On November 5, 2024, the Rural Housing Service published a Proposed Rule providing clarification on the requirement to record the Section 538 Deed Restriction. The link to the Proposed Rule, and supporting information from RHS, is below:
The Rural Housing Service (RHS) Office of Multifamily Housing (MFH) published a proposed rule on November 5, 2024, Federal Register, Vol. 89, No. 214 to amend the current regulation for the MFH Section 538 GRRHP. This proposed rule will add clarifying language to 7 CFR part 3565.
The proposed rule will update Section 3565.352 to clarify that a separate deed restriction must be recorded to ensure that affordable rural rental housing is preserved after prepayment of the mortgage. Restrictive use language that is contained in the mortgage or deed of trust may not convey if the mortgage is prepaid. A separate deed restriction that is recorded will convey with the property to ensure that the property will remain affordable in the event of prepayment.
Comments on the Proposed Rule may be submitted to the Agency via the Federal eRulemaking Portal as outlined in the Federal Register Proposed Rule. The 60-day comment period for the proposed rule will end on January 6, 2025.
If implemented, the regulation will read as follows:
3565.352 Preservation of affordable housing.
(b) Use restriction. For the original term of the guaranteed loan, the housing must remain available for occupancy by low- and moderate-income households, in accordance with subpart E of this part. This requirement must be included in a deed restriction in a form acceptable to the Agency. The deed restriction must be recorded separately, before and with priority over other documents related to the transaction. The restriction will apply unless the housing is acquired by foreclosure or an instrument in lieu of foreclosure, or the Agency waives the applicability of this requirement after determining that each of the following three circumstances exist:
(1) There is no longer a need for low-and moderate-income housing in the market area in which the housing is located.
(2) Housing opportunities for low-income households and minorities will not be reduced because of the waiver; and
(3) Additional federal assistance will not be necessary because of the waiver.
Questions or requests for clarification may be directed to Tammy Daniels, Finance and Loan Analyst, Program Support Branch at MFH.ProgramSupport@usda.gov.
To submit or view public comments, please visit the Federal eRulemaking Portal at http://www.regulations.gov
Multifamily Housing questions and/or comments may be directed to MFH.ProgramSupport@usda.gov.