[Code of Federal Regulations]
[Title 24, Volume 4]
[Revised as of April 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 24CFR904.112]

[Page 309-311]
 
                 TITLE 24--HOUSING AND URBAN DEVELOPMENT
 
CHAPTER IX--OFFICE OF ASSISTANT SECRETARY FOR PUBLIC AND INDIAN HOUSING, 
               DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
 
PART 904--LOW RENT HOUSING HOMEOWNERSHIP OPPORTUNITIES--Table of Contents
 
               Subpart B--Turnkey III Program Description
 
Sec. 904.112  Operating reserve.

    (a) Purpose of reserve. To the extent that total operating receipts 
(including subsidies for operations) exceed total operating expenditures 
of the Project, the LHA shall establish an operating reserve up to the 
maximum approved by HUD in connection with its approval of the annual 
operating budgets for the Project. The purpose of this reserve is to 
provide funds for

[[Page 310]]

    (1) The infrequent but costly items of nonroutine maintenance and 
replacements of common property, taking into consideration the types of 
items which constitute common property, such as nondwelling structures 
and equipment, and in certain cases, common elements of dwelling 
structures,
    (2) Nonroutine maintenance for the homes to the extent such 
maintenance is attributable to defective materials or workmanship not 
covered by warranty,
    (3) Working capital for payment of a deficit in a homebuyer's NRMR, 
until such deficit is offset by future monthly payments by the homebuyer 
or at settlement in the event the homebuyer should purchase, and
    (4) A deficit in the operation of the Project for a fiscal year, 
including a deficit resulting from monthly payments totaling less than 
the break-even amount for the Project.
    (b) Nonroutine maintenance--common property (Contribution to 
operating reserve). The amount under this heading to be included in 
operating expense (and in the break-even amount) established for the 
fiscal year (see Sec. 904.108 and Sec. 904.109) shall be determined by 
the LHA, with the approval of HUD, on the basis of estimates of the 
monthly amount needed to accumulate an adequate reserve for the items 
described in paragraph (a)(1) of this section. This amount shall be 
subject to revision in the light of experience. This contribution to the 
operating reserve shall be made only during the period the LHA is 
responsible for the maintenance of any common property; and during such 
period, the amount shall be determined on the basis of the requirements 
of all common property in the development in a manner similar to that 
explained in Sec. 904.109(c). When the operating reserve reaches the 
maximum authorized in paragraph (c) of this section, the break-even 
(monthly operating expense) computations (see Secs. 904.108 and 904.109) 
for the next and succeeding fiscal years need not include a provision 
for this contribution to the operating reserve unless the balance of the 
reserve is reduced below the maximum during any such succeeding fiscal 
year.
    (c) Maximum operating reserve. The maximum operating reserve that 
may be retained by the LHA at the end of any fiscal year shall be the 
sum of (1) one-half of total routine expense included in the operating 
budget approved for the next fiscal year and (2) one-third of total 
break-even amounts included in the operating budget approved for the 
next fiscal year; provided that such maximum may be increased if 
necessary as determined or approved by HUD. Total routine expense means 
the sum of the amounts budgeted for administration, homebuyers services, 
LHA-supplied utilities, routine maintenance of common property, 
protective services, and general expense or other category of day-to-day 
routine expense (see Sec. 904.109 above for explanation of various 
categories of expense).
    (d) Transfer to homeowners association. The LHA shall be responsible 
for and shall retain custody of the operating reserve until the 
homeowners acquire voting control of the homeowners association (see 
Secs. 904.118(c) and 904.119(f). When the homeowners acquire voting 
control, the homeowners association shall then assume full 
responsibility for management and maintenance of common property under a 
plan approved by HUD, and there shall be transferred to the homeowners 
association a portion of the operating reserve then held by the LHA. The 
amount of the reserve to be transferred shall be based upon the 
proportion that one-half of budgeted routine expense (used as a basis 
for determining the current maximum operating reserve--see paragraph (c) 
of this section) bears to the approved maximum operating reserve. 
Specifically, the portion of operating reserve to be transferred shall 
be computed as follows: Obtain a percentage by dividing one-half of 
budgeted routine expense by the approved maximum operating reserve; and 
multiply the actual operating reserve balance by this percentage.
    (e) Disposition of reserve. If, at the end of a fiscal year, there 
is an excess over the maximum operating reserve this excess shall be 
applied to the operating deficit of the Project, if any, and any 
remainder shall be paid to HUD. Following the end of the fiscal year in 
which the last home has been conveyed

[[Page 311]]

by the LHA, the balance of the operating reserve held by the LHA shall 
be paid to HUD, provided that the aggregate amount of payments by the 
LHA under this paragraph shall not exceed the aggregate amount of annual 
contributions paid by HUD with respect to the Project.