Policy

USDA Extends and Expands Pilot to Help Nonprofits Preserve Rentals

USDA Rural Development (RD) has extended its efforts to help nonprofit organizations to purchase and preserve Section 515 rental properties for lower-income tenants. The pilot was first announced in 2016 and began on March 1, 2017. The extension, announced in an Unnumbered Letter (UL) dated June 14, 2019, carries the incentives for nonprofits through April 30, 2021.

The new UL also adds new provisions to the pilot. Most notably, the pilot can now be used for properties with mortgages maturing as late as December 31, 2035 (previously properties were eligible only if their mortgages expire by the end of 2030). And it creates a new “two-step transfer process” allowing a nonprofit to purchase a property before it has all funding in place to undertake needed rehabilitation. RD will require the buyer to address all health, safety, and accessibility issues immediately after the purchase, but then it will have up to two years to do additional rehabilitation.

HAC research has documented the urgent need for actions like those in this UL to preserve properties financed with USDA Section 515 mortgages. When these mortgages reach the ends of their terms, affordability requirements expire as well. USDA Section 521 Rental Assistance, which helps tenants pay their rents, terminates along with the mortgages. Hundreds of thousands of tenants, the majority of whom are elderly or disabled, face the loss of their homes in the coming years. HAC’s 2018 report, Rental Housing for a 21st Century Rural America: A Platform for Preservation, identifies areas around the U.S. where properties are likely to be most at risk.

RD also issued another preservation-related UL on June 14, 2019, providing guidance on using the Section 538 guarantee program with Section 515 properties. It replaces a UL on the same subject dated November 21, 2017.