CDBG Rental Rehabilitation Information

CDBG Rental Rehabilitation Loan Program Information For Projects with Five or More Units

MDHA’s CDBG Rental Rehabilitation Program for Metropolitan Nashville/Davidson County is designed to assist property owners in rehabilitating substandard property to be made available for lease to tenants with incomes at or below 80% Adjusted Median Income (AMI) at Section 8 Fair Market Rents for varying terms depending on the loan amounts per unit as listed below. Every unit that receives assistance through this program is subject to rent controls designed to make sure that rents are affordable to low-income individuals. Rents will be determined based on the fair market rents per bedroom size as established by HUD updated annually. For more information on Section 8 Fair Market Rents and the Section 8 Program, contact rnixon@nashville-mdha.org.

These funds may not be used to rehabilitate housing units previously assisted with HOME or CDBG funds that still have an MDHA Deed of Trust or Deed Restriction in place, unless they are owned by a non-profit Community Housing Development Organization (CHDO) or other non-profit with a history of serving the community by providing affordable housing.    

Applications will be accepted via our Neighborly portal during open application periods and will be accepted on a first-come, first-served, first-approved basis until available funding is exhausted.

General Eligibility Requirements

• Properties must be in Nashville/Davidson County.
• For purposes of this program, a rental unit is defined as a residential area that consists of one bedroom, kitchen, bathroom and living area.
• Applicants must have clear title to the property (subject to superior mortgage liens).
• Property must have sufficient cash flow to support maintenance, repay all debt including rehabilitation loans, and keep taxes and insurance current.
• Applicants will be responsible for the up-front cost of a lead-based paint inspection (required for all properties constructed prior to 1978 – the cost of this inspection can be reimbursed from Loan proceeds if the loan is approved and closing takes place). Applicants will also be responsible for title search and filing fees. The estimated cost for these fees will be disclosed prior to closing. THESE COSTS CANNOT BE WITHHELD FROM LOAN PROCEEDS.
• Rehab Loan funds will be disbursed on a reimbursement basis via a mutually agreed draw schedule that will be outlined in the funding agreement.

Rehabilitation of Occupied Units – Tenant Assistance Policy

Applicants are cautioned that any existing tenants must be given the opportunity to remain in the project under reasonable terms and conditions, including a rent that is considered affordable based on their household income. If units are occupied at the time of application submission, MDHA staff will interview tenants to see if they and/or the project qualify for assistance via MDHA’s Section 8 Project Based Voucher (PBV) program, based on availability. If neither the project nor the tenants qualify for Section 8 assistance via the PBV program or the tenants do not want Section 8 assistance or it is not available and permanent relocation is required, the project will not be eligible for funding.       

If the extent of the rehabilitation requires temporary relocation of tenants, the applicant will be required to provide tenants with sufficient assistance to ensure that any temporary move is made at no cost to the tenants. Rehabilitation of occupied units will only be considered if the extent of the rehabilitation does not require permanent relocation of existing tenants.  

Davis-Bacon Requirements

Any contract for rehabilitation of housing containing 8 or more units assisted with funds through this program must comply with the provisions of the Davis-Bacon Act (DBA), which mandates that contractors on federal construction projects over $2,000 pay laborers at least local prevailing wages and fringe benefits, as determined by the Department of Labor (DOL). Additional information can be found by clicking here. 

Build America Buy America (BABA)

The Build America, Buy America Act (the Act), enacted as part of the Infrastructure Investment and Jobs Act on Nov. 15, 2021, established a domestic content procurement preference for all Federal financial assistance obligated for infrastructure projects after May 14, 2022. The intention of the Act is to promote domestic manufacturing and employment by requiring a percentage of iron, steel, manufactured products, and construction materials that are used in covered infrastructure projects are produced in the United States. Infrastructure projects that cannot procure materials domestically will require waiver submission pursuant to Section 70914(c). See Build America, Buy America Act Provisions. Residential developments with five (5) or more units are considered “infrastructure” projects and are subject to the BABA requirements. Click here for additional information.

Section 3 Requirements

Section 3 of the Housing and Urban Development Act requires that employment, training, and contracting opportunities generated by certain HUD financial assistance be directed to low- and very low-income people and eligible businesses. Section 3 compliance is required when the total HUD assistance for the housing rehabilitation project exceeds $200,000 and applies to the entirety of a project, including mixed-finance developments, even if only part of the project receives HUD assistance. Once a project exceeds the $200,000 threshold, recipients, contractors, and subcontractors must include Section 3 provisions in contracts, monitor compliance and maintain records demonstrating efforts to provide opportunities to Section 3 workers and businesses.

Environmental Clearance

No work can begin on the project (even if paid for by other non-federal sources) until the property has received Environmental Clearance and a loan closing has taken place.

Fair Housing and Equal Opportunity

Any applicant receiving funds to rehabilitate properties through this program will be required to abide by the following laws and regulations pertaining to Fair Housing and Equal Opportunity.

• Title VI of the Civil Rights Act of 1964, as amended (42 U.S.C. 2000d et seq.)
• The Fair Housing Act (42 U.S.C. 3601-3620)
• Equal Opportunity in Housing (Executive Order 11063, as amended by Executive Order 12259)
• Age Discrimination Act of 1975, as amended (42 U.S.C. 6101)
• Americans with Disabilities Act (42 U.S.C. 12131; 47 U.S.C. 155, 201, 218, and 225)
• Section 504 of the Rehabilitation Act of 1973
• Violence Against Women Act (VAWA) of 2013

Loan Terms

The CDBG Rental Rehabilitation Loan will be forgivable over various time periods (see below) if the applicant commits to making the property available exclusively for lease to Section 8 Voucher Holders. The property must remain on the affordable rental market for the applicable time period after rehabilitation is complete and be leased at no more than the Section 8 Fair Market Rents to income-eligible tenants. All loans will be secured by Deeds of Trust on the property and Deed Restrictions to ensure that properties are used as affordable housing for the applicable compliance period. Additionally, properties owned by LLCs or Corporations will require personal guarantees.    

Additionally, early repayment of the loan does not negate the responsibility of the property owner to use the property for affordable, income-restricted housing for the applicable compliance period.  

Loan Limits

The CDBG Rental Rehabilitation loan/compliance terms will vary based on the per-unit subsidy as outlined below. All Rental Rehab loans will be approved by MDHA’s Loan Review Committee.

5 Units or more – Maximum Loan – $500,000:

• Per-unit subsidy less than – $50,000 per unit – forgiven over a 10-year affordability compliance period
• Per-unit subsidy $50,001 – $75,000 per unit – forgiven over a 15-year affordability compliance period
• Per-unit subsidy $75,001 – $100,000 per unit – forgiven over a 20-year affordability compliance period

Projects receiving the maximum $500,000 Loan will be subject to a 20-year affordability compliance period regardless of the per-unit subsidy amount.

Property Standards

At completion of rehab the property must comply with all local building codes, ordinances, zoning requirements, lead based paint and accessibility requirements as applicable. Additionally, the property must meet the MDHA Section 8 Housing Quality Standards initially and during an annual inspection. The property must meet these standards for the duration of the 20-year compliance period. MDHA will inspect the property periodically to ensure these standards are being met.

Loan Compliance for the 20-year Period

• *The property must be leased in accordance with the Affirmative Marketing Policies set-forth by MDHA.
• *Rent guidelines must be met annually and verified through the submission of lease(s) to MDHA.
• *Total tenant household income must not exceed income limits at 80% AMI or below, adjusted for family size.   Income guidelines must be met annually and verified through the submission of a copy of tenant’s check stubs or letter from employer regarding tenant income.
• Property Taxes must remain current and replacement cost insurance must be in force for the full affordability compliance period showing MDHA as additional insured.

*Compliance for these items will be handled through MDHA’s Section 8 office.

Any request for loan assumption and subordination must be in writing. All subordination and assumption requests must be reviewed by MDHA’s Loan Review Committee based on rules and regulations set forth to govern those requests.

Additional Information can be obtained by contacting aharrell@nashville-mdha.org.