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Rural Housing Service's Section 538
Guaranteed Rural Housing Program:
A Guide For Developers

© Housing Assistance Council, 2000

Permission is granted ONLY to nonprofit community-based organizations to reproduce and/or adapt this document, and only for their own use. 

V. CONSTRUCTION, MANAGEMENT, AND SERVICING

The information provided here on construction, management, and servicing is not detailed, but is intended to provide some understanding of the scope of RHS requirements. The RHS handbook provides details.

A. Construction

RHS monitors the process of constructing any multifamily property for which it has guaranteed a loan. The agency is more closely involved if it has guaranteed the construction loan. Even when it has guaranteed only the permanent loan, it has the right to be involved in construction-related meetings, attend inspections, and review documents. Details are in Chapter 5 of HB-1-3565.

The lender (not the agency) is responsible for ensuring that state codes are met, the construction team has appropriate experience, and the like.

B. Management

Management rules are contained in Subpart H to Part 3565. Details are in Chapter 8 in HB-1-3565, which outlines specific requirements for:

  • the role of the lender in property management;
  • the responsibilities of the lender, including management plans;
  • property manager;
  • management agreement;
  • occupancy requirements;
  • tenant protection and grievance procedures.

Section 6 in Chapter 8 covers tenant protection and grievance procedures. It also refers to Part 1944 Subpart L, which covers the tenant appeal and grievance procedures. A timeline for the process is included as Appendix K to this guide.

C. Servicing

Servicing rules are in Subpart I to Part 3565. Details are in Chapter 7 in HB-1-3565. The handbook states that the agency establishes servicing standards in order to protect three things: the value of the property, the tenants, and the government's interest. To this end, the developer and the lender are required to maintain and inspect the property, observe rent limits, establish a reserve account, and the like. The developer must report to the lender periodically, including audited annual financial statements. The lender must file regular reports to RHS. (For example, see Appendix J for audit requirements in connection with the guaranteed loan.)

Special servicing requirements are imposed for borrowers who are delinquent on loan payments or in default.

On to Appendix A

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