Exhibit B 24 CFR Part 200 Subpart P

Exhibit B

§ 200.850

24 CFR Ch. II (4–1–13 Edition)
mediate Care Facilities, Assisted Living Facilities, Board and Care Homes);
(9) Section 234(d) of the NHA (Rental)
(Mortgage Insurance for Condominiums);
(10) Section 236 of the NHA (Rental
and Cooperative Housing for Lower Income Families);
(11) Section 241 of the NHA (Supplemental
Loans
for
Multifamily
Projects). (Where, however, the primary mortgage of a Section 241 property is insured or assisted by HUD
under a program covered in this part,
the coverage by two HUD programs
does not trigger two inspections); and
(12) Section 542(c) of the Housing and
Community Development Act of 1992
(12 U.S.C. 1707 note) (Housing Finance
Agency Risk Sharing Program).

Subpart P—Physical Condition of
Multifamily Properties
SOURCE: 65 FR 77240, Dec. 8, 2000, unless
otherwise noted.

§ 200.850

Purpose.

The purpose of this subpart is to establish the physical conditions standards and physical inspection requirements that are applicable to certain
multifamily housing properties.

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§ 200.853

Applicability.

This subpart applies to:
(a) Housing assisted by HUD under
the following programs:
(1) All Section 8 project-based assistance.
‘‘Project-based
assistance’’
means Section 8 assistance that is attached to the structure (see 24 CFR
982.1(b)(1) regarding the distinction between ‘‘project-based’’ and ‘‘tenantbased’’ assistance);
(2) Section 202 Program of Supportive
Housing for the Elderly (Capital Advances);
(3) Section 811 Program of Supportive
Housing for Persons with Disabilities
(Capital Advances); and
(4) Section 202 loan program for
projects for the elderly and handicapped (including 202/8 projects and 202/
162 projects).
(b) Housing with mortgages insured
or held by HUD, or housing that is receiving insurance from HUD, under the
following authorities:
(1) Section 207 of the National Housing Act (NHA) (12 U.S.C. 1701 et seq.)
(Rental Housing Insurance);
(2) Section 213 of the NHA (Cooperative Housing Insurance);
(3) Section 220 of the NHA (Rehabilitation and Neighborhood Conservation
Housing Insurance);
(4) Section 221(d)(3) of the NHA (Market Interest Rate (MIR) Program);
(5) Section 221(d)(3) and (5) of the
NHA (Below Market Interest Rate
(BMIR) Program);
(6) Section 221(d)(4) of the NHA
(Housing for Moderate Income and Displaced Families);
(7) Section 231 of the NHA (Housing
for Elderly Persons);
(8) Section 232 of the NHA (Mortgage
Insurance for Nursing Homes, Inter-

§ 200.855 Physical condition standards
and physical inspection requirements.
(a) Applicable standards and requirements. The physical condition standards and physical inspection requirements in 24 CFR part 5, subpart G, are
applicable to the properties assisted or
insured that are listed in § 200.853.
(b) Entity responsible for inspection of
property. The regulations that govern
the programs listed in § 200.853, or regulatory agreements or contracts, identify the entity responsible for conducting the physical inspection of the
property which is HUD, the lender or
the owner. For properties with more
than one HUD insured loan, only the
first mortgage lender is required to
conduct the physical inspection. The
second mortgage lender will be provided a copy of the physical inspection
report by the first mortgage lender.
(c) Timing of inspections. (1) For a
property subject to an annual inspection under this subpart, the inspection
shall be conducted no earlier than 9
months and no later than 15 months
from the date of the last required inspection. In no event, however, shall
the physical inspection be conducted
after the end of the calendar year following the one year anniversary date
of the last required inspection.
(2) For a property subject to an inspection every two years under this
subpart, the inspection shall be conducted no earlier than 21 months and

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Office of Assistant Secretary for Housing, HUD
no later than 27 months from the date
of the last required inspection. In no
event, however, shall the physical inspection be conducted after the end of
the calendar year following the two
year anniversary date of the last required inspection.
(3) For a property subject to an inspection every three years under this
subpart, the inspection shall be conducted no earlier than 33 months and
no later than 39 months from the date
of the last required inspection. In no
event, however, shall the physical inspection be conducted after the end of
the calendar year following the three
year anniversary date of the last required inspection.
(4) For a newly endorsed multifamily
property, the first inspection required
under this subpart will be conducted no
earlier than 21 months but not later
than 27 months from the date of final
endorsement. In no event, however,
shall the inspection be conducted after
the end of the calendar year following
the two year anniversary date of final
endorsement.
(5)(i) For assisted-living facilities,
board and care facilities, and intermediate care facilities, the initial inspection required under this subpart
will be conducted within the same time
restrictions set forth in paragraph
(c)(4) of this section, and any further
inspections will be conducted at a frequency determined consistent with
§ 200.857, except that HUD may exempt
such facilities from physical inspections under this part if HUD determines that the State or local government has a reliable and adequate inspection system in place, with the results of the inspection being readily
and timely available to HUD; and
(ii) For any other Section 232 facilities, the inspection will be conducted
only when and if HUD determines, on
the basis of information received, such
as through a complaint, site inspection, or referral by a State agency, on
a case-by-case basis, that inspection of
a particular facility is needed to assure
protection of the residents or the adequate preservation of the project.

§ 200.857

§ 200.857 Administrative process for
scoring and ranking the physical
condition of multifamily housing
properties.
(a) Scoring and ranking of the physical
condition of multifamily housing properties. (1) HUD’s Real Estate Assessment Center (REAC) will score and
rank the physical condition of certain
multifamily housing insured properties
listed in § 200.853 in accordance with
the procedures described in this section. The physical condition inspection
of the property, upon which REAC
bases its score and ranking, is conducted by the responsible entity in accordance with § 200.855.
(2) Depending upon the results of its
physical condition inspection, a multifamily housing property will be assigned one of three designations—
standard 1 performing, standard 2 performing and standard 3 performing—in
accordance with the ranking process
described in paragraph (b) of this section.
(b) Methodology for Ranking. (1) Multifamily housing properties will be
ranked in accordance with the methodology provided in this paragraph (b).
Multifamily housing properties are
scored on the basis of a 100 point scale.
Because scores may include fractions, a
score that includes a fraction below
one half point will be rounded to the
next lower full point and a score that
includes a fraction of one half point or
higher will be rounded to the next
higher full point (e.g., 89.4 will be
rounded to 89, 89.5 will be rounded to
90).
(i) Standard 1 Performing Property. If a
property receives a score of 90 points or
higher on its physical condition inspection, the property will be designated a
standard 1 performing property. Properties designated as standard 1 performing properties will be required to
undergo a physical inspection once
every three (3) years.
(ii) Standard 2 Performing Property. If
a property receives a score of 80 points
or higher but less than 90 on its physical condition inspection, the property
will be designated a standard 2 performing property. Properties designated as standard 2 performing properties will be required to undergo a

[65 FR 77240, Dec. 8, 2000, as amended at 77
FR 55135, Sept. 7, 2012]

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§ 200.857

24 CFR Ch. II (4–1–13 Edition)

physical inspection once every two (2)
years.
(iii) Standard 3 Performing Property. If
a property receives a score of less than
80 points, the property will be designated a standard 3 performing property. Properties designated as standard
3 performing properties will continue
to undergo an annual physical inspection as currently required under covered HUD programs.
(2) Owners of multifamily housing
properties scoring in a standard 1 or
standard 2 range which have been cited
by the REAC as having a Exigent
Health and Safety (EHS) deficiency(s)
must resolve the deficiency(s), as required by paragraph (c)(2) of this section, to be classified as standard 1 and
standard 2 properties.
(3) Regardless of the performance
designation assigned to an owner’s
property, an owner is obligated to
maintain its property in accordance
with HUD’s uniform physical condition
standards as required by 24 CFR part 5,
subpart G, the Regulatory Agreement
and/or the Housing Assistance Payment (HAP) Contract. Good management principles require an owner to
conduct routine inspections of its
projects, develop improvement plans,
and again, maintain its property to
meet the standard of decent, safe, sanitary and in good repair.
(c) Owner’s review of physical inspection report and identification of objectively verifiable and material error. (1)
Upon completion of a physical inspection of a multifamily housing property,
the REAC will provide the owner or
owner’s representative, on the date of
the physical inspection, notice of any
items classified as EHS deficiencies.
REAC also will provide the owner with
the entire physical inspection report
(electronically through the internet or
by mail approximately 10 working days
from the date of the report), which provides the physical inspection results
and other information relevant to the
inspection, including any items classified as EHS deficiencies and already
provided to the owner, on the date of
the inspection (EHS deficiencies are relayed by the inspector on the date of
the inspection).
(2) The owner must carefully review
the physical inspection report, particu-

larly those items classified as EHS.
The owner is also responsible for conducting its own survey of the total
project based on the REAC’s physical
inspection findings. The owner must
mitigate all EHS items immediately,
and the owner must file a written report with the applicable Multifamily
Hub Director within 3 business days of
the date of the inspection, which is the
date the owner was provided with the
EHS notice. The report filed by the
owner must provide a certification and
reasonable evidence that the EHS
items have been resolved.
(3) If, following review of the physical
inspection results and score, the owner
reasonably believes that an objectively
verifiable and material error (or errors)
occurred in the inspection, which, if
corrected, will result in a significant
improvement in the property’s overall
score (‘‘significant improvement’’ is
defined in paragraph (d)(4) of this section), the owner may submit a written
request for a technical review. The
technical review request must be received in writing no later than 30 calendar days (as established by the postmark, if applicable) from the date the
physical inspection results are transmitted to the owner by REAC, whether
the results and score are transmitted
to the owner via the Internet or by
hard copy via certified mail.
(d) Technical review of physical inspection results. A request for a technical
review of physical inspection results
must be submitted in writing to REAC
and must be received by REAC no later
than the 30th calendar day, as applicable under paragraph (c)(3) of this section, following submission of the physical inspection report to the owner, as
provided in paragraph (c)(1) of this section.
(1) Request for technical review. The
request must be accompanied by the
owner’s reasonable evidence that an
objectively verifiable and material
error (or errors) occurred which if corrected will result in a significant improvement in the overall score of the
owner’s property. A technical review of
physical inspection results will not be
conducted based on conditions that
were corrected subsequent to the inspection. Upon receipt of this request
from the owner, the REAC will review

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Office of Assistant Secretary for Housing, HUD

§ 200.857

(4) Significant improvement. Significant improvement refers to the correction of a material error, asserted by
the owner, which causes the score for
the owner’s property to cross an administratively significant threshold
(for example, the property would be redesignated from standard 3 performing
to standard 2 performing or from
standard 2 performing to standard 1
performing), or to result in an increase
of 10 points or more.
(5) Determining whether material error
occurred and what action is warranted.
Upon receipt of the owner’s request for
technical review of a property’s physical inspection results, the REAC will
evaluate the owner’s property file and
the evidence provided by the owner
that an objectively verifiable and material error occurred which, if corrected, would result in a significant
improvement in the property’s overall
score. If the REAC’s evaluation determines that an objectively verifiable
and material error (or errors) has been
reasonably documented by the owner
and if corrected would result in a significant improvement in the property’s
overall score, then the REAC shall
take one or a combination of the following actions:
(i) Undertake a new inspection;
(ii) Correct the inspection report; or
(iii) Issue a new physical condition
score.
(6) Responsibility for the cost of a new
inspection. If a new inspection is undertaken by the REAC and the new inspection score results in a significant improvement in the property’s overall
score, then HUD shall bear the expense
of the new inspection. If no significant
improvement occurs, then the owner
must bear the expense of the new inspection. The inspection cost of a new
inspection, if paid by the owner, is not
a valid project operating expense. The
new inspection score will be considered
the final score.
(e) Adjustment of physical condition
score based on considerations other than
technical review and reinspection. (1)
Under certain circumstances, HUD
may find it appropriate to review the
results of a physical inspection which
are anomalous or have an incorrect result due to facts and circumstances affecting the inspected property which

the physical inspection and the owner’s
evidence. If the REAC’s review determines that an objectively verifiable
and material error (or errors) has been
documented and that it is likely to result in a significant improvement in
the property’s overall score, the REAC
will take one or a combination of the
following actions: undertake a new inspection; correct the original inspection; or issue a new physical condition
score.
(2) Burden of proof that error occurred
rests with owner. The burden of proof
rests with the owner to demonstrate
that an objectively verifiable and material error (or errors) occurred in the
REAC’s inspection through submission
of evidence, which if corrected will result in a significant improvement in
the property’s overall score. To support
its request for a technical review of the
physical inspection results, the owner
may submit photographic evidence,
written material from an objective
source such as a local fire marshal or
building code official, or other similar
evidence.
(3) Material errors. An objectively
verifiable material error must be
present to allow for a technical review
of physical inspection results. Material
errors are those that exhibit specific
characteristics
and
meet
specific
thresholds. The three types of material
errors are as follows.
(i) Building data error. A building data
error occurs if the inspection includes
the wrong building or a building that
was not owned by the property, including common or site areas that were not
a part of the property. Incorrect building data that does not affect the score,
such as the address, building name,
year built, etc., would not be considered material, but is of great interest
to HUD and will be corrected upon notice to the REAC.
(ii) Unit count error. A unit count
error occurs if the total number of
units considered in scoring is incorrect.
Since scoring uses total units, the
REAC will examine instances where
the participant can provide evidence
that the total units used is incorrect.
(iii) A non-existent deficiency error. A
non-existent deficiency error occurs if
the inspection cites a deficiency that
does not exist.

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§ 200.857

24 CFR Ch. II (4–1–13 Edition)

are not reflected in the inspection or
reflected inappropriately in the inspection. These circumstances include, but
are not necessarily limited to, inconsistencies between local code requirements and the HUD physical inspection
protocol; conditions which are permitted by variance or license or which
are preexisting physical features nonconformities and are inconsistent with
the HUD physical condition protocol;
or cases where the owner has been
scored for elements (e.g., roads, sidewalks, mail boxes, resident owned appliances, etc.) that it does not own and
is not responsible for maintaining.
(2) To seek a score adjustment on the
basis of these circumstances as provided in paragraph (e) of this section,
the owner must submit a request for an
adjustment to REAC with appropriate
proof of the circumstances that resulted in the incorrect physical conditions results. This process may result
in a reinspection and/or rescoring of
the inspection after review and approval of the owner’s submission of appropriate proof of the anomalous or inappropriate application.
(3) An owner may submit the request
for this adjustment to REAC either
prior to or after the physical inspection has been concluded. If the owner
submits a request for adjustment after
the physical inspection has been concluded, the owner must submit its request to REAC within 45 days following
the submission of the physical inspection report, as provided in paragraph
(c)(1) of this section. HUD may, but is
not required to review a request made
after this period has expired.
(4) This adjustment process, provided
in this paragraph (g), may result in a
reinspection and/or rescoring of the inspection after review and approval of
the owner’s submission of appropriate
proof of the anomalous or inappropriate application.
(f) Issuance of final score and publication of score. (1) The physical condition
score of the property is the final score
if the owner files no request for technical review, as provided in paragraph
(c) of this section, or for other adjustment of the physical condition score,
as provided in paragraph (e) of this section. If the owner files a request for
technical review or score adjustments

in accordance with paragraphs (c) and
(e) of this section, the final physical
condition score is the score issued by
HUD after any adjustments are determined necessary and made by HUD at
the conclusion of these processes.
(2) HUD will make public the final
scores of the owners through posting
on HUD’s internet site, or through
FEDERAL REGISTER publication or other
appropriate means.
(g) Owner’s responsibility to notify residents of inspection; and availability of
documents to residents—(1) Notification to
residents. An owner must notify its
residents of any planned physical inspections of their units or the housing
development generally.
(2) Availability of documents for review.
Once the technical review and database
adjustment periods have expired, as
provided in paragraphs (d) and (e) of
this section, respectively, the owner
must make its physical inspection report and all related documents available to its residents during regular
business hours upon reasonable request
for review and copying. Related documents include the owner’s survey plan,
plan of correction, certification and related correspondence.
(i) Once the owner’s final physical
condition score is issued and published,
the owner must make any additional
information, such as the results of any
reinspection, appeal requests, available
for review and copying by its residents
upon reasonable request during regular
business hours.
(ii) The owner must maintain the
documents related to the physical inspection of the property, as described
in this paragraph (g)(2), available for
review by residents for a period of 60
days from the date of submission to the
owner of the physical condition score
for the property in which the residents
reside.
(3) The owner must post a notice to
the residents in the owner’s management office and on any bulletin boards
in all common areas that advises residents of the availability of the materials described in paragraphs (g)(2) of
this section. The notice should include
the name, address and telephone number of the HUD Project Manager.
(4) Residents are encouraged to comment on this information provided by

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Office of Assistant Secretary for Housing, HUD

§ 200.857

(3) Evaluation of the property. During
the evaluation period, the DEC will
perform an analysis of the multifamily
housing property, which may include
input from tenants, HUD multifamily
officials, elected officials, and others as
may be appropriate. Although the MFD
will assist with the evaluation, for insured mortgages, the DEC will have
primary responsibility for the conclusion of the evaluation of the property
after taking into consideration the
input of interested parties as described
in this paragraph (h)(2). The DEC’s
evaluation may include a site visit to
the owner’s property.
(4) Continuing responsibilities of HUD
Multifamily Program Offices and Mortgagee. During the period of DEC evaluation, HUD’s multifamily program offices continue to be responsible for routine asset management tasks on properties and all servicing actions (e.g.,
rent increase decisions, releases from
reserve account approvals). In addition,
during this period of evaluation, the
mortgagee shall continue to carry out
its duties and responsibilities with respect to the mortgage.
(i) Enforcement action. If, at the conclusion of the evaluation period, the
DEC determines that enforcement action is appropriate, the DEC will provide notification to the owner of the
DEC’s decision to formally accept the
property for enforcement purposes.
(1) DEC Owner Compliance Plan. (i)
After notification to the owner of the
DEC’s decision, the DEC will produce a
proposed action plan (DEC Compliance
Plan), the purpose of which is to improve the physical condition of the
owner’s property, and correct any
other known violations by the owner of
its legal obligations. The DEC Compliance Plan will describe:
(A) The actions that will be required
of the owner to correct, mitigate or
eliminate identified property deficiencies, problems, hazards, and/or correct any other known violations by the
owner;
(B) The period of time within which
these actions must be completed; and
(C) The compliance responsibilities of
the owner.
(ii) The DEC Compliance Plan will be
submitted to the MFD for review and

the owners and submit any comments
directly to the applicable Field Office.
Should residents discover the owner
provided HUD with a false certification
during the review they are encouraged
to notify the Hub or Program Center
where appropriate inquiry and action
will be taken.
(h) Administrative review of properties.
The file of a multifamily property that
receives a score of 30 points or less on
its physical condition inspection will
be referred to HUD’s Departmental Enforcement Center (DEC) for evaluation.
The files of any of the multifamily
housing properties may be submitted
to the DEC or to the appropriate HUD
Multifamily Hub Director (MFD) for
evaluation, or both, at the discretion of
the Office of Housing.
(1) Notification to owner of submission
of property file to the MFD and DEC. The
Department will provide for notification to the owner that the file on the
owner’s property is being submitted to
the MFD and/or the DEC for evaluation. The notification will be provided
at the time the REAC issues the physical inspection report to the owner or
at such other time as a referral occurs.
(2) 30–Day period for owner to provide
the DEC with supporting and relevant information and documentation. The owner
has 30 calendar days, from the date of
the REAC notification to the owner, to
provide comments, proposals, or any
other information to the DEC which
will assist the MFD and DEC in conducting a comprehensive evaluation of
the property. A proposal provided by
an owner may include the owner’s plan
to correct deficiencies (corrective action plan). During the 30-day response
time available to the owner, the DEC
may encourage the owner to submit a
corrective action plan. The corrective
action plan, if timely submitted during
the 30-day period (whether on the owner’s initiative or at the request of the
DEC), may serve as additional information for the DEC to consider in determining appropriate action to take at
the conclusion of the evaluation period. If not submitted during the 30-day
response time, a corrective action plan
may be required of the owner at the
conclusion of the DEC’s evaluation of
the property.

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§ 200.925

24 CFR Ch. II (4–1–13 Edition)

concurrence. If the MFD does not concur, the DEC Compliance Plan will be
submitted to the Deputy Assistant Secretary for Housing and the Deputy Director of the DEC for review and concurrence. If the DEC Compliance Plan
remains unapproved, a final decision on
the plan will be made by HUD’s Deputy
Secretary in consultation with the
General Counsel, the Assistant Secretary for Housing, and the Director of
the DEC.
(iii) Following submission of the DEC
Compliance Plan to the owner, the
owner will be provided a period of 30
calendar days to review and accept the
DEC Compliance Plan. If the owner
agrees to comply with the DEC Compliance Plan, the plan will be forwarded
to the appropriate Multifamily Office
for implementation and monitoring of
completion of the plan’s requirements.
(2) Counter compliance plan proposal by
owner. The owner may submit an acceptable counter proposal to the DEC
Compliance Plan. An owner’s counter
proposal to a DEC Compliance Plan
must be submitted no later than the
30th day following submission of the
DEC Compliance Plan to the owner.
The DEC, in coordination with the
MFD, may enter into discussions with
the owner to achieve agreement to a
revised DEC Compliance Plan. If the
owner and the DEC agree on a revised
DEC Compliance Plan, the revised plan
will be forwarded to the appropriate
Multifamily Office for implementation
and monitoring of completion of the
plan’s requirements.
(3) Non-cooperation and Non-compliance by owner. If at the conclusion of
the 30th calendar day following submission of the DEC Compliance Plan to
the owner, the DEC receives no response from the owner, or the owner
refuses to accept the DEC Compliance
Plan, or to present a counter compliance plan proposal, or if the owner accepts the DEC Compliance Plan or revised DEC Compliance Plan, but refuses to take the actions required of
the owner in the plan, the DEC may
take appropriate enforcement action.
(4) No limitation on existing enforcement authority. The administrative
process provided in this section does
not prohibit the Office of Housing, the
DEC, or HUD generally, to take what-

ever action may be necessary when
necessary (notwithstanding the commencement of this process), as authorized under existing statutes, regulations, contracts or other documents, to
protect HUD’s financial interests in
multifamily properties and to protect
the residents of these properties.
(j) Limitations on material alteration of
physical inspection software. HUD will
not materially alter the physical inspection requirements in a manner
which would materially increase the
cost of performing the inspection.
[65 FR 77240, Dec. 8, 2000, as amended at 72
FR 54517, Sept. 25, 2007]

Subpart R [Reserved]
Subpart S—Minimum Property
Standards
§ 200.925 Applicability of minimum
property standards.
All housing constructed under HUD
mortgage insurance and low-rent public housing programs shall meet or exceed HUD Minimum Property Standards, except that this requirement
shall be applicable to manufactured
homes eligible for insurance pursuant
to § 203.43f of this chapter only to the
extent provided therein. The Minimum
Property Standards may be waived to
the same extent as the other regulatory requirements for eligibility for
insurance under the specific mortgage
insurance program involved.
[58 FR 60248, Nov. 15, 1993]

§ 200.925a Multifamily and care-type
minimum property standards.
(a) Construction standards. Multifamily or care-type properties shall
comply with the minimum property
standards contained in the handbook
identified in § 200.929(b)(2). In addition,
each such property shall, for the Department’s purposes, comply with:
(1) The applicable State of local
building code, if the property is located
within a jurisdiction which has a building code accepted by the Secretary
under § 200.925a(d); or
(2)(i) The applicable State or local
building code, and
(ii) Those portions of the codes identified in § 200.295c which are designated

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