[Code of Federal Regulations]

[Title 24, Volume 4]

[Revised as of April 1, 2006]

From the U.S. Government Printing Office via GPO Access

[CITE: 24CFR904.112]



[Page 316-317]

 

                 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

    (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



[[Page 317]]



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 Sec. Sec.  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 

Sec. Sec.  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 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.