© Housing Assistance Council, 1999

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ISBN 1-58064-049-4

VI.  RHS/RURAL DEVELOPMENT PROCESSING AND FINAL APPLICATION

A.  Scoring and Ranking Applications   

In regulations published in May 1999, RHS instituted a new competitive scoring and ranking process for preapplications for off-farm housing.  Preapplications for on-farm units, as well as those for repair and rehabilitation of existing off-farm units, may be submitted at any time and are processed on a first-come, first-served basis.  Preapplications for development of new off-farm units, in contrast, may be submitted only in response to a NOFA published once a year, and then RHS uses a ranking process to determine which applicants will be invited to submit final applications.

The first step in the ranking process is a review to be sure the preapplication was received on time, the preapplication is complete, the applicant is eligible, and the proposed project is eligible.  Then RHS scores each preapplication on the following point system.  

1.  Leveraged assistance: Points are given for the amount of leveraged assistance expected, including donated land, hard construction cost, non-RHS tenant subsidies and other state or federal funds that serve program-eligible farmworkers.  Leveraged assistance is measured as a percentage of RHS total development cost, excluding costs like developer’s fees that are not RHS-eligible.  In an application requesting Section 521 Rental Assistance, the total interest cost may not exceed the cost of using 100 percent LH financing.

Preapplications are submitted to Area Offices or State Offices.  Each State Office makes a preliminary eligibility review and scores eligible preapplications.  If preapplications within the state have tied scores, first preference will be given to the one with the highest percentage of leveraged assistance.  If the applicant’s articles of incorporation and by-laws vary from those prescribed in 1944-D or by State Supplement, the USDA Office of General Counsel is asked to make a legal opinion on eligibility.

Each State Office submits its rankings and review comments to the RHS National Office, which ranks preapplications nationwide.  If there is a point score tie, first preference goes to a preapplication from a state without existing RHS-financed off-farm units.  Second preference is for a preapplication in a state with no other preapplications selected in the current funding cycle.  If there is still a tie, one preapplication from each state competes in a computer lottery.

B.  Preapplications That Will Not Be Selected

RHS will not select a preapplication in an area with competing or problem projects if any of the following conditions exists.

RHS has selected another LH proposal in the same market area for further processing.

A previously authorized RHS, HUD or similar MFH project serving farmworkers in the same market area is incomplete or rent-up has not reached occupancy level goals.

An existing RHS, HUD or similar MFH project is experiencing high vacancy levels.

If a selected preapplication cannot meet RHS processing deadlines or there is no commitment for leveraged funds, the next highest ranking preapplication will be selected.

C.  Final Application

Following preapproval or rejection by the RHS National Office, the State Director authorizes issuance of Form AD 622, “Notice of Preapplication Review Action.” (See Appendix 5) After the applicant receives this form, which authorizes her/him to develop a final application, the applicant and the applicant’s architect should meet with the Rural Development architect/engineer and other officials responsible for loan processing.  If Rural Development does not request such a meeting, the applicant should request it.  During this meeting, Rural Development will discuss the services that the architect will be expected to provide and will also explain the items that need to be completed for the final application.

The final application is prepared using Standard Form 424.2, “Application for Federal Assistance,” which includes instructions for its completion (See Appendix 4).  The supplementary information to Standard Form 424.2 is (as with the preapplication) most important.  The requirements in Part II to Exhibit A-1 of Instruction 1944-D are outlined below. (See Appendix 3)  Some of these items duplicate those outlined in the preapplication checklist, but are listed anyway in order to reflect those in Instruction 1944-D.  We have noted where HAC recommends earlier submission.

D.  Final Submission Checklist

1. Standard Form 424.2;

2. if applicable, evidence that Standard Form 424.2 has been filed with the state or regional clearinghouse (include any comments received);

3. proposed contracts for architectural, engineering, and legal services, as applicable (HAC recommends including these with preapplication);

4. plot plan and detailed preliminary plans and specifications prepared in accordance with RHS Instruction 1924-A;

5. a detailed cost breakdown for all major items;

6. satisfactory evidence of review and approval of the housing as required by state or local laws, ordinances, or regulations;

7. a detailed map showing services and facilities available on the site and in the community (HAC recommends submission with the preapplication);

8. description and justification of related facilities (HAC recommends submission in preapplication);

9. copies of and explanation for long-term service agreements, if any;

10. a market analysis that is more comprehensive than the analysis submitted with the preapplication (Appendix 8 contains Exhibit A-4 to Instruction 1944-D contains a sample form that can be used to present information about existing units in the area);

11. proposed operating budgets for the first year of operation and for operation during a typical year (HAC recommends using Form 1930-7 if RHS/Rural Development concurs.  It is a better form than that at Exhibit 5 to 1994-D. Check with Rural Development first.);

12. a management plan;

13. legal agreements from any prior lien holders (Rural Development and/or the Office of General Counsel will instruct on format); and

14. an option to purchase the site or evidence of ownership

E.  HAC Recommendations

1. Operating Budgets.  These are vitally important and should be prepared at every step of the housing development process.  Although not required by RHS, an operating budget should be submitted with the preapplication.  The budget submitted with the final application should represent the accumulation and refinement of related information and should provide a sound basis for actually operating a project, not just for obtaining RHS/Rural Development approval.

2. Detailed Cost Data.  While rough estimates are sufficient for preapplications, the data in the final application should be prepared in a professional manner and be representative of real costs in the market area.

3. Optioning.  RHS does not require optioning the land until final application submission.  However, if available land is limited and highly competitive or the project will provoke controversy, the land should be controlled at the time the preapplication is submitted.

F.  Submission of Final Application

When the final application is assembled it should be submitted to the Rural Development Area Office for review and submission to the State Office, unless otherwise instructed.  If approved, the applicant will be notified to proceed with preparation of working plans and specifications, contract documents, and other items needed to close the loan.  The applicant should not proceed with bid advertisement or contract awards until advised to proceed by Rural Development.

G.  Approval

State Directors may approve loan and grant applications only after all of the following have been determined.

1. The applicant is eligible.

2. The funds are requested for authorized purposes.

3. The proposed loan and/or grant is sound (economically feasible).

4. The security is adequate for the loan.

5. All preapproval requirements have been met.

6. Compliance with Title VI of the Civil Rights Act will be met.

7. All necessary public hearings and/or zoning changes have been completed.

8. State Rural Development and national RHS architectural reviews of preliminary plans, specifications, and construction cost analyses are complete.

H.  Disapproval and Appeal

If the loan application is not approved, the State Director informs the applicant in writing of the denial along with an explanation of why it was denied.  The letter must include an invitation to discuss the decision at the Rural Development office, along with any representative the applicant chooses to bring.  The letter will state that Rural Development will discuss appeal rights if the case is not satisfactorily resolved.  Alternatively, when the decision maker believes a meeting will not resolve the issues, the letter will suggest mediation and identify a National Appeals Division hearing officer.

Regulations for appeals to the USDA National Appeals Division are in 7 CFR Part 11.  This is included  in HB-1-3550.

It is essential to read 7 CFR Part 11 prior to beginning the appeal process.  Also, prospective appellants should be aware that exercising appeal rights is subject to time limitations.  For more information, see A Guide to Appealing Rural Housing Service/Rural Development Decisions, a HAC publication.¹

I.  Interim Financing

Where the cost of an LH project exceeds $50,000 (except grant-only projects), RHS requires borrowers to seek interim financing from other sources such as banks, state housing financing agencies, and similar financial institutions, especially if it is available at below-market interest rates or at “reasonable” rates.

When interim financing is not provided by RHS, the docket is processed to the stage where the RHS loan normally would be closed, immediately prior to the start of construction.  RHS loan funds are obligated before the applicant proceeds with the final arrangements for interim financing.

RHS assumes the same responsibilities as if RHS funds had been advanced, from the standpoint of approving construction contracts and supervisory construction.  The Area or State Office ensures that funds are used for authorized purposes.

When the work is completed as planned and/or interim funds are expended, the RHS loan is closed and the loan proceeds are used to retire the interim indebtedness.  Before the RHS loan is closed, the applicant must provide Rural Development with statements from the contractor, architect, engineer, and attorney that they have been paid to date in accordance with their contracts.  (Also see Instruction 1924.6.)

J.  Multiple Advances of Loan and Grant Funds

When interim financing is not available from other sources, multiple advances from RHS may be used for all loan and grant combinations in excess of $50,000.  In cases where relatively large amounts of funds are to be used for the purchase of real estate or some other purpose, separate checks for such purposes may be ordered at loan closing.  Otherwise, advances are made only as needed to cover disbursements required by the borrower for a 30-day period.  A percentage is withheld to ensure that construction will be completed in accordance with the contract and that ample funds will be on hand to pay the costs of construction, land purchase, legal, engineering, or architectural costs, interests, and other expenses as needed.

RHS requires an overall bonded contractor when it finances construction (multiple advances).

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¹The Housing Assistance Council is updating its appeals guide.  Contact HAC for availability information and cost.