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You will also assume responsibilities not included in the standard HUD contract used with private firms. These additional responsibilities, which are designed to increase the security of acquired units and the stability of the neighborhood, include:

arranging for the police department to provide frequent and
regular patrols;

encouraging municipal employees to reside in the neighbor-
hood; and

supporting and encouraging the active involvement of resi-
dents in the Community Stabilization Program.

HUD and the City Determine Needed Repairs

Under the stabilization program, it becomes your responsibility to inspect HUD-acquired properties to determine and recommend to HUD the extent of needed repairs; to supervise and inspect the agreed upon repairs; and to certify the completed work for compliance with local codes. The cooperation agreement provides that HUD will contract and pay for the actual repair and rehabilitation.

The determination of the extent of repairs is a negotiable issue. At a minimum, repairs must result in a property in full compliance with all applicable codes. However, this may not be sufficient to attract potential buyers. Therefore, you and HUD must decide on the level of repair and additional amenities that are required to make the units competitive in the market. Three factors should enter into this process:

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market conditions (the level of demand for rental
housing);

typical amenities in comparable competitive units;
and

. how much HUD is willing and warranted to spend.

In determining the extent of repair work that is needed, standardized repair specifications should be adopted. Repair specifications should include all violations of local codes so that the renovated property will be in compliance with them. HUD also requires that all properties be in conformance with its lead-based paint regulations (24 CFR, Part 35).

As area manager, you should take steps to ensure that repair specifications are reliable and thorough. HUD will pay only for those repairs that it specifies and approves. If a property fails to meet codes after the specified work has been completed, you must bear the additional costs required to bring the property into compliance.

HUD Contracts for Renovations

Under the terms of the area management contract, HUD is responsible for rehabilitating the acquired units. This responsibility includes selecting contractors and paying the cost of repairs. HUD selects contractors through competitive bidding and will consider your recommendations. The selected contractors must comply with relevant federal regulations governing fair employment, equal opportunity, and so forth.

The City Inspects and Certifies Units

It is your responsibility to supervise all specified repair work. The three major components to this task are:

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to ensure that all work performed is in conformance with
repair specifications.

to verify that all repair work has been authorized in
writing by HUD.

to submit weekly reports to HUD detailing repair work
performed, including:

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You must also perform tests to certify the condition of all operating systems and equipment. If your city cannot perform these tests itself, you may hire subcontractors.

Your supervision of repair work should be organized and thorough. It is important to reemphasize the fact that the city is financially liable for the cost of repairs necessitated by unauthorized work or work that fails to meet code standards.

STEP 6: NEGOTIATE AND SIGN MASTER LEASE AGREEMENT

The master lease is the legal instrument under which your city agrees to manage and maintain the renovated properties leased to it by HUD. A property is transferred from the area management contract to the master lease once renovations are completed you have executed a sublease with a tenant. The master lease is a key document in the stabilization program, and should be as specific as possible in order to minimize possible misunderstandings or differences in interpretation. The successful execution of the master lease requires a high degree of coordination and cooperation between you and HUD.

You have the option of creating a project authority or appointing a commission to manage the rehabilitated properties. A project authority appears to be the most effective way to carry out your property management responsibilities, for several reasons.

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It consolidates the administration and coordination of
city activities into one organization whose sole respon-
sibility is improving and stabilizing the affected sub-
division.

It can be more flexible in such matters as funding
authorization, organizational structure, and person-
nel policies than if it were part of an existing local
government department.

It provides a central point for coordination with HUD.

It serves as a sounding board for residents of the sub-
division.

You should establish the project authority early in the renovation process to give it sufficient time to organize and prepare for its role as manager under the master lease. Your city's legislative body should establish the authority by ordinance or resolution, which should specify the authority's general responsibilities.

STEP 7: CARRY OUT THE PROVISIONS OF THE MASTER LEASE

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These topics are discussed below. A model master lease, with comments on some of its legal aspects, is presented in Appendix C.

Routine Property Management Procedures

The authority's routine property management procedures are those that apply uniformly to all properties, such as:

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monthly payment of prorated portions of property
taxes to HUD; and

routine maintenance, complaint service calls, trash
removal, and water service.

The monthly rental payment to HUD is based on the net residual value of an acquired property. The rental charge is derived from the annual return HUD would receive if it invested the sales proceeds. For example, if the net residual value of a property is $3,000 and HUD invests this amount at 10 percent per year, the annual return (rent) is $300, or $25 per month.

Responsibility for Repairs

Perhaps nowhere is clarity more important than in specifying responsibilities for repairs. When the master lease is executed, both HUD and your project authority are accepting the property as being structurally sound and fully operational. The only exception is when a sublease is executed before all specified repairs are completed. In this case, the master lease and sublease are subject to the completion of repairs within a specified period.

In all other instances, HUD will pay for repairs that must be made after the execution of the master lease only under the following conditions:

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there were errors or omissions in plans and specifica-
tions; or

major structural or systems failure in a property is not
caused by actions or negligence of the tenant.

You must pay for all repair work that does not meet these conditions. HUD alone will decide whether a particular repair is its responsibility or yours. In negotiating the master lease, you and HUD should make every effort to define clearly the criteria to be used in assessing financial responsibility for repairs.

Auxiliary Services

The master lease requires that your project authority perform or encourage certain activities that go beyond a normal real estate operation. Their purpose is to increase your city's visibility and broaden the scope of its involvement. Examples of such activities are:

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coordinating with police department for frequent regular patrols;

encouraging city personnel to reside in the subdivision; and

providing inspection services for any required city permits or
licenses.

You may supplement these activities with other functions that you feel would be beneficial to the program. Consultation with home owners and neighborhood groups is useful in determining additional functions. This is an integral part of the Community Stabilization Program and represents your city's commitment to stabilizing the neighborhood.

Management Plan

You will be required to submit a mutually acceptable management plan to HUD within 10 days after you sign the master lease. When the management plan has been approved by HUD, it will be incorporated into the master lease agreement. The major components of this plan

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your role as the project authority's sponsor and your dele-
gation of authority;

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