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NEIGHBORHOOD STABILIZATION
PROGRAM
PROGRAM MANUAL
Tennessee Housing Development Agency
Neighborhood Stabilization Program
General Program Requirements
1. Introduction
The Neighborhood Stabilization Program (NSP) was authorized on July 30, 2008 as Title III of Division B
of the Housing and Economic Recovery Act of 2008 (HERA) as amended by the American Recovery and
Reinvestment Act (ARRA). The Tennessee Housing Development Agency (THDA) administers the
federally funded NSP through local governments and non‐profit organizations on behalf of the U.S.
Department of Housing and Urban Development (HUD).
The purpose of NSP is to provide emergency assistance to state and local governments to acquire and
redevelop foreclosed properties that might otherwise become sources of abandonment and blight
within their communities. NSP funding is provided by formula to states based on the following criteria:
• areas with the greatest percentage of home foreclosures;
• areas with the highest percentage of homes financed with subprime mortgages; and,
• areas identified as likely to face a significant rise in the rate of home foreclosures.
NSP funds are considered a special allocation of Community Development Block Grant (CDBG) funding
for FY 2008. The statutory and regulatory requirements of CDBG apply to NSP funds unless specifically
waived by the NSP regulations. CDBG and NSP program regulations are incorporated by reference in
this NSP Manual as is the THDA NSP Program Description. In the event of conflicting requirements, the
more stringent regulations will apply. The purpose of this manual is to give grantees guidance in the
effective administration of their Neighborhood Stabilization Program projects.
2. Grantee Contract
Grantees that have received approval for an NSP funded project will be provided with a grant agreement
(Contract) between the grantee and THDA. Incorporated by reference into the Contract are several
other documents (“NSP Requirements”) that, along with the contract and its attachments, provide the
basis for ensuring compliance with NSP regulations. Those documents include:
A. Title III of Division B of the Housing and Economic Recovery Act of 2008 (“HERA”), as
amended by Title XII of Division A of the American Recovery and Reinvestment Act of 2009;
B. Federal Register Notice, Volume 73, No. 194, October 6, 2008;
C. THDA NSP Program Description and operations manual; and
D. All additional documents, notices, rules, regulations or statutes, as subsequently developed,
that relate to NSP.
The contract has two attachments. Attachment A is the “Description of Activities” which is a general
description of the project. Attachment B is the “Project Budget” which indicates the total of all sources
of funds that the grantee intends to use to accomplish the project. If circumstances arise that require
either attachment to be amended, the grantee should notify THDA immediately in writing. The
amendment will not take effect until it has been approved.
3. NSP Timelines
3.1 Grant Term
The Contract also sets out the beginning and ending dates for the project or the “Grant Term.”
Because NSP is a time sensitive program in that “any state or local government that receives
amounts pursuant to this section shall not later than 18 months after the receipt of such
amounts, use such amounts to purchase and redevelop abandoned and foreclosed homes and
residential properties [Housing and Economic Recovery Act of 2008, Section 2301(c)(1)].”
Grantees should be aware that the grant agreement between HUD and THDA was signed on
March 19, 2009. Statutory timelines were triggered on that date. HERA requires that “ At the
end of the statutory 18‐month use period, which begins when the NSP grantee receives its funds
from HUD, the state or local government NSP grantee’s accounting records and DRGR (the
federal Disaster Recovery Grant Reporting system collects information on expenditures and
obligations) information must reflect outlays (expenditures) and unliquidated obligations for
approved activities that, in the aggregate, are at least equal to the NSP obligations…All NSP
grantees must expend on eligible NSP activities an amount equal to or greater than the initial
allocation of NSP funds within 4 years of receipt of those funds or HUD will recapture and
reallocate the amount of funds not expended.” (Federal Register, volume 73, No. 194, p.58340
October 6, 2008)
3.2 Use and Obligation of NSP Funds
HUD has defined the use and obligation of funds as follows, “funds are used when they are
obligated by a state, unit of general local government, or any subrecipient thereof, for a specific
NSP activity. Funds are obligated for an activity when orders are placed, contracts are awarded,
services are received and similar transactions have occurred that require payment by the state,
unit of general local government, or subrecipient during the same or a future period.” (Federal
Register, volume 73, N0. 194, p. 58332, October 6, 2008)
3.3 Timely Performance of Grantees
With respect to the statutory timelines and as indicated in Section E.10 of the Contract, THDA
will closely monitor grantee progress to ensure timely performance. All grantee projects will be
reviewed in September, 2009 and a preliminary determination will be made regarding the status
of each project. Grantees will be notified of THDA’s findings at that time. A subsequent review
will be conducted before December 31, 2009 and a determination will be made as to whether
the grantee is demonstrating sufficient progress. If not, the remaining uncommitted funds
under that contract will be recaptured and re‐allocated.
4. NSP Fundamentals
4.1 Environmental Review
NSP funds are considered supplemental Community Development Block Grant (CDBG) funds and as
such require that the environmental effects of each activity carried out with the NSP funds be
assessed in accordance with the provisions of HUD’s regulations (24 CFR 570.604) covering National
Environmental Policy Act of 1969 (NEPA) and the related authorities listed in HUD’s implementing
regulations at 24 CFR Parts 50 and 58. The assessment is conducted considering other federal laws
covering areas such as noise, air quality, historic properties, floodplains, wetlands, water quality,
solid waste disposal, man‐made hazards, farmlands protection, wild and scenic rivers, coastal areas
and endangered species.
The environmental review process should be initiated as soon as the grant agreement is executed
and the proposed activities are determined. NSP funds cannot be committed to a project until the
environmental review process is complete.
Environmental review expenses are usually considered to be project delivery or administrative costs
under THDA’s NSP Program. Private citizens and organizations can object to the release of funds for
NSP projects on certain procedural grounds relating to the environmental review. Therefore, it is
important that all procedural requirements be met.
4.1(a) Responsibility for Environmental Review
Local Government Grantees – The environmental review procedures as outlined in 24 CFR
Part 58 require that units of general local governments such as cities and counties
assume the responsibility for the environmental review, including the publications,
and then later request that the funds be released by the state.
Non‐Profit Grantees – For non‐profit agencies, the state as a participating jurisdiction will
be responsible for the environmental review, but the state will depend upon the
non‐profit agency to gather the necessary information and publish the required
notices with the assistance of the state. Only the state can certify that the
environmental review requirements have been met and will be responsible for
requesting a release of funds from HUD for each individual agency.
4.2 NSP Primary Determinations
There are two primary determinations that apply to all NSP assisted projects and must be made
regardless of the proposed eligible activity: (1) is the project located in a designated area of
greatest need; and, (2) does it meet a CDBG NSP national objective.
4.2(a) Determining Area of Greatest
The first and most important determination a grantee must make and document is
whether the proposed project is located in an area of greatest need as defined by THDA
NSP. Jurisdictions that receive NSP funds are required to give priority to these areas of
greatest need based on three criteria as referenced in paragraph 2 above. The data for
determining areas of greatest need was provided by HUD based on information from
various sources including the Mortgage Bankers Association, the U.S Census Bureau, and
the 2006 American Community Survey among others. The “Neighborhood Stabilization
Program Highest Need Area Allocation Plan – Tennessee” is posted as Exhibit 1 of the
THDA NSP Operating Manual. This plan provides the allocation information for
Tennessee cities and counties.
THDA has organized the areas of greatest need by census tract and block group so it will
be necessary for grantees to submit proposed projects utilizing that information. Zip code
information is not acceptable. Once the tract and block group are identified, grantees
should consult Exhibit 2, “Areas of Highest Need – Tennessee Neighborhood Stabilization
Program” to determine whether the address is in an eligible area. Continuum of Care
grantees should also consult Exhibit 3 – Areas of Highest Need without a Funding
Allocation. These census tracts and block groups have NSP eligible areas but the county
did not meet the threshold allocation requirements. NSP activities may be conducted by
Continuum of Care grantees in these areas.
(Note to grantees: An address search through www.factfinder.census.gov is an easy way to
obtain census tract and block group information.)
4.2(b) Determining National Objective
Next, grantees should determine and document whether the project meets one of the
National Objectives in that it:
A. Provides or improves permanent residential structures that will be occupied by a
household whose income is at or below 120% of the area median income (LMMH).
B. Serves an area in which at least 51% of the residents have incomes at or below
120% of the area median income (LMMA).
C. Serves a limited clientele whose incomes are at or below 120% of the area median
income (LMMC).
5. NSP Eligible Activities
To receive NSP assistance, a project must conform to one of the five eligible uses for NSP funds.
5.1 Eligible Use A
Establish financing mechanisms for purchase and redevelopment of foreclosed upon homes and
residential properties, including such mechanisms as soft‐seconds, loan loss reserves, and
shared‐equity loans for low and moderate income homebuyers. This includes activity delivery
costs as an eligible activity.
There are a number of possible applications for NSP funds under eligible use “A”, all of which
involve some form of loan or credit enhancement, e.g. purchase money first mortgages, soft
second mortgages, shared equity loans, etc. The basic requirements for an NSP‐assisted project
under eligible use “A” are as follows:
5.1(a) Evidence of Foreclosure
Eligible use “A”, Financing Mechanisms, pertains only to “foreclosed upon homes and residential
properties”. HERA defines “foreclosed” as “the point that, under state or local law, the
mortgage or tax foreclosure is complete and title for the property has been transferred from the
former homeowner under some type of foreclosure proceeding or transfer in lieu of foreclosure,
in accordance with state or local law.”
Therefore a grantee proposing a project under eligible use “A” would be required to first
demonstrate that the property has been transferred from the former homeowner under some
type of foreclosure proceeding or transfer in lieu of foreclosure in accordance with state law.
The most common evidence of such a transfer would a title opinion or title policy. THDA will
accept either as evidence of foreclosure.
i. Tax Foreclosures
Tax foreclosures are allowed under NSP regulations. However, THDA does not
recommend purchases of property from tax foreclosure sales due to the potential
title issues that could get passed on to the buyer who eventually purchases the
property. Grantees proposing projects involving tax foreclosures will be required to
provide adequate title insurance that insures over the right of redemption in the
hands of any party and insures over any flaws in the tax foreclosure sale process.
Grantees should note that for NSP purposes, a “home” is interpreted by HUD to mean any type
of permanent residential dwelling unit, such as a detached single family structure, a townhouse,
a condominium unit, a multi‐family rental apartment (covering the entire property). “Residential
properties” would include all of these dwelling units plus vacant land that is currently designated
for residential use such as through zoning.
5.1(b) Income Determination
NSP assisted homebuyers or renters must have an income of 120 percent or less of the area
median income. So, grantees will be required to provide evidence that the beneficiary
household is income eligible to own or rent an NSP funded unit.
Unlike the CDBG program, NSP requires that all of the funds be used with respect to
individuals and families whose income does not exceed 120% of area median income.
i. "Low income” means a household whose income does not exceed 50% of the area
median income, adjusted for family size;
ii. "Moderate income" means a household whose income exceeds 50% of the area median
income, adjusted for family size, but does not exceed 80% of the area median income,
adjusted for family size; and,
iii. “Middle income” means a household whose income does not exceed 120% of the area
median income, adjusted for family size.
Exhibit 4 indicates the 2009 NSP Income Limits. The income limits are posted on the THDA
website at thda.org and are updated annually. For NSP, THDA will use the income
definitions of the Section 8 program to determine annual income. Exhibit 5 provides
guidance for grantees in determining income eligibility. Exhibit 6 is the Income Certification
Worksheet to be used by NSP grantees.
5.1(c) Continued Affordability
To ensure that NSP assisted units remain affordable for as long as possible, NSP‐assisted
units must be deed restricted. These restrictions are in the form of a note, deed of trust and
affordability restriction that are recorded for a specified period of time based on the
amount of NSP subsidy and the proposed use of the property. The Grant Note, Deed of
Trust, and Affordability Restriction to be used by grantees are included as Exhibit 7 of the
manual. Grantees are expected to use only THDA’s version of these documents.
The period of affordability for NSP subsidized homes is similar to the HOME Program
requirement at 24 CFR 92.254(a)(4) as follows:
NSP FUNDS PROVIDED AFFORDABILITY PERIOD
Under $15,000 5 Years
$15,000 to $40,000 10 Years
Over $40,000 15 Years
All Rental Projects 10 Years
Also see Section 6.3 below.
5.2 Eligible Use B
Purchase and rehabilitate homes and residential properties that have been abandoned or
foreclosed upon, in order to sell, rent or redevelop such homes and properties. This also
includes relocation costs, direct homeownership assistance and housing counseling.
Eligible use B applies to properties that meet the NSP definition of foreclosed‐upon (see
definition of foreclosed above in 5.1 A. above) or that have been abandoned which HERA defines
as “when mortgage or tax foreclosure proceedings have been initiated for that property, no
mortgage or tax payments have been made by the property owner for at least 90 days, AND the
property has been vacant for at least 90 days.” Grantees should note that the THDA NSP
requirements for evidencing foreclosure will be the same as outlined above as will the HUD
interpretations of “home” and “residential properties.”
5.2(a) Abandonment
As indicated, the determination of abandonment has three components. If a grantee
proposes a project for an abandoned property, all of the following information will be
required:
i. Evidence that the mortgage or tax foreclosure proceedings have been initiated,
such as a copy of public notices from a local newspaper, a letter from a receiver
or substitute trustee, etc.
ii. Evidence that the property owner has paid no mortgage payments or tax
payments within the previous 90 days. Copies of tax records and a written
certification from the mortgage holder would meet this requirement.
iii. Evidence that the property has been vacant for at least 90 days. Copies of utility
records for the specified period would be acceptable for this requirement.
THDA recognizes that there are a variety of ways to establish abandonment. Grantees
proposing to use methods other than those suggested above should consult with THDA staff
prior to making an offer on the property.
5.2(b) Procedures for NSP Property Acquisition
Pre‐Acquisition Procedures
Once the grantee has identified a property for acquisition that is located in an area of
greatest need and prior to submitting a contract to purchase, there are three pre‐
acquisition requirements that must be met. In the event that the time required to
complete these requirements might jeopardize the transaction, grantees may wish to
consider optioning the property subject to the following requirements.
i. Securing a Current Market Appraisal
• Property Value Over $25,000 ‐ The offer to acquire a property with an
anticipated value in excess of $25,000 must be substantiated through a URA
compliant appraisal. This “Current Market Appraisal” as defined by HERA and as
set forth in 49 CFR 24.2(a)(3) must have been completed within 60 days of the
offer to purchase and the offer must be discounted (see “Purchase Discount”
below). It is recommended that grantees require the appraiser to certify
compliance with the URA requirements of 49 CFR 24.2 (a)(3).
• Property Value Under $25,000 ‐ If the anticipated value of the acquisition is less
than $25,000, the value of the property “may be established by a valuation of
the property that is based on a review of available data and is made by a person
the grantee determines is qualified to make the valuation.”
• Voluntary Sale Notification ‐ One additional and very important consideration
is that the grantee must ensure that the owner is informed in writing of the
property’s value and that the grantee will not acquire the property if
negotiations fail to result in an amicable agreement.
(Note: THDA recommends that grantees consult HUD Handbook 1378 for appraisal guidance.
This handbook also has a recommended voluntary sale notification letter template in Appendix
31.)
ii. Establishing a Purchase Discount
Section 2301(d)(1) of HERA requires that any purchase of a foreclosed‐upon home or
residential property under NSP be at a discount from the current market‐appraised
value of the home or property. Even though the HUD NSP Bridge Notice (Federal
Register, Volume 74, No. 117, June 19, 2009) amended the HERA discount requirement
and now allows for a minimum discounted offer of 1%, THDA strongly recommends that
grantees take the costs of holding, marketing and selling the property into consideration
and make reasonable efforts to cover those costs through the negotiated discount.
(Note that the above requirements presume the purchase of the property is a voluntary sale
as defined by URA. If it is not a voluntary sale and if eminent domain is anticipated, grantees
should consult THDA staff prior to making an offer on the property.)
5.2(c) Rehabilitation
Prior to undertaking an NSP funded rehabilitation activity, grantees will be required
to submit a rehabilitation work write up and cost estimate. The work write up
should include the following:
i. Applicable Property Standard
• Compliance with Local Codes ‐ Properties rehabilitated with NSP funds
are required to be brought into full compliance with the local code and
must also be in compliance with local zoning regulations. THDA will
require certification of final codes compliance before authorizing the
final payment to the grantee.
• No Local Code ‐ If there is no local code, grantees will be required to
submit inspection reports and a project completion report from a third
party inspector that evidences compliance with one of the following
International Codes as applicable:
2003 International Building Code for multi‐family apartments of 3
or more units
2003 International Residential Code for One and Two Family
Dwellings for new construction or reconstruction of single family
units or duplexes
2003 International Property Maintenance Code for rehabilitation
of rental units or existing homeowner units
NSP funded rental projects must meet Section 8 Housing Quality
Standards and be inspected annually.
ii. Lead Based Paint Determination
NSP assisted housing built prior to 1978, will be subject to the Lead Based
Paint Poisoning Prevention Act (41 USC 4821 et.seq), 24 CFR Part 35,
Subparts C‐M and the lead based paint provisions of 982.401(j). Rental
projects in which not all units are assisted with NSP funds, lead based paint
requirements will apply to all units and common areas.
iii. Green Building / Energy Efficiency
The work write up should indicate the specific green building and energy
efficiency techniques that will be accomplished in the rehabilitation.
Grantees are encouraged to maximize use of such techniques to the fullest
extent possible.
Iv. Section 504
Section 504 of the Rehabilitation Act of 1973 prohibits discrimination in
federally‐assisted activities and programs on the basis of handicap, and
imposes requirements to ensure that qualified individuals with handicaps
have access to these programs and activities.
• Substantial Rehabilitation ‐ The Section 504 definition of substantial
rehabilitation for multi‐family projects includes construction in a project
with 15 or more units for which the rehabilitation costs will be 75% or
more of the replacement cost. In such developments, a minimum of 5%
of the units in the project (but not less than one unit) must be accessible
to individuals with mobility impairments, and an additional 2%, at a
minimum, (but not less than one unit) must be accessible to individuals
with sensory impairments. As in the case of new construction, the total
number of units in a NSP‐assisted, regardless of whether they are all
NSP‐assisted, is used as the basis for determining the minimum number
of accessible units, and, in a project where not all of the units are NSP‐
assisted, the accessible units may be either NSP‐assisted or non‐NSP‐
assisted.
• Less Than Substantial Rehabilitation ‐ When rehabilitation less
extensive than substantial rehabilitation is undertaken in projects of 15
or more units, alterations must, to the maximum extent feasible, make
the units accessible to and usable by individuals with handicaps, until a
minimum of 5% of the units (but not less than one unit) are accessible
to people with mobility impairments. For this category of rehabilitation,
the additional 2% of units requirement for individuals with sensory
impairments does not apply. Alterations to common spaces must, to
the maximum extent feasible, make those areas accessible.
v. Procurement
Solicitation of bids for goods and services, and, professional services, must be
open and competitive and fully documented as follows:
a. Grantees must solicit a minimum of 3 bids using formal advertising or
requests for proposals.
b. Grantees must have written procedures for procurement and a defined
rationale for bid selection.
c. Grantee procurement policies must comply with 24 CFR 85.36 (cities
and counties) and 24 CFR 84.40‐48 (non‐profit organizations).
5.3 Eligible Use C
Establish and operate land banks for homes and residential properties that have been
foreclosed upon. The land bank may not hold the property for more than 10 years
without obligating the property for a specific, eligible redevelopment of that property
in accordance with NSP requirements.
NSP funded land banking activities pertain only to foreclosed upon properties. Section 5.1(a)
above defines foreclosure and sets out the process for evidencing foreclosure. The NSP funds
for land banking must correlate with an eligible activity under 24 CFR 570.201 (a) Acquisition
and Disposition.
HERA placed some specific requirements on NSP funded land banking activities:
5.3(a) Organizational Purpose
Grantees that undertake a land banking activity must be “a governmental or non‐
governmental non‐profit entity established, at least in part, to assemble, temporarily
manage and dispose of vacant land for the purpose of stabilizing neighborhoods and
encouraging re‐use or redevelopment of urban property.” Grantees proposing land
banking activities with NSP funds, should ensure that the organization’s purpose as
reflected in its charter, meets this definition and amend the charter if necessary.
5.3(b) Defined Service Area
The land bank must operate in a specific, defined geographic area. Grantees must
determine and document the actual service area benefitting from the land banking
activities in accordance with NSP regulations.
5.3(c) Plan for Future Use and Handling Ongoing Expense
The grantees must limit land banking activities to those properties that have no
designated specific eligible redevelopment use in accordance with NSP requirements.
THDA requires that the grantee submit a specific plan to redevelop the property or
properties; and also, a plan for funding the ongoing costs of holding the property during
the period between the expiration of this Contract term and the expiration of the land
bank.
5.3(d) Government Grantee That Does Not Own the Property
If the grantee is a governmental entity, it may maintain foreclosed property that it does
not own, provided it charges the owner of the property the full cost of the service or
places a lien on the property for the full cost of the services.
5.3(e) Timeframe
The land bank may hold property for only 10 years.
5.4 Eligible Use D
Demolish blighted structures.
Before undertaking NSP funded demolition activities grantees must ensure that the subject
structure meets the HERA definition of “blighted” which is “when it exhibits objectively
determinable signs of deterioration sufficient to constitute a threat to human health, safety, and
public welfare.” As a general rule local governments will have a definition of blight that can be
used by grantees to determine blight. In this case, grantees should obtain written
documentation from the appropriate local government entity that the property is blighted, that
the owner has been properly notified regarding the demolition and that there is a legislative
process in place to allow the demolition.
There is no requirement that a property to be demolished be either foreclosed or abandoned.
Additionally, any type of structure may be demolished under eligible use D including
commercial, industrial or residential properties.
(Grantees should note that the one‐for‐one replacement requirement in Section 104(d) of the
Housing and Community Development Act and HUD’s Residential Anti‐Displacement and
Relocation Assistance Plan at 24 CFR 570.488, 570.606(c) and 42.375 are waived for low and
moderate income dwelling units demolished or converted in connection with an activity assisted
with NSP funds. However, all other Uniform Act regulations remain in effect.)
5.5 Eligible Use E
Redevelop demolished or vacant properties as housing, including the new construction of
housing to redevelop demolished or vacant properties.
Eligible use “E” allows for a wide range of activities including: acquisition, disposition, public
facilities and improvements, public services for housing counseling (beneficiaries are limited to
prospective purchaser or tenants of the redeveloped properties), relocation, and direct home
ownership assistance (eligible rehabilitation and preservation activities for demolished or vacant
properties and community based development organizations).
5.5 (a) Property Acquisition for Eligible Use E
The property acquisition and rehabilitation requirements for Eligible Use E are the same as
those referenced above in Eligible Use B (Section 5.2) except that:
• There is no requirement that a property either be foreclosed or abandoned but it must
be vacant,
• The definition of vacant property includes vacant land as well as property with vacant
structure(s) .
• The property can be of any type e.g. commercial, industrial or residential.
5.5 (b) New Construction
Grantees undertaking new construction projects should provide plans and specifications and a
cost estimate for review by THDA. Grantees should use the same procedures as referenced in
5.2 above except as follows:
• Property Standard – Grantees with no local code are required to meet the standards of
the 2003 International Residential Code for One and Two Family Dwellings and the 2003
International Energy Conservation Code for new construction or reconstruction of single
family units and duplexes
• Section 504 ‐ For new construction of multi‐family projects (five or more units), a
minimum of 5% of the units in the project (but not less than one unit) must be
accessible to individuals with mobility impairments, and at a minimum, an additional 2%
of the units (but not less than one unit) must be accessible to individuals with sensory
impairments. The total number of units in a NSP‐assisted project, regardless of whether
they are all NSP‐assisted, is used as the basis for determining the minimum number of
accessible units. Also, in a project where not all the units are NSP‐assisted, the
accessible units may be either NSP‐assisted or non‐NSP‐assisted.
5.6 Ineligible Activities
A. Activities ineligible under the CDBG program;
B. Foreclosure prevention activities;
C. Demolition of structures that are not blighted; and
D. Pay for any cost that is not eligible under NSP.
6.0 General Program Requirements
Once the eligible use is determined, each activity to be undertaken has NSP requirements.
6.1 Sale of NSP Funded Units to Income Eligible Homebuyers
Grantees proposing to acquire real property using NSP funds must buy the property at a
discounted price as referenced above in 5.2.b(i). The subsequent sales price of the property to
an NSP income eligible buyer must comply with several requirements:
• The sales price may not exceed the cost to acquire and rehabilitate/redevelop the property.
• To determine the sales price, grantees should aggregate the discounted purchase price, the
rehabilitation or redevelopment costs as applicable including the related project delivery
costs and costs related to the sale of the property.
• The sales price cannot include carrying costs such as lawn mowing, maintenance, or
boarding up the property when necessary.
• If there are no rehabilitation or redevelopment costs involved, the costs of the sales
transaction or other disposition may not be included in the determination of the sales price.
(Note that the carrying costs and the disposition costs related to non‐rehabilitated / redeveloped
properties are NSP eligible costs and may be charged to the grant. However, they cannot be
included in the sales price.)
6.2 NSP Funded Homebuyer Programs
Grantees undertaking homebuyer programs with NSP funds must meet the following
requirements:
• The household income must be at or below 120% of the area median income as defined by
the Section 8 Rental Assistance Program.
• The household must occupy the property as his/her principal residence.
• The property must be a single‐family (1‐4 family residence, condominium, unit or
combination manufactured home and Lot).
• The homebuyer must make an out‐of‐pocket contribution to the purchase of the home
equal to 1% of the purchase price.
• The household must complete a homeownership education program from a HUD certified
homebuyer education counselor prior to closing.
• The household must obtain fee simple title to the property.
• The permanent financing must be a THDA Great Rate mortgage, a USDA Rural Development
Direct Loan a Habitat for Humanity 0% mortgage loan, or other non‐profit sponsored first
mortgage loan with prior approval of THDA.
6.3 Homebuyer Subsidy Discount
Grantees may reduce the sales price of the home by as much as 50% to make the home more
affordable to an income eligible buyer. The subsidy discount will be a soft second mortgage
secured by a grant note and deed of trust, subject to the following affordability restrictions:
• The subsidy will be forgiven as long as the household continues to reside in the unit as its
principal residence during the period of affordability
• If the property is rented or otherwise does not remain the purchasing household’s principal
residence during the affordability period, the entire NSP subsidy must be repaid.
• If the property is sold during the affordability period, the amount of the NSP subsidy to be
returned will be pro‐rated based on the remaining years in the affordability period and the
net proceeds will be shared. (For example: a property with a 10‐year affordability period
that is sold in the 6th year would return 40% of the original subsidy and one‐half the net
proceeds. Net Proceeds = Sales Price minus closing costs minus non‐NSP loans.)
• Refinancing the first mortgage at any time during the affordability period will require
repayment of the full amount of NSP subsidy.
6.4 NSP Funded Rental Programs
Grantees may develop affordable rental housing for low, moderate and middle income
households through new construction, conversion, acquisition, and acquisition and
rehabilitation subject to the following requirements:
• NSP assisted units must remain affordable for a ten‐year period of affordability regardless of
the amount of NSP investment. The affordability period will be secured with a grant note,
deed of trust and restrictive covenant.
• The maximum allowable rent for an NSP assisted unit is the High Home Rent. The HOME
Program Rents are Exhibit 8 of the manual.
• The household income of the tenant must be at or below 120% of the area median income
as defined by the Section 8 Rental Assistance Program.
• Tenant income must be certified at the time of initial occupancy and upon subsequent
occupancy by a new tenant.
• Rental units must comply with Standard Housing Codes or Section 8 Housing Quality
Standards and must be re‐certified annually.
6.5 Program Income
Revenue received by a state, unit of local government or a subrecipient that is directly
generated from the use of NSP funds constitutes CDBG Program Income and must be treated in
compliance with 24 CFR 570.504. Program income derived from Tennessee NSP projects must
be returned to THDA to be reallocated for NSP eligible activities.
7. Continuum of Care Grantees
Twenty‐five percent of Tennessee’s allocation is reserved for the development of permanent or
permanently supportive housing for households at or below 50% of the area median income. THDA is
making that 25% set‐aside available through those State Continuum of Care agencies that are located in
non‐Entitlement cities.
Considerations for Continuum of Care grantees:
A. Non‐permanent housing such as homeless shelters, nursing homes, etc. is not eligible under the
set‐aside.
B. Such uses are eligible NSP activities as public facilities under eligible use “E,” however THDA
cannot count them toward the statutorily mandated set‐aside.
C. The set‐aside applies only to “the purchase and redevelopment of abandoned or foreclosed
homes or residential properties (see 5.1, A above).
D. Grantees should note that any of the five eligible uses of funds can be applied to an allocation
under the set‐aside, but in the case of eligible uses” D” and ”E,” the more stringent requirement
of abandonment or foreclosure will apply. For example, in the case of eligible use “D” the
property must not only be blighted, it must also be either abandoned or foreclosed upon. In the
case of eligible use “E,” the property must be vacant and either abandoned or foreclosed upon.
8. Applicable Federal Programs
The following Federal regulations are applicable to NSP. Grantees should note that portions of some
of these regulations were amended by HERA.
1. Section 570.601 Equal Opportunity and Fair Housing;
2. Section 570.602 Affirmative Marketing;
3. Section 570.603 Labor;
4. Section 570.604 Environmental Review;
5. Section 570.605 National Flood Insurance Program;
6. Section 570.606 Displacement, Relocation and Acquisition;
7. Section 570.608 Lead-Based Paint;
8. Section 570.609 Debarred, Suspended or Ineligible Contractors or Subrecipients;
9. Section 570.611 Conflict of Interest;
10. Section 85.36 (Cities and Counties) or 84.40-84.48 (Non-profits) Procurement, as
applicable; and
11. Executive Order 12372.
