item.

STAFF RESPONSE: Staff agrees in part with this comment and recommends increasing the item to $400 per Contract.

COMMENT (62): §53.85(b)(23). Commenter asks if you can imagine ordering an MHU without any specifications? Specifications should be required for Manufactured Housing Units (MHU) and, therefore, an allowable cost.

STAFF RESPONSE: Staff agrees in part with commenter regarding the necessity of specifications for a MHU. However, staff suggests that only condensed specifications are needed and should be included as part of the bid package for the contractor. Allowing the market value cost associated with a complete specification manual, as in the case of a site-built housing unit, appears to exceed cost reasonableness.

COMMENT (62): Commenter states that reducing the amount of soft cost available for reconstruct, while increasing the difficulty of the program is a non sequitur. The soft costs percentage should be increased to 14%. As an alternative to increasing the soft cost, the administrative costs should be increased from 4% to 6%. This would put the Texas HOME Program more in line with other state programs.

In 2001 TDHCA reduced soft costs from 12% of the total contract amount to 12% of construction costs (this change resulted in approximately a 10% reduction in the allowable dollar amount of soft costs paid). Since that time, the HOME Program has become much more difficult to implement, the amount of paperwork associated with the Program and has increased geometrically, and the costs of doing business (materials and labor) have risen. Despite all of this, the Department is recommending reducing soft costs to a level that will make the program unfeasible, and maybe impossible, to successfully implement. Our recommendation is the following for Current Soft Cost Fees:

Where OCC - Reconstruction (includes MHU to site-built and contract for deed conversions) and Max Assistance is $60,000, the Max Percentage for Soft costs based on 12% Hard Costs or Project Costs have been $6,429

Where OCC - Reconstruction (includes MHU to site-built and contract for deed conversions) and Max Assistance is $67,500 the Max Percentage for Soft costs based on 12% Hard Costs or Project Costs have been $7,232

Where OCC - Reconstruction (includes MHU to site-built and contract for deed conversions) is $75,000 the Max Percentage for Soft costs based on 12% Hard Costs or Project Costs have been $8,036

Where OCC or OCC or HBA - Rehabilitation only and Max Assistance is $30,000 the Max Percentage for Soft costs based on 12% Hard Costs or Project Costs have been $3,214

Where OCC- Reconstruct (replacement) with MHU and Max Assistance is $60,000 the Max Percentage for Soft costs based on 12% Hard Costs or Project Costs have been $6,429

The information contained in the table TDHCA Proposed Soft Cost Fees provides additional information for analysis:

Where the activity is OCC - Reconstruction (includes MHU to site-built and contract for deed conversions) and the proposed Maximum Assistance is $60,000, Column B shows TDHCA Proposed Soft Cost Percent Limits at 10%, Column C shows TDHCA Proposed Maximum Soft Cost Fees at $5,455, Column D shows Changes in Soft Cost Fees (Column C Less Current Fees (indicated above)) at (-$974), Column E shows Estimated Minimum Added Soft Cost for Deferred Forgivable Loans at $2,500, Column F TDHCA Proposed Soft Costs Available for Management Services, (Column C Less Column E) at $2,955;

Where the activity is OCC - Reconstruction (includes MHU to site-built and contract for deed conversions) and the proposed Maximum Assistance is $67,500, Column B shows TDHCA Proposed Soft Cost Percent Limits at 9%, Column C shows TDHCA Proposed Maximum Soft Cost Fees at $5,573, Column D shows Changes in Soft Cost Fees (Column C Less Current Fees (indicated above)) at (-$1,659), Column E shows Estimated Minimum Added Soft Cost for Deferred Forgivable Loans at $2,500, Column F TDHCA Proposed Soft Costs Available for Management Services, (Column C Less Column E) at $3,073;

Where the activity is OCC - Reconstruction (includes MHU to site-built and contract for deed conversions) and the proposed Maximum Assistance is $75,000, Column B shows TDHCA Proposed Soft Cost Percent Limits at 8%, Column C shows TDHCA Proposed Maximum Soft Cost Fees at $5,556, Column D shows Changes in Soft Cost Fees (Column C Less Current Fees (indicated above)) at (-$2,480), Column E shows Estimated Minimum Added Soft Cost for Deferred Forgivable Loans at $2,500, Column F TDHCA Proposed Soft Costs Available for Management Services, (Column C Less Column E) at $3,056;

Where the activity is OCC or HBA - Rehabilitation only and the proposed Maximum Assistance is $30,000, Column B shows TDHCA Proposed Soft Cost Percent Limits at 18%, Column C shows TDHCA Proposed Maximum Soft Cost Fees at $4,576, Column D shows Changes in Soft Cost Fees (Column C Less Current Fees (indicated above)) at $1,362, Column E shows Estimated Minimum Added Soft Cost for Deferred Forgivable Loans at $2,500, Column F TDHCA Proposed Soft Costs Available for Management Services, (Column C Less Column E) at $2,076;

Where the activity is OCC - Reconstruct (replacement) with MHU and the proposed Maximum Assistance is $60,000, Column B shows TDHCA Proposed Soft Cost Percent Limits at 5%, Column C shows TDHCA Proposed Maximum Soft Cost Fees at $2,857, Column D shows Changes in Soft Cost Fees (Column C Less Current Fees (indicated above)) at (-$3,572), Column E shows Estimated Minimum Added Soft Cost for Deferred Forgivable Loans at $2,500, Column F TDHCA Proposed Soft Costs Available for Management Services, (Column C Less Column E) at $357;

Column D shows that the proposed rules would reduce soft cost fees for the various activities with the exception of OCC Rehabilitation only. The problem with "OCC Rehabilitation only" is the complete lack of understanding that it is practically impossible to find owner occupied households living in housing that can be rehabilitated to meet minimum standards for $30,000 of hard and soft costs. The ongoing costs of operation and maintenance of their homes are beyond their means. This is especially true for the very-low income households that Rider 5 targets.

Column E shows the estimated cost for additional services as clearly stated in the HOME Advisory Task Force Report. It appears these costs have been completely ignored as having any impact on the ability of surveys, appraisals title commitments, homeowner insurance, flood insurance (If needed and not included in the $2,500 figure), title insurance, and the efforts to coordinate all these activities.

Column F shows the amount of soft cost funds available to Contract Administrators to manage, coordinate and implement the OCC program. When compared to Column A in the "Current Soft Cost Fees" table, there is a significant negative impact on the amount of soft costs funds available to implement this Program. This is neither reasonable nor feasible considering all the additional requirements for implementing the forgivable loan form of assistance. The Recommended Soft Cost Fees table contains the following information:

The higher percentages for soft costs are necessary for each of these activities since the amount of paperwork remains the same to meet the newly imposed requirements for the deferred forgivable loan program. These fees would provide some hope that the OCC Program could continue to be implemented.

STAFF RESPONSE: Staff has reviewed and analyzed all of the public comment received as it relates to soft costs limitations and recommends changes to the proposed rule.

BOARD COMMENT: §53.80(e)(1). The following language was added to this section per Board member discussion during the Action Item to adopt the proposed rule at the December 20, 2007 Board meeting: The Department will accept an as-built appraisal as the final appraisal if no change orders or modifications occur. If change orders or modifications occur, the Administrator must submit a certification from an appraiser that addresses a potential increase or decrease to the final value of the property.

BOARD COMMENT: Figure: 10 TAC §53.85(a)(4). The allowable soft costs for Progress inspections (up to 7) was increased to $200 max each, with a minimum of 4 required as per Board member discussion during the Action Item to adopt the proposed rule at the December 20, 2007 Board meeting.

BOARD COMMENT: §53.85(b)(16). The following language was added to this section as per Board member discussion during the Action Item to adopt the proposed rule at the December 20, 2007 Board meeting: Progress inspections is the cost incurred in performing inspections at logical points during the construction process or prior to approving each draw that verify quality and completeness of work to date and are signed by the inspector and Contract Administrator. Upon completion of the progress inspection, the Contract Administrator must send a copy of the completed inspection report to the homeowner. The homeowner must also sign to acknowledge receipt of the completed Progress Inspection Report.

The Board approved the final order adopting these amendments, as well as administrative changes as needed for consistency within this Chapter, on December 20, 2007. The new rule ensures compliance with statutory requirements as per changes in Chapter 2306, Texas Government Code during the 80th legislative session. In order to offer consistency and uniformity among housing programs, changes were made to the rule in the areas of definition. To provide clarity regarding administrative processes, additional sections were added to assist in formalizing those program processes. Finally, to streamline and update certain processes, some sections were removed or collapsed with other relevant sections.

§53.81.General Contract Administration.

All Administrators and Development Owners must use the forms provided on the Department's website and comply with the Department's procedural and documentation requirements as outlined in the HOME Program Manual and in this section including, but not limited to:

(1) Contract must be signed and executed by all appropriate authorized parties;

(2) Attend training as required by the Department;

(3) Develop and comply with written procurement selection criteria and committees;

(4) Procure consultants, if applicable. Consultants may not participate in or direct any part of the process for procuring consultants;

(5) Complete all applicable Department Contract System access request forms and requirements;

(6) Perform environmental clearance procedures before committing or expending funds to a Project or Activity, performing any construction activities, including demolition, or the occurrence of the Loan closing, if applicable;

(7) Develop and comply with written accounting, reporting, filing, and documentation procedures;

(8) Develop and comply with written applicant intake and selection criteria for and ensure program eligibility which must include, but is not limited to:

(A) Homeownership, if applicable;

(B) Income eligibility;

(D) Property taxes are current, if applicable; and

(E) Assist Special Needs Households, if applicable.

(9) Develop and comply with affirmative marketing procedures in accordance with the Final Rule;

(10) Complete applicant intake and applicant selection. Notify each applicant Household in writing of either acceptance or denial of HOME assistance within sixty (60) days following receipt of the intake application;

(11) Ensure that no Conflict of Interest exists between Households to be assisted and Persons designated to receive or assist with the application intake process;

(12) Document and verify all income and asset eligibility requirements for the Household to be assisted;

(13) Ensure compliance with applicable audit certification requirements;

(14) Ensure that the demolition and removal of all dilapidated units on the lot occurs prior to the Household's occupancy of the Newly Constructed or Rehabilitated housing unit;

(15) Ensure and verify that each building construction contractor performing activities in the amount of $10,000 or more under the Contract is registered and maintains good standing with the Texas Residential Construction Commission in accordance with 16 TAC, Subtitle C, §16.001;

(16) Ensure and verify that each housing unit being rehabilitated in the amount of $10,000 or more under the Contract is registered with the Texas Residential Construction Commission in accordance with 16 TAC, Subtitle C, §426.003;

(17) Provide building construction contractor oversight and ensure builder's risk coverage is provided;

(18) Ensure that the demolition of any housing unit does not occur less than 6 (six) months prior to the Contract end date;

(19) Ensure compliance with applicable construction or property standards and lead-based paint requirements;

(20) Conduct appropriate property inspections and documentation in accordance with applicable program requirements;

(21) Submit required documentation and electronic requests for Project setups and disbursement requests to the Department;

(22) Submit support documentation for Project setups and disbursement requests within thirty (30) days of electronic submission to the Department;

(23) Submit all Project setups and support documentation for Households to be assisted no later than ninety (90) days prior to the Contract end date. In the event that a loan closing is required for single family Rehabilitation or Reconstruction, non-development activities, all Project setups and support documentation must be submitted no later than one hundred eighty (180) days prior to the Contract end date;

(24) Submit required Match documentation to the Department;

(25) Not retain Program Income of any kind, including Program Income to fund other eligible HOME Activities;

(26) Submit any Program Income received to the Department within ten (10) days of receipt;

(27) Return any refunds to the Department's accounting division and include a written explanation of the return of funds, the Contract number, name of Administrator or Development Owner, Activity address and Activity number referenced on the check;

(28) Submit required documentation for Project completion reports and certificate of Contract Completion no later than sixty (60) days from the Contract end date; and

(29) Complete the terms of the Contract.

§53.85.Soft Cost Limitations.

(a) The Department has established cost guidelines and limitations for soft costs related to the OCC and HBA Program Activities.

(1) With the exception of Administrative Costs per Contract, these costs are maximums per Activity or Project and may not be exceeded without approval by the Department. Upon prior approval of the Department, exceptions may be allowed in the case of Rehabilitation activities for lead-based paint hazard reduction and/or relocation and cost categories and limitations not identified in the proposed rule.

(2) Contract Administrators must certify that the amount being disbursed is for the actual amount of costs.

(3) Costs that may be categorized as either a project cost or an administrative cost are identified below. No duplicate disbursement of costs is allowed. Costs may only be disbursed as either a project cost or administrative cost but not both. Additionally, costs may only be disbursed once per occurrence when providing both acquisition and construction type of assistance to the same Project or Activity as may take place with, but not limited to, contract for deed conversions.

(4) Unless otherwise noted, all items are limited to one (1) occurrence per Project or Activity.

(5) Third-party project costs related to loan closing requirements, such as appraisals, title insurance, tax certificates, and recording fees, are not subject to a maximum per Activity or Project. However, these costs are subject to the limitations of the maximum percentage of hard or project costs identified in subsection (c) of this section.

Figure: 10 TAC §53.85(a)(5)

(b) The allowable activities for each cost category are defined as follows:

(1) Affirmative marketing plan is the cost incurred to develop a written plan for ensuring that marketing, advertising, and outreach activities are provided to all protected classes and to the populations being served by the Contract. This includes the development of advertising materials and hand-outs and public presentation;

(2) Application intake and processing is the cost incurred for the completion of all intake application documentation and forms, verification of all sources of income, employment verification, asset verification and imputation and re-verification of all expired documentation. This includes all Department-required forms, worksheets, addendums and certifications required for the household's application intake and processing;

(3) Appraisal is the cost incurred in obtaining appraisals prepared by an independent, state-licensed real estate appraiser;

(4) Construction and disbursement documentation preparation is the cost incurred in the preparation of forms required by the Department that are related to construction or disbursement documentation and include electronic entry into the TDHCA Contract System, support documentation preparation and completion of Department-required forms including, but not limited to, the Contractor Request for Payment, Lien Waiver Affidavits, Final Bills Paid Affidavit and Certification of Completion;

(5) Environmental review is the cost incurred for the preparation and completion of all required forms, checklists and certifications, publication activities and Request for Release of Funds and Finding of No Significant Impact and Eight Step Process, if applicable;

(6) Exempt administrative environmental is the cost incurred in the completion of an exemption form for administrative expenses;

(7) Final inspection is the cost incurred in performing a final walk through and physical inspection of the assisted housing unit noting any deficient items that must be corrected before final payment and the completion of any Department-required forms or checklists.

(8) Financial management is the cost incurred in the management of all project and program accounts using a fund type accounting system that can trace each expense to an individual Project or to the program as a whole and ensures compliance with OMB circulars. A written or printed journal of all transactions including receipt and disbursement of funds should be included;

(9) Homebuyer counseling is the cost incurred to provide a minimum of eight hours of counseling provided by a certified homebuyer counselor. Instruction may include, but is not limited to, financial management, credit management, homebuyer education, and/or job training;

(10) Information services is the cost incurred to provide information to homeowners, prospective homebuyer and/or tenants. These may include the following:

(A) Fair housing--cost incurred to provide information to prospective homebuyers and tenants (not applicable to OCC);

(B) Loan procedures--cost incurred to provide information pertaining to fair lending practices, loan requirements, and closing procedures to participants in OCC and HBA (not applicable to TBRA);

(C) Warranty (Project cost only)--cost incurred to provide an explanation of the builder's homeowner warranty (must comply with Texas Residential Construction Commission requirements) to households assisted with Reconstruction or Rehabilitation activities;

(D) Lead-based paint--cost incurred to provide lead-based paint hazard notification to all applicants in all HOME Program Activities;

(11) Initial inspection is the cost incurred in the completion of the initial physical inspection of the housing unit to be assisted and Department-required forms and checklists. The inspection must identify all health and safety concerns regarding the housing unit, all sub-standard conditions that require repair or replacement to comply with applicable codes and standards and the TMCS, and provide enough detail to complete a work write-up, and if applicable, a justification of Reconstruction;

(12) Plans are the cost incurred to obtain a complete set of plans shall include a site plan for each housing unit showing known easements and lot set-backs, a floor plan, a front elevation, a foundation plan, a plumbing and electrical plan and a mechanical and energy efficiency plan. If these plans are purchased from or donated by a licensed architect or engineer they should bear the appropriate stamp. While builders may require less complete plan sets and it is understood that some of these details may be combined on the same sheet, any plans set that does not include this level of detail will be pro-rated accordingly;

(13) Pre-construction conference is the cost incurred in conducting a meeting with the homeowner and building construction contractor to explain and discuss the construction process being undertaken. This meeting should include a description of construction activities and procedures, expectations of the final product, an explanation of the roles and duties for all parties, detail and review of the timelines and contractual milestones, required access and use of utilities, provision of appropriate security measures, selection of products and improvements to be provided, and a discussion of appropriate handicap accessibility features;

(14) Procurement of contractor is the cost incurred in the preparation of bid documents, pre-bid advertising, conducting of the pre-bid conference, the verification of required builder certifications, conducting of the walk-through of housing units to be assisted, conducting checks of bidder qualifications and references, conducting bid opening including keeping minutes and tabulations, the review of the bids, conducting contract negotiation and verification, the notification of award and the completion of any Department-required forms;

(15) Procurement of professional service provider is the cost incurred to procure a professional service provider (i.e. consultant). The Administrator must use negotiated bidding procedures for the procurement of professional service providers (i.e. consultants) and provide for independent procurement of professional service providers (i.e. consultants may not participate in any aspect of procuring consultants);

(16) Progress inspections is the cost incurred in performing inspections at logical points during the construction process or prior to approving each draw that verify quality and completeness of work to date and are signed by the inspector and Contract Administrator. Upon completion of the progress inspection, the Contract Administrator must send a copy of the completed inspection report to the homeowner. The homeowner must also sign to acknowledge receipt of the completed Progress Inspection Report. Logical points of inspection include but are not limited to:

(A) Foundation--prior to pouring a monolithic foundation and after initial curing or alternatively after completion of piers,

(B) Framing--completion of framing,

(D) Substantial completion;

(17) Progress inspections should each require at least one hour and include inspection forms, filed notes, sketches, and/or photographs adequate for verification of that stage of completion;

(18) Project documentation preparation is the cost incurred in the preparation of forms required by the Department that are not related to income eligibility or construction and include, but are not limited to, the TDHCA Contract System Access Request, Direct Deposit Authorization, Texas Application for Payee Identification, and Audit Certification;

(19) Property inspections is the cost incurred to perform an inspection of the subject property in order to certify that no sub-standard conditions exist according to TMCS using the Department's forms;

(20) Punch list verification inspection is the cost incurred in performing a final physical inspection of the assisted housing unit to verify the completion of punch list items only;

(21) Recordkeeping is the cost incurred to develop, prepare and maintain a recordkeeping system in the order prescribed by the Departments which includes three separate types of filing for program, environmental, and project areas;

(22) Schedule of values is the cost incurred to prepare a line-item description of each work activity and its associated cost and enter electronically into the Department's Contract System as the budget;

(23) Specification manual is the cost incurred to prepare or obtain a single generic manual to be used for multiple sites or projects detailing the methods and materials to be used on all construction jobs. The homeowner's choices may be included but should be detailed for each job. All trade areas and construction activities must be included in the specification manual. In cases where there are no local requirements for specifications and TMCS are used, no additional cost should be requested for disbursement;

(24) Work write-up is the cost incurred to prepare or obtain a complete description of the work activity specific to Rehabilitation required to bring the entire structure into compliance with the applicable construction standards. It must include all units of measurement, materials to be used, methods of application, and all necessary construction detail and/or may be used in conjunction with a specification manual; and

(25) Work write-up/cost estimate is the cost incurred in performing the Feasibility Analysis which is a budgetary justification for Reconstruction which compares the cost of Rehabilitation to the replacement costs of a housing unit and in the completion of Department-required forms. The analysis must include a summary of the steps and costs required to correct the deficiencies identified in the initial inspection.

(c) Notwithstanding the limitations of subsection (a) of this section, the total of all soft costs for each Project or Activity is limited based on the maximum amount of assistance allowed for the housing unit and is calculated as a percentage of the hard or project costs for each Activity or Project. For example, a household that is eligible to be assisted with an OCC Reconstruction amount of assistance of $67,500, the maximum amount of total soft costs is derived by dividing $67,500 by 1.09 and then subtracting this amount from $67,500, which equals $5,573.39. There is no minimum percentage for soft costs per housing unit. These percentages are the maximums allowed per Activity or Project and may not be exceeded without approval by the Department. Upon prior approval of the Department, exceptions may be allowed in the case of Rehabilitation activities for lead-based paint hazard reduction and/or relocation.

Figure: 10 TAC §53.85(c) (.pdf)

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on December 21, 2007.

TRD-200706631

Michael Gerber

Executive Director

Texas Department of Housing and Community Affairs

Effective date: January 10, 2008

Proposal publication date: October 5, 2007

For further information, please call: (512) 475-3916

Part 7. TEXAS RESIDENTIAL CONSTRUCTION COMMISSION

Chapter 303. REGISTRATION

Subchapter A. REGISTRATION OF BUILDERS

10 TAC §303.19

The Texas Residential Construction Commission adopts amendments to Title 10, Part 7, Chapter 303, Subchapter A, §303.19, relating to renewal of registration for builders and remodelers in the state of Texas as provided for in Title 16, Property Code, with changes to the text as published in the November 2, 2007, issue of the Texas Register (32 TexReg 7816). The amendments implement recent legislative amendments to the agency's statute and agency policy concerning registration requirements and continuing education. In addition the adoption of these amendments is a part of the agency's rule review as required by Government Code §2001.039.

Three people submitted comments and suggested changes to the proposed amendments to 10 TAC §303.19. Ned Muñoz on behalf of the Texas Association of Builders ("TAB") suggested the commission substitute "the last day in February" for "February 28" in proposed §303.19(l). The commission declines the suggestion because February 28th is always the last day in February in odd-numbered years. In addition, TAB noted that a cross-reference to a proposed new rule was incorrect. Accordingly, the commission adopts §303.19(m), with changes, to correctly cross reference to §303.20.

In response to Mr. Kevin Kenny's concerns that five hours of continuing education is not sufficient, the commission declines to modify the rule because the number of hours of continuing education stated is in compliance with statutory requirements under Property Code §416.011 and §416.012.

In response to Mr. Toney Dougherty's suggestions that all builders be required to take at least sixteen hours continuing education per year, that experience be a consideration of registration requirements, that an ICC test in residential construction be required, and that small builders be allowed to register for $100.00 each year but increase home registration fees, the commission declines to modify the rule because it is in compliance with statutory requirements under Property Code §416.011 and §416.012, and with the mandatory fees set by the General Appropriations Act.

The commission has made other non-substantive changes to the rule to improve readability and clarity and to promote consistency with other rules.

The amendments are adopted under Property Code §408.001, which provides generally the authority for the commission to adopt rules necessary for the implementation of Title 16; §416.002, which provides the commission authority over registration and renewal; §416.012, which sets forth continuing education requirements; and Government Code §201.39, which requires the periodic review of rules to determine whether they continue to be necessary.

The statutory provisions affected by the adoption are set forth in the Title 16, Property Code §§408.001, 416.002, and 416.012 and Government Code §2001.039.

No other statutes, articles, or codes are affected by the adoption.

§303.19.Renewal of Registration for Builders and Remodelers.

(a) A person operating as a builder or remodeler in this state must keep a current certificate of registration and must timely renew its certificate of registration in order to remain in good standing with the commission.

(b) The primary designated agent shall apply timely for renewal of the certificate of registration.

(c) A builder or remodeler that fails to maintain a current certificate of registration may be subject to a late fee, an administrative penalty, or other disciplinary action, as determined by the commission.

(d) In order to renew a certificate of registration, a builder or remodeler shall submit a completed application for renewal of a certificate of registration and the required fee to the commission not later than fifteen (15) days prior to the end of the applicable registration period as provided in this section.

(e) A builder or remodeler must respond completely and truthfully regarding criminal history and public financial information, and the ownership of all business entities registered with the commission. Failure to respond completely and truthfully is a violation of Government Code §2005.052 and §305.10 of this title, and will be considered evidence that the applicant is not honest and trustworthy and does not have integrity, and may result in denial of the renewal.

(f) All builders and remodelers that file renewal applications with the commission and that have registered more than twenty-five homes in the prior calendar year must file their renewal applications via the commission's secure Web portal provided for online builder/remodeler renewal registration. A completed renewal application and renewal fee must be submitted for each named individual or business entity under which the applicant intends to operate as a builder or remodeler in this state.

(g) Builders and remodelers that are required to use the online renewal process under subsection (f) of this section, but that are unable to utilize the online system may submit a sworn affidavit to the Executive Director requesting a waiver from the required use of the online process for renewal registration.

(h) The Executive Director may grant a waiver requested under subsection (g) of this section, if the builder or remodeler submits a sworn affidavit stating that the builder or remodeler:

(1) does not have the use of a credit card or access to online banking for the purpose of making an online payment;

(2) does not have access to the internet; or

(3) other good cause for waiver as determined in the sole discretion of the Executive Director.

(i) A decision by the Executive Director on whether to grant a waiver under subsection (h) of this section is a final agency decision not subject to further administrative appeal.

(j) A builder or remodeler that failed to timely renew during a previous renewal period and that alleges that it has not acted as a builder or a remodeler in this state during the period in which it did not have an active certificate of registration as required by law, must apply for renewal of its certificate of registration under its existing builder registration number accompanied by a notarized affidavit that the company has not acted as a builder or remodeler since the registration expired.

(k) A builder or remodeler that registered with the commission prior to September 1, 2007, and that has been issued an even-numbered builder registration certificate must renew its registration by the last day of February of each even-numbered year to remain in good standing. A builder or remodeler that renews its registration pursuant to this subsection will renew thereafter every two years on the date indicated in the letter accompanying the renewal certificate.

(l) A builder or remodeler that registered with the commission prior to September 1, 2007, and that has been issued an odd-number certificate of registration must renew its registration by February 28 of each odd-numbered year to remain in good standing. A builder or remodeler that renews its registration pursuant to this subsection will renew thereafter every two years on the date indicated in the letter accompanying the renewal certificate.

(m) A builder or remodeler that registers with the commission for the first time after September 1, 2007:

(1) will be required to renew its registration one year from the date of approval of the initial registration as shown on the commission's letter accompanying the original certificate of registration; and

(2) must show proof of having obtained five hours of approved continuing education credits timely as required by §303.20 of this chapter or the renewal application will be denied.

(n) A builder or remodeler that renews its registration with the commission in accordance with subsection (m) of this section thereafter will renew its certificate of registration every two years from the date that renewal is approved as shown on the commission's letter accompanying the renewal card.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on December 18, 2007.

TRD-200706431

Susan K. Durso

General Counsel

Texas Residential Construction Commission

Effective date: January 7, 2008

Proposal publication date: November 2, 2007

For further information, please call: (512) 463-2886

Subchapter E. TEXAS STAR BUILDER PROGRAM

10 TAC §303.300

The Texas Residential Construction Commission adopts amendments to Title 10, Part 7, Chapter 303, Subchapter D, §303.300, relating to the Texas Star Builder Program as provided for in Title 16, Property Code, with changes to the proposed text as published for comment in the November 2, 2007, issue of the Texas Register (32 TexReg 7818). The amendments incorporate into the rules recent legislative amendments to the agency's statute and changes in agency policy. In addition, the amendments are part of a commission review of the necessity of these rules under the requirements of Government Code §2001.039, which requires each state agency to periodically review its rules.

The commission received one set of comments on the proposed amendments to this §303.300 from Ned Muñoz on behalf of the Texas Association of Builders ("TAB").

With regard to 10 TAC §303.300(b)(11), TAB suggested that the definition of green building encompass a greater array of green building techniques available to builders and consumers than the definition proposed. TAB also noted a misspelling of the word "renewable." TAB's suggested definition for green building is "Green building--incorporating energy efficiency, water and resource conservation, sustainable or recycled building products, and indoor air quality into the everyday process of home building." To the extent that the definition suggested by TAB may include more projects, the commission agrees to adopt the suggested definition.

TAB also noted an inconsistency between subsection (c)(2) and subsection (c)(3) such that neither subsection provides for a builder or remodeler that has registered exactly 40 homes in the preceding 12 months. Therefore, the commission retains the language in (c)(2) to make its provisions applicable to a builder that registered 40 homes or less in the preceding 12 months. For consistency's sake, the commission has revised other sections of the rule that refer to a bracket involving 40 homes so that 40 is consistently grouped 40 with "less than 40."

TAB expressed concern that revisions to subsection (f)(1)(A) severely limit the green building programs in which a builder may participate as part of its membership in the Texas Star Builder Program and recommends the adoption of language to include other state and local green building programs. However, the revised subsection uses the reference to the National Association of Builder's green program as an example of a type of green building program that is eligible, indicated by the phrase "such as". Additionally, new subsection (f)(1)(J) provides that an applicant may submit any local or nationally recognized program that requires a greater standard of construction practice than required by the commission pursuant to the commission adopted limited warranty and building and performance standards or usual and customary construction practices or that provides an increased level of service for residential construction consumers, as approved by the Executive Director. The new catch-all provision provides that the Executive Director can approve other programs of the same ilk that are not specifically otherwise listed in the subsection. Therefore, the commission declines to adopt the suggested changes because they are not necessary to allow alternative green building programs to be eligible under the construction practices subsection of this rule.

With regard to the language in subsection (j)(1) that prohibits a member from submitting for credit a continuing education course with the same course content as one that has been previously submitted for credit by the same member, TAB expresses concern that is unduly limiting because for example a building code may under go changes and a subsequent course on building codes is still valuable. In TAB's example, the course content is not the same; rather, the course content of the second course is on the revised building code. Furthermore, the language in subsection (j)(1) that TAB questions is rule language that was previously adopted to prohibit a member from submitting the same course for credit more than once in a year, for example, attending a live presentation of a course in one city, and submitting the same course for credit after watching the video. When the commission adopted the current language similar comments were discussed and efforts were made at that time to make clear that the commission intends to prohibit a builder from submitting the same course twice for credit. Accordingly, the commission declines to make the changes suggested by TAB, but has changed the word "same" to "identical" in an effort to further clarify its intent.

TAB expressed concern that the intent of the deletion of the language in (j)(1)(e)(ii) may signal an intent to disallow the approval of in-house training courses. The amended rule provides information on how any course sponsor can provide training. Therefore, the commission deleted the language because in-house training courses are no different from any other sponsored course in (j)(5)(B).

TAB provided comments on sections (m)(1) and (o)(1) because of amendments to the rule that provide for a member's response within a period of time from the date of the notice. TAB is correct that the intent is to change the timing of the response from the date of receipt to the date of the notice. The reason for this is that notice is mailed by certified mail and first class mail. Frequently, the first class mail is not returned but the recipient chooses not to pick up certified mail. Mail is assumed to be received within three days of mailing. However, if the commission has no proof of receipt and no response, the denial does not reach finality unless the commission takes the matter to the State Office of Administrative Hearing. The commission would like to achieve finality without going to hearing when the respondent chooses to ignore commission mail. Nonetheless, the intent of the rule is not to catch a member unaware but to streamline the commission's efforts and conserve commission resources. So to provide plenty of time for a respondent to receive the commission's notice, the commission has revised subsection (m)(3) to provide that a denial of an application is final within thirty days of the date of the mailing of the notice, unless an appeal has been received unless the applicant can show that the notice of request was not actually received within thirty days of the date of the notice. Additionally, the commission has revised the date for finalization of a revocation in subsection (o)(1) to provide that a revocation is final twenty days after the date of mailing of the notice unless the member can show that the notice of request was not actually received within fifteen days of the date of the notice.

TAB also commented on the language in paragraphs (G) and (H) of subsection (1)(n), asserting that the legislature does not intend for the commission to discipline builders for first time violations of failure to respond to a complaint and failure to participate in a state-inspection process. The commission agrees that with regard to revocation of a builder's registration, certain provisions of House Bill 1038 provide that for violations of the Act involving transactions between a homeowner and builder, the commission may not revoke a builder's registration unless there have been more than one instance of such violation. The Act does not explicitly require that a builder follow through on an offer made to repair. However, participation in the Texas Star Builder Program is voluntary and the purpose of the program is to provide an avenue for builders who demonstrate a commitment to their profession and to providing superior customer service to distinguish themselves from their colleagues. Moreover, subsection (g) of this section requires an applicant to agree to actively participate in any eligible SIRP request submitted by a homeowner involving a residential construction project for which the applicant was the builder or remodeler and must agree to respond to the homeowner in good faith based on the final non-appealable SIRP report and recommendation. Therefore, it is not unreasonable to ask that a member of this program of elite builders, who has already agreed to participate in the SIRP process, to respond to commission inquiries and participate in the state-inspection process or face removal from the program. Accordingly, the commission declines to adopt TAB's suggestion and does not find that the expectations stated in these two paragraphs are inconsistent with the legislative intent embodied in the two separate statutory requirements that the commission create a Texas Star Builder Program and that the commission not revoke a builder's registration for a single infraction of certain itemized violations of the statute.

The commission made other non-substantive changes to the proposed text to improve clarity and readability.

The amendments are adopted under Property Code §408.001, which provides general authority for the commission to adopt rules necessary for the implementation of Title 16; Property Code §416.11, which requires the commission to establish rules and procedures for a Texas Star Builder Program; and Government Code §2001.039, which requires state agencies to periodically review their rules.

The statutory provisions affected by the adoption are set forth in the Title 16, Property Code §408.001 and §416.11; and Government Code §2001.039.

No other statutes, articles, or codes are affected by the adoption.

§303.300.Texas Star Builder Program.

(a) Purpose. The Texas Star Builder Program is a voluntary program for builders and remodelers that are registered and in good standing under Subchapter A of this chapter for a period twelve months immediately preceding their application to the program and have registered at least three residential construction projects with the commission. Participation in this program is not required to be a builder or remodeler in the state of Texas.

(b) Definitions. The following words and terms, when used in this section shall have the following meanings, unless the context clearly indicates otherwise:

(1) Aging-in-place--universal design techniques allowing a person to live comfortably, safely and independently while enjoying daily rituals regardless of age.

(2) Applicant--the person identified on the Certificate of Registration issued by the commission pursuant to Subchapter A of this chapter that applies for membership in the Texas Star Builder Program under this section.

(3) Complaint--a written notice by a person or persons to the commission stating a disagreement with or concern about a builder's performance, construction practices or business practices.

(4) Continuing education--commission-approved education courses or professional development activities such as workshops, seminars, institutes, conferences or short-term courses.

(5) Continuous membership--a period of membership in good standing without voluntary or involuntary interruption or lapse.

(6) Customer service handbook--a written program given to each residential construction customer that demonstrates the member's commitment to customer service. Program elements must include all of the following:

(A) documentation of the construction schedule from start to finish;

(B) a description of the sub-contract construction sequencing and appropriate times for customer consultation or decisions;

(D) procedures to remedy any variations;

(E) a written commitment to provide daily member or construction manager site visits;

(F) construction site clean-up policies;

(G) construction site security and safety procedures; and

(H) information about the commission, its complaint procedures and its process for requesting a state sponsored inspection for alleged post construction defects.

(7) EasyLiving Home™--a voluntary certification program that specifies criteria in everyday construction to add convenience in your new home and to welcome all friends, family and visitors regardless of age, size or physical ability.

(8) Employee involved in on-site construction activities--an employee of the member who is responsible for residential construction activities at the residential construction job site and whose job duties include but are not limited to:

(A) acting as a project manager, superintendent or foreman;

(B) supervising construction crews or subcontractors;

(D) inspecting construction work; or

(E) inventorying and inspecting the delivery of construction materials to the site.

(9) Energy Star--the US Environmental Protection Agency promulgated guidelines for products and designs that promote energy efficiency that conserves natural resources while providing a comfortable and healthy home environment.

(10) Foundation practices--

(A) Foundations are designed by a structural engineer based on a site specific geotechnical report as may be required by the engineer of record;

(B) The site specific geotechnical report is one that is appropriate for the circumstances with the frequency and spacing of the borings determined by the geotechnical engineer;

(D) The construction of the foundation system is inspected prior to the placement of the concrete by the engineer or an employee of the engineer who issues an inspection report;

(E) If the foundation system is designed for post-tension cables, then the builder shall maintain a record of the stressing certification;

(F) The builder makes a record of the elevations of the foundation prior to substantial completion of the home or an improvement to the home;

(G) The builder provides to the homeowner a final survey showing that the site drainage is in accordance with the International Residential Code; and

(H) The builder who constructs the major structural components of a single-family dwelling or duplex or a material improvement, for a period of ten years following the date of substantial completion, shall maintain:

(i) the plans, specifications, and recommendations provided by the engineer and the geotechnical report if required;

(ii) the inspection report;

(iii) the stressing certification; and

(iv) the record of the original elevations.

(11) Green building--incorporating energy efficiency, water and resource conservation, sustainable or recycled building products, and indoor air quality into the everyday process of home building.

(12) Member--a person registered by the commission as a builder or remodeler or designated agent of a builder or remodeler who has been approved by the commission for admission into the Texas Star Builder Program.

(13) Program year--July 1 to June 30 of each calendar year.

(14) Responsible party--an individual who is authorized to act on behalf of a business entity applying for membership in transactions encumbering amounts in excess of $100,000, excluding execution of contracts or instruments of conveyance for the sale of a single lot or dwelling unit, or the acquisition of materials for construction thereof.

(15) SIRP--the state-sponsored inspection and dispute resolution process.

(16) Universal Design Options--features in residential construction that provide barrier-free access and easy mobility and independence for people with a broad variety of physical needs including all of the following: barrier-free construction of exterior doors, interior doorways and hallways; reinforced bathroom walls, tubs and showers; and maximum height restrictions for switches, boxes and thermostats.

(1) An applicant who is a sole proprietor must satisfy one of the following:

(A) twelve years of experience immediately preceding the application acting as a builder or remodeler of single family dwellings or duplexes in the state of Texas;

(B) seven years of experience immediately preceding the application acting as a builder or remodeler of single family dwellings or duplexes in the state of Texas, is an active builder member of and with continuous membership in a trade association related to the construction industry for at least five years preceding the date of the application;

(C) five years of experience immediately preceding the application acting as a builder or remodeler of single family dwellings or duplexes in the state of Texas and the applicant or a responsible party of the applicant holds a four-year degree in construction science or its equivalent from an accredited college or university; or

(D) three years of experience immediately preceding the application acting as a builder or remodeler of single family dwellings or duplexes in the state of Texas and the applicant or a responsible party of the applicant has credible documentation of completion of educational requirements administered by an association or institution that designates a level of expertise in the residential construction industry, such as the National Association of Home Builders Graduate Builder and Remodeler Programs.

(2) An applicant that is a business entity, which registered 40 homes or less in the preceding twelve months, must have at least one responsible party of the applicant who satisfies one of the following:

(A) twelve years of experience immediately preceding the application acting as a builder or remodeler of single family dwellings or duplexes in the State of Texas;

(C) five years of experience immediately preceding the application acting as a builder or remodeler of single family dwellings or duplexes in the state of Texas and holds a four-year degree in construction science or its equivalent from an accredited college or university; or

(D) three years of experience immediately preceding the application acting as a builder or remodeler of single family dwellings or duplexes in the state of Texas and has credible documentation of completion of educational requirements administered by an association or institution that designates a level of expertise in the residential construction industry, such as the National Association of Home Builders Graduate Builder and Remodeler Programs.

(3) An applicant that is a business entity, which registered more than 40 homes in the preceding twelve months, must have at least one responsible party of the applicant and one employee of the applicant who is involved in on-site construction activities who each satisfies one of the following:

(A) twelve years of experience immediately preceding the application acting as a builder or remodeler of single family dwellings or duplexes in the state of Texas;

(d) Financial Responsibility. An applicant must:

(1) provide documentation from a financial institution that includes a statement of the following information that at the time of the application:

(A) Applicant has an excellent relationship with the financial institution (or highest standard of relationship, as defined by the financial institution);

(B) Applicant is eligible for an extension of credit for the purpose of residential construction;

(D) The officer or official of the financial institution that executes the document does not have actual knowledge that the applicant, any affiliate of the applicant, or any corporate officer, general partner or constituent partner as identified by the applicant to the financial institution, has filed for federal bankruptcy in this state or any state in the seven years immediately preceding the date of the application.

(E) The officer or official of the financial institution that executes the document does not have actual knowledge that the applicant has overdrafts or past due notices that have not been brought current in a timely manner within the standards of the lending/banking industry; and

(F) The officer or official of the financial institution that executes the document does not have actual knowledge of any current delinquency in property taxes, unsatisfied judgments or enforceable mechanic's and materialman's liens on any property for which applicant entered into a transaction governed by the Act as a result of failure to pay a subcontractor or supplier unless the builder has either:

(i) secured a properly filed bond to indemnify the lien pursuant to the provisions of Property Code Chapter 53, Subchapter H;

(ii) secured the issuance of title insurance to protect the homeowner against the lien claim; or

(iii) initiated legal action to contest the lien and demonstrated proof of financial responsibility to pay the costs of defense of title to the property and pay the lien claim if the lien is proven to be proper.

(2) provide a notarized affidavit in which the applicant attests that:

(A) the applicant, any affiliate or corporate officer, general partner or constituent partner of the applicant has not filed for federal bankruptcy in this state or any other state in the seven years immediately preceding the date of the application;

(B) the applicant is current on all state property taxes unless a protest or legal challenge has been properly filed;

(D) the applicant has no enforceable mechanic's and materialman's liens on any property for which the applicant entered into a transaction governed by the Act as a result of failure to pay a subcontractor or supplier unless the builder has either:

(i) secured a properly filed bond to indemnify the lien pursuant to the provisions of Property Code Chapter 53, Subchapter H;

(ii) secured the issuance of title insurance to protect the homeowner against the lien claim; or

(3) The requirements of a statement prepared by a financial institution in accordance with paragraph (1) of this subsection do not require the financial institution to conduct any independent investigation beyond the institution's own records and the actual knowledge of the officer or official who executes the document.

(4) If an applicant is unable to obtain the required statement in accordance with paragraph (1) of this subsection, an applicant can submit instead a statement signed by an officer of its financial institution on a commission-prescribed form that the institution does not choose to provide the requested information or submit an affidavit by the applicant attesting to the fact that the financial institution was asked to provide the information and refused.

(e) Insurance requirements.

(1) A remodeler-applicant must maintain a general liability policy of:

(A) $300,000 per occurrence, if the applicant registered between 25 - 75 homes in the preceding twelve months; or

(B) $500,000 per occurrence, if the applicant registered between 76 - 125 homes in the preceding twelve months; or

(2) A remodeler-applicant who has registered fewer than 25 homes in the preceding twelve months does not need to comply with the general liability insurance requirements of this section;

(3) A builder-applicant must maintain a general liability policy of:

(A) $300,000 per occurrence, if the applicant registered between 50 - 150 homes in the preceding twelve months;

(B) $500,000 per occurrence, if the applicant registered between 151 - 350 homes in the preceding twelve months;

(D) $2,000,000 per occurrence, if the applicant registered over 1,000 homes in the preceding twelve months.

(4) A builder-applicant who registered fewer than 50 homes in the preceding twelve months does not need to comply with the general liability insurance requirements of this section.

(f) Construction Practices.

(1) During the Program Year a member must participate in at least three of the construction practices listed in this subsection. Before committing to participate in any construction practice as a part of the application for membership, the applicant must have the specific knowledge, skills or certification required to participate in the practice. For construction practices requiring Executive Director approval the program information must be submitted with the application. A construction program offered as an element of eligibility under subsection (c) of this section may not also be used to fulfill the requirement of participation in a construction practice under this subsection. Construction practice programs under this section are:

(A) a green building program such as the Model Green Home Builder Guidelines sponsored by the National Association of Builders, or any local governmental authority;

(B) the Energy Star Program;

(D) a private inspection program for at lease three (3) phases of construction for all new residential construction projects subject to registration by the commission in geographic area that are not inspected by municipal inspectors; or

(E) the Foundation Practices as defined in this section; or

(F) provide homeowners with whom it enters into a transaction governed by the Act with:

(i) a third-party warranty program offered by a commission-approved third-party warranty company; or

(ii) a two-year warranty for all one-year workmanship and materials items pursuant to the building and performance standards set forth in Subchapter B, Chapter 304 of this title; or

(iii) a Customer Service Handbook specific to the member provided for all customers signing contracts with the member for qualifying projects; or

(G) affirm that 8% of homes constructed annually were built in accordance with Universal Design Options as defined by this section; or

(H) any other local or nationally recognized program that requires a greater standard of construction practice than required by the commission pursuant to the commission adopted limited warranty and building and performance standards or usual and customary construction practices or that provides an increased level of service for residential construction consumers, as approved by the Executive Director.

(2) At the end of each program year, the member must provide proof of participation in each of the three construction practices selected at the time of applications.

(g) Applicants must agree to actively participate in any eligible SIRP request submitted by a homeowner involving a residential construction project for which the applicant was the builder or remodeler and must agree to respond to the homeowner in good faith based on the final non-appealable SIRP report and recommendation.

(h) Construction Defects. An applicant is not eligible for membership if the number of homeowner-submitted eligible SIRP requests for alleged construction defects against an applicant that resulted in a finding of a construction defect in the final non-appealable inspection report exceeds:

(1) two homes for applicants that registered 40 or fewer homes in the preceding twelve months; or

(2) five percent of the number of homes registered for applicants that registered more than 40 homes in the preceding twelve months.

(i) Application. Applicants must submit a completed commission-prescribed application form and credible documentation supporting the information supplied in the application for each applicant seeking membership or renewal.

(1) An applicant may submit an application for membership only once during any Program Year.

(2) For each applicant seeking membership under this section, the commission shall publish a notice of application in the Texas Register , in a local newspaper of general circulation serving the geographical area in which the applicant maintains its designated address as provided pursuant to §303.13 of this chapter, and on the commission website.

(A) The commission shall accept written public comment on each application submitted to the commission for a period of twenty-one days following the date of publication of the notice.

(B) The commission will consider comments received in response to published notices of application in the approval process.

(3) Applicants shall respond to inquiries from the commission for further information regarding an application for membership or renewal of membership. Failure to respond to a request for information shall result in the administrative withdrawal of the application.

(4) The commission shall issue a Texas Star Builder certificate of membership to each applicant approved for membership not later than twenty-one days following the expiration of the comment period under this section.

(5) Failure to submit all requested documentation within fifteen days of notice of an incomplete application will result in the administrative withdrawal of the application.

(6) A Texas Star Builder certificate of membership shall remain effective for one Program Year. For the initial year of membership, the hours of continuing education and the number of homes registered for purpose of compliance with selected construction practices will be prorated based on the quarter in which the application is approved for applications approved after September 30 of a Program Year. For purposes of this subsection, the Program Year will be prorated by quarters for periods from October through December, January through March, and April through June.

(j) Continuing education.

(1) All members shall complete at least 16 hours of continuing education per Program Year, except as provided in subsection (h) of this section for the initial year of membership. A member may not submit for credit a continuing education course with the identical course content as one that has been previously submitted for credit by the same member.

(2) Each member shall comply with the continuing education requirements for builders and remodelers set forth in §303.20 of this chapter, in addition to the requirements of this section.

(3) Continuing education courses that satisfy the requirements for continuing education under §303.20(c) of this chapter may be counted towards the continuing education requirements of this section.

(4) For purposes of this requirement:

(A) any individual member must maintain the continuing education requirement;

(B) any member that is a business entity that registered 40 or fewer homes in the preceding twelve months, shall require at least one officer of the member to maintain the continuing education requirement;

(C) any member that is a business entity that registered between 41 - 100 homes in the preceding twelve months shall require that:

(i) one officer of the member and

(ii) one responsible party or one employee of the member who is involved in on-site construction activities maintain the continuing education requirement; and

(D) any member that is a business entity that registered between more than 100 homes in the preceding twelve months shall require that:

(i) one officer of the member and

(ii) one responsible party or one employee of the member who is involved in onsite construction activities; and

(iii) for every 50 homes registered over 100, one employee of the member who is involved in on-site construction activities maintain the continuing education requirement.

(E) Evidence of completion of the continuing education requirements of this section must be submitted with each renewal application.

(5) Approved Continuing Education Courses or Programs.

(A) The commission shall review all courses or programs submitted and shall approve those sufficient to satisfy the continuing education requirement, considering the objective and purpose of the program, the content and subject matter of each course and the qualifications of the presenters

(B) Any person who wishes to sponsor a course or training program for continuing education purposes under this section must submit a written request on a commission-prescribed form with a detailed course agenda, a written course description and resume or biographical information of each speaker or presenter to the commission for approval, not later than thirty days prior to the proposed event.

(C) Upon receipt of complete request for approval of a continuing education course or credit, including all information required under division (B) of this paragraph, approval will not be withheld unreasonably.

(6) Substitutions for Continuing Education Coursework.

(A) A member may substitute not more than three credit hours of continuing education per Program Year for participation in an active leadership role (such as an officer or committee chairperson) in a trade association for the Program Year in which the continuing education hours would have been taken. To receive this leadership credit, the member shall submit to the commission written verification from the president, executive officer, or other equivalent of the association, certifying the member's leadership status.

(B) A member may not substitute more than two credit hours of continuing education for self-study. To receive this self-study credit, the member must submit to the commission a statement that verifies the completion of self-study and a description of the materials studied.

(C) A member may substitute instructor credit for up to five credit hours of continuing education. Each hour of instruction given is equivalent to an hour of continuing education credit. To receive this instructor credit, the member must submit to the commission a copy of the published course agenda.

(k) Renewal. In order to renew membership in the Texas Star Builder Program, a member must submit a completed application for renewal with the required documentation set forth in this section to the commission not later than June 1 of a Program Year.

(l) Denial.

(1) The commission shall deny an application for membership or the renewal of membership in the Texas Star Builder Program if the commission determines that the applicant is ineligible for admission or for continued membership in the program.

(2) If the commission denies an application for membership or the renewal of membership, the commission shall provide written notice to the applicant not later than the fifteenth business day following the expiration of the public comment period set forth in this section.

(3) The commission shall state the reason(s) for denial of membership or renewed membership in the Texas Star Builder Program in its written notice to the applicant and provide notice of the opportunity for appeal.

(m) Appeal of Denial.

(1) A denial under this section is final unless the applicant timely submits a written request for reconsideration to the Executive Director not later than thirty days from the date of the notice of denial, unless the applicant can show that the notice was not actually received within thirty days of the date of the notice.

(2) The decision of the Executive Director regarding the appeal is a final agency decision not subject to further administrative appeal.

(n) Revocation of Membership.

(1) The commission shall revoke a certificate of membership in the Texas Star Builder Program if the commission determines that:

(A) the member has been subject to a final disciplinary action from the commission pursuant to Chapter 418 of the Act;

(B) the member used fraud or deceit in obtaining the certificate of membership;

(C) the member is no longer eligible for a Certificate of Registration as a builder or remodeler or is no longer eligible to serve as a designated agent for a builder or remodeler; or

(D) the member's Certificate of Registration in not in good standing;

(E) the member has failed to maintain the program's continuing education requirements as required by this section;

(F) the member fails to demonstrate participation in three construction practices;

(G) the member fails to respond to the commission concerning a complaint; or

(H) the member fails to participate in a SIRP.

(2) If a membership is revoked, the commission shall provide written notice to the member not later than the fifth day after the revocation becomes effective.

(3) The commission shall state the reason(s) for the revocation in its written notice to the member.

(4) A member whose certificate of membership is subject to revocation shall be provided an opportunity for appeal.

(o) Appeal from Revocation.

(1) A member whose membership has been revoked may appeal the decision by submitting a written request for reconsideration to the Executive Director within fifteen days of the date of the notice of revocation. A revocation is final twenty days after the date of mailing of the notice unless the member can show that the notice of request was not actually received within fifteen days of the date of the notice.

(2) The decision of the Executive Director on the appeal of a revocation is a final agency decision not subject to further administrative appeal.

(3) Upon expiration or notice of final revocation of membership in the Texas Star Builder Program, the former member shall immediately return the Texas Star Builder certificate of membership and discontinue the use and dissemination of the "Texas Star Builder" designation on all advertisements, promotions or written material.

(p) Recognition of Membership. A member may display the Texas Star Builder logo so long as that member remains in good standing as a member of the Texas Star Builder Program. Members who have had continuous membership in the Texas Star Builder Program may display the number of years of continuous membership.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on December 18, 2007.

TRD-200706442

Susan K. Durso

General Counsel

Texas Residential Construction Commission

Effective date: January 7, 2008

Proposal publication date: November 2, 2007

For further information, please call: (512) 463-2886

Chapter 305. PRACTICES AND PROCEDURES FOR HEARINGS AND DISCIPLINARY ACTIONS

Subchapter A. GENERAL PROVISIONS

10 TAC §305.10

The Texas Residential Construction Commission adopts Title 10, Part 7, Chapter 305, Subchapter A, §305.10, relating to a person's false statement, misrepresentation, or refusal to provide information, without changes to the text as published in the November 2, 2007, issue of the Texas Register (32 TexReg 7824). The new section implements the provisions of House Bill 1168 of the 80th Texas Legislature, which applies to all licensing agencies. Under House Bill 1168, a "license" means a license, certificate, registration, permit, or other authorization. The commission issues registrations and certificates that fall within the scope of House Bill 1168. Accordingly, the new section implements House Bill 1168 for the commission's regulatory purposes.

The new section provides that a person commits a violation if the person makes a false statement in connection with applying for or renewing a registration or certification with the commission; makes a material misrepresentation to the commission, including a material omission of information, in connection with applying for or renewing the registration or certification; fails or refuses to provide information requested by the commission; or fails or refuses to provide all of the person's criminal history information in response to the commission's request for the information. The new section provides that a request made by the commission may be made via an application form, letter, email, facsimile transmission, or other written form of communication.

If a person violates the new section, the commission could deny the person's application for registration or certification and may suspend or revoke the person's registration or certification. A person subject to the new section would be entitled to the same administrative procedures that govern other denials, suspensions, and revocations by the commission.

The commission received no comments regarding the new section.

The new section is adopted under Property Code §408.001, which provides general authority for the commission to adopt rules necessary for the implementation of Title 16 of the Property Code, and legislative revisions to Government Code chapter 2005, which establish the new statutory authority for denial, suspension, or revocation for false statements, misrepresentation, or refusal to provide information to licensing agencies.

The new section is adopted to implement Property Code §408.001 and Government Code chapter 2005.

No other statutes, articles, or codes are affected by the adoption.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on December 18, 2007.

TRD-200706441

Susan K. Durso

General Counsel

Texas Residential Construction Commission

Effective date: January 7, 2008

Proposal publication date: November 2, 2007

For further information, please call: (512) 463-2886