§ 50561. — 50561. (Amended by Stats. 2025, Ch. 22, Sec. 52.)

California § 50561.

• Jurisdiction: California
• Code HSC: Health and Safety Code - HSC
• Div. 31.: DIVISION 31. HOUSING AND HOME FINANCE
• Part 2.: PART 2. DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT
• Ch. 3.9.: CHAPTER 3.9. Portfolio Restructuring

Text

(a)
The department may approve an extension of an existing rental housing development loan or regulatory agreement, if the extension facilitates the reinstatement of a qualifying unpaid matured loan, the subordination of a department loan to new debt, the extraction of equity from a development for purposes set forth in subdivision (c) of Section 50406.4, or an investment of tax credit equity, only if the rental housing development is being operated in a manner consistent with the regulatory agreement and the development requires an extension in order to continue to operate in a manner consistent with this chapter. Each extension shall be for a period of not less than 10 years and each extension shall not exceed 55 years, or 58 years if needed to match the term of tax credit restrictions. The interest rate shall be 3 percent
simple interest. All loan payments shall be deferred for the full term of the loan, except for residual receipts payments. These residual receipts payments shall be structured to avoid reducing the amount of payments on local public agency loans resulting solely from changes in the payment terms on the department’s loan, and not resulting from fees or other payments to the borrower, and shall otherwise be consistent with the provisions of the department’s Uniform Multifamily Regulations or successor regulations. The department may charge a monitoring fee to cover the aggregate monitoring costs it incurs from the date of the recordation of the loan or regulatory documents regarding any of the eligible activities pursuant to this subdivision, and may charge a transaction fee or other fee to cover its costs for processing restructuring transactions. The monitoring fees shall continue until the end of the term of the department regulatory agreement, notwithstanding any payoff of the department loan, and the
monitoring fees shall not be diminished in the event of any paydown of the department loan. The department may waive or defer some or all fees, if it determines that a particular development or class of developments does not have the ability to make these payments, or if necessary, in the sole discretion of the department, for the feasibility of the project. In determining the fees and payments to be charged, the department shall seek to share monitoring activities with other regulatory agencies and to minimize the impact on tenants with the lowest incomes and on the capacity of the developments to support private debt or secure tax credit investments.
(b)
To the minimum extent necessary to support new debt to pay for rehabilitation, but not for extraction of equity, rents for assisted units in these developments may be adjusted pursuant to the department guidelines and Section 42 of the Internal Revenue Code. This rehabilitation shall be
determined by the department to be demonstrably necessary, based on third-party assessment and on the department’s own inspection, if the department deems an inspection necessary. Assisted units in developments with a specific, department-approved plan to undertake the necessary rehabilitation, at a level that equals or exceeds the minimum per-unit rehabilitation cost standards under the low-income housing tax credit program, may be adjusted as follows:
(1)
For developments originally financed under the bond-funded component of the Rental Housing Construction Program pursuant to Section 50771.1, and the Family Housing Demonstration Program, rents may be increased up to a maximum of 30 percent of 60 percent of area median income, for units designated in the development’s original regulatory agreement as lower income units, and up to a maximum of 30 percent of 35 percent of area median income, for units designated in the development’s original
regulatory agreement as very low income units.
(2)
For developments originally financed under other programs that calculate income levels and rent limits consistent with the calculation methodology used under the low-income housing tax credit program and the Multifamily Housing Program, the income and rent limits under those programs shall be preserved in accordance with the applicable requirements of those programs, and rent increases shall be subject to the applicable requirements of those programs, all to the extent that the income, rent, and rent increase requirements continue to apply to the developments under those programs.
(3)
Developments originally financed under other programs that require formula-based rents for at least 35 percent of the assisted units, or as specified in the original regulatory agreement governing the development, whichever is greater, shall be
restricted to the midlevel target used by the Multifamily Housing Program. Rents for the balance of the assisted units may be increased up to a maximum of 30 percent of 60 percent of area median income. For purposes of this paragraph, “midlevel target used by the Multifamily Housing Program” shall mean either of the following:
(A)
For counties with an area median income of 110 percent or less of state median income, it shall mean 30 percent of 30 percent of state median income, expressed as a percentage of area median income.
(B)
For counties with an area median income that exceeds 110 percent of the state median income, it shall mean 30 percent of 35 percent of state median income, expressed as a percentage of area median income.
(c)
Rent increases for tenants living in assisted units at the time of restructuring
pursuant to this chapter shall be limited as follows:
(1)
For existing tenants with incomes not exceeding 35 percent of area median income, increases shall be limited to 5 percent per year, until the rents reach the levels set under subdivision (b).
(2)
For existing tenants with incomes exceeding 35 percent of area median income, increases shall be limited to 10 percent per year, until they reach the levels specified in paragraphs (1) and (2) of subdivision (b) of Section 50561.
(3)
It is the intent of the Legislature that rent increases for existing tenants authorized by this subdivision shall not be greater than necessary to ensure the financial feasibility of the project. The projected maximum rent for tenants in assisted units, as determined by subdivision (b), shall not exceed 50 percent of the household’s
actual income. This requirement shall be applied using maximum rent levels and household incomes determined at the time of restructuring or at the time of the department’s approval of the restructuring.
(4)
If the refinance of a loan results in a rent increase, the project sponsor shall provide tenants with the following notifications:
(A)
Notice six months before the scheduled rent increase with an estimate of the amount of the increase.
(B)
Notice 90 days before the actual increase with the exact amount of the new rent.
(d)
If existing tenants move, the rent for these units may be increased immediately up to the level specified in paragraphs (1), (2), and (3) of subdivision (b). The income limit for new tenants shall correspond with the rent limit set
pursuant to paragraphs (1), (2), and (3) of subdivision (b).
(e)
Once rents achieve the levels set forth in paragraphs (1), (2), and (3) of subdivision (b), income levels and rent limits shall be calculated consistent with the calculation methodology used under the Low Income Housing Tax Credit program and the Multifamily Housing Program, and rent increases shall be based on increases in the area median income.
(f)
Eligible households displaced as a result of rehabilitation pursuant to this section shall be accorded first priority in occupying comparable units in the development from which they were displaced, subsequent to rehabilitation. Tenants of rental housing developments repaired with assistance provided under this chapter who are temporarily or permanently displaced as a result of rehabilitation or other repair work, shall be entitled to relocation benefits pursuant to,
and subject to, the requirements of Section 7260 of the Government Code. Sponsors of assisted rental housing developments shall be responsible for providing the benefits and assistance. The costs of the benefits and the assistance provided to tenants shall be eligible for funding by a loan provided pursuant to this section.
(g)
The guidelines adopted by the department pursuant to subdivision (h) of Section 50560 shall be patterned after the regulations governing the Multifamily Housing Program, including the Uniform Multifamily Regulations, except that the department may adopt different standards for the following factors:
(1)
Commercial vacancy loss assumptions must reflect project operating history.
(2)
Debt service coverage ratios.
(3)
Payment terms
and principal amount of senior debt, considering financial market conditions, including costs and department risk, as determined by the department.
(4)
Developer fee limitations shall be consistent with California Tax Credit Allocation Committee regulations for inclusion in the basis for projects receiving 9 percent tax credits, for projects receiving the special rent increases contemplated by this chapter, and, consistent with the requirements of other funding sources, for projects not receiving special rent increases, but developer fees shall not exceed the amount allowed by the California Tax Credit Allocation Committee regulations for projects receiving 9 or 4 percent tax credits, as applicable, and shall not exceed 25 percent of actual rehabilitation costs where there is no tax credit resyndication. Developer fees shall only be payable in the event of a resyndication involving major rehabilitation, as defined by the California Tax Credit
Allocation Committee in regulations.
(5)
Replacement reserve deposit amounts must be based on projected costs over 20 years, adjusted for inflation, and as shown in an independent replacement reserve analysis.
(h)
It is the intent of the Legislature in enacting this section that the department shall manage its reserves for the original Rental Housing Construction Program in a manner that will allow for the continuation of benefits to current low-income tenants for the longest period of time possible up to the term of the original regulatory agreement or the depletion of the annuity funds, whichever occurs first. Accordingly, rents for those households in units subsidized by the annuity fund established pursuant to Section 50748 may be increased to 30 percent of household income. A household affected by the rent increase permitted by this subdivision shall be given at least 90 days
advanced notice of the increase.
(i)
(1)
The department shall, within available resources, post on its internet website information regarding household incomes and rents for developments approved for restructuring.
(2)
The information shall be provided within six months of a restructuring and, thereafter, no less than every three years.
(3)
The information shall include the following or similar information:
(A)
The monthly rent of each household at the time of restructuring.
(B)
The current monthly rent of each household.
(C)
The annual income of each household as a percentage of area median income at
the time of restructuring.
(D)
The current income of each household as a percentage of area median income.

Legislative History

Amended by Stats. 2025, Ch. 22, Sec. 52. (AB 130) Effective June 30, 2025.