1. (a) Purpose and Overview. The Texas Department of Housing and Community Affairs (the "Department") intends to administer programs with compliant partners. Development owners, sub-recipients, non-profit, and for-profit organizations who have previously received Department funding and failed to comply with state, federal, and/or program rules may be excluded from participation.
2. (b) Definitions. Capitalized terms are defined in Chapter 10, Subchapter A, §10.3 of this title (relating to Definitions). Any capitalized terms not specifically defined in §10.3 of this title, shall have the meaning as defined in Texas Government Code, Chapter 2306, §42 of the Internal Revenue Code (the "Code"), 24 CFR Part 92 (HOME Final Rule), and other Department rules as applicable.

3. (c) Applicability. A review of a person's previous participation in all Department programs will be conducted prior to:

   1. (1) providing any Department funding, with the exception of individuals awarded funds through Household Commitment Contracts and Participating Lenders in the Department's Texas Homeownership Division Programs;
   2. (2) approving an ownership transfer request of a Development monitored by the Department;
   3. (3) executing a Carryover Allocation;
   4. (4) modifying a Loan;
   5. (5) modifying a contract that results in additional funding;
   6. (6) closing a loan or executing a contract if more than one-hundred-twenty (120) days have elapsed from the date of Board approval;
   7. (7) processing a request for a Qualified Contract; or
   8. (8) approving an Entity as a Reservation System Participant.

4. (d) Scope. During the previous participation review, it will be determined if the requesting entity or any person controlling the requesting entity:

   1. (1) owes the Department any fees;
   2. (2) is sixty (60) days or more delinquent on a loan payment;
   3. (3) has failed to provide proof of taxes paid or insurance as required by a Deed of Trust;
   4. (4) has a past due single audit or single audit certification form;
   5. (5) has any unresolved monitoring findings and/or disallowed expenditures identified by the Contract Monitoring or Community Affairs Monitoring sections of the Compliance Division;
   6. (6) is on cost reimbursement with a Community Affairs program;
   7. (7) is on the Department's or any federal agency's debarred, suspended or excluded list;
   8. (8) controls a Development monitored by the Department that is in Material Noncompliance;
   9. (9) controls a HOME Development with any uncorrected issue of noncompliance required by the HOME Final Rule (even if the property is not in Material Noncompliance);
   10. (10) controls an NSP Development with any uncorrected issue of noncompliance required by FR-5447-N-01, October 19, 2010, as amended or FR-5660-N-01, November 27, 2012, as amended (even if the property is not in Material Noncompliance); or
   11. (11) has a Department contract that is suspended at the time of the Previous Participation review.
5. (e) Issues identified during review. If any of the criteria listed in subsection (d) of this section are met, the entity will be notified of the issue and provided five (5) business days to submit all necessary corrective action to resolve the issue(s). The notification will be in writing and may be delivered by email. For rental Developments in Material Noncompliance, the effective score will be at the end of the five (5) business days. If the entity does not resolve the issue(s), the application or request will be terminated. In the event that the review is being conducted for a noncompetitive funding source where there is no application or request to terminate, staff will prepare a report to the Board identifying the entity and the issue as provided in subsection (j) of this section. If the request is terminated, the Board has the ability to reinstate the request for assistance for consideration as provided in subsections (k) and (l) of this section.
6. (f) Timing. Previous participation reviews may be conducted prior to the Board meeting when funds will be awarded. If the previous participation review cannot be completed prior to the Board meeting when funds will be awarded, the award will be contingent upon the requesting entity successfully clearing the previous participation review. If the action is not subject to Board approval, the previous participation review will be conducted prior to the Department executing an agreement for assistance.

7. (g) Exceptions:

   1. (1) the previous participation of an individual elected official affiliated with an application or request from a city, county, or local government will not be considered provided that they are not the contract executor;
   2. (2) in general, the previous participation of a member of a nonprofit Board will not be considered unless they are the Executive Director, Chair of the Audit Committee, Board Chair, or any member of the Executive Committee. However, if it is determined that any member of the Board of the Nonprofit is on the Department's or federal agency's debarred list, the request for assistance will be terminated. If within the five (5) business day period referenced in subsection (e) of this section, the party with noncompliance resigns from the Board of the nonprofit, the noncompliance will not be taken into consideration;
   3. (3) the Department will not take into consideration the score of a Development that the requesting entity has not controlled for at least three (3) years;
   4. (4) the Department will not take into consideration the score of a Development for which the Affordability Period ended over three (3) years ago;
   5. (5) the Department will not take into consideration the points associated with events of noncompliance during the period of time that the requesting entity did not control the Development;
   6. (6) the Department will not take into consideration the score attributed to a Development for noncompliance with the CDBG Disaster Recovery Program or the FDIC's Affordable Housing Disposition Program;
   7. (7) if a requesting entity no longer controls a Development but has controlled the Development at any time in the last three (3) years, the Department will determine the score for the noncompliance events with a date of noncompliance identified during the time the requesting entity controlled the Development. If the points associated with the noncompliance events identified during the requesting entity's control of the Development exceed the threshold for Material Noncompliance, the request for assistance will be terminated but may be subject to reinstatement by the Board as provided in subsections (k) and (l) of this section; or
   8. (8) Work Out Developments. The fees, loan payments or events of noncompliance affiliated with a work out development may or may not be taken into consideration. Example: a Work-Out Development is more than sixty (60) days delinquent on loan payments. If the entity and Department staff are actively working to modify and restructure the loan and have entered into a written agreement to modify the loan this would enable the Development to come into compliance.

8. (h) Partial Previous Participation reviews:

   1. (1) a full previous participation review will not be conducted at the time an owner requests IRS Form 8609. However, HTC Developments with any uncorrected issues of noncompliance or with pending notices of noncompliance will not be issued Form 8609s, Low Income Housing Credit Allocation Certifications, until all events of noncompliance are corrected;
   2. (2) a full previous participation review will not be conducted prior to a Land Use Restriction Agreement (LURA) amendment. However, LURAs will not be amended if the subject Development has any uncorrected issues of noncompliance (other than a provision being amended) or owes fees. No previous participation review will be conducted to amend a technical error to a LURA or other use agreement; and
   3. (3) a full previous participation review will not be conducted prior to a contract extension. However, contract extension requests may be denied if there are uncorrected issues of noncompliance with the subject contract or if a response to a department notification is pending.
9. (i) Previous participation review for ownership transfers. Consistent with this section, the Department will perform a previous participation review prior to approving any transfer of ownership of a Development or any change in the Owner of a Development. The previous participation review shall be conducted with respect to the Developments controlled by the person coming into ownership, not with respect to the Development or Owner being transferred. If the property being transferred has any uncorrected issues of noncompliance or is in the corrective action period, the proposed incoming owner must provide a corrective action plan identifying dates of correction for any outstanding issues. The Department may deny the transfer of ownership based on financial capacity or lack of adequate relevant experience. The Department may require incoming owners to attend program training.
10. (j) Previous participation review for noncompetitive funding. Consistent with this section, the Department will perform a previous participation review prior to providing any Department funding. However, certain funds administered by the Department are provided through a noncompetitive formula allocation where there is no application or request to terminate as referenced in subsection (e) of this section. In that event, if the person does not correct the issues identified during the five (5) day period referenced in subsection (e) of this section, staff will prepare a report to the Board identifying the person and the issue(s) that have been identified. After reviewing the report, the Board may, within federal or state program guidelines and any requirements of due process, proceed with providing the funding with or without conditions, direct the staff to initiate defunding the agency, direct staff to procure an alternative provider of the services or take other such actions as it deems appropriate.
11. (k) Temporary Suspension of Previous Participation reviews. An entity whose request for assistance is terminated may request reinstatement. This process is separate and distinct from the waiver and appeals processes outlined in Chapter 10 of this title (relating to Uniform Multifamily Rules). The request must be in writing and must be submitted to the Department within five (5) business days of the date of the Department's letter notifying the requesting entity of the termination/denial. A timely filed request for reinstatement shall be placed on the agenda for the next Board meeting for which it can be properly posted.

12. (l) If an Application for assistance was terminated, the Board may consider reinstatement of the application only in the event that it determines, after consideration of the relevant, material facts and circumstances that:

    1. (1) it is in the best interests of the Department and the state to proceed with the award;
    2. (2) the award will not present undue increased program or financial risk to the Department or state;
    3. (3) the applicant is not acting in bad faith; and
    4. (4) the applicant has taken reasonable measures within its power to remedy the cause for the termination.
13. (m) Reinstatement of a terminated Application or request for assistance merely makes the Application eligible to be considered and does not, in and of itself, constitute approval.
14. (n) A request for assistance properly terminated because the requesting entity or any person controlling the requesting entity is on the Department's or a federal agency's debarred list cannot be reinstated for consideration. The request for assistance can be re-submitted, if the person or entity that is on the debarred list is no longer part of the requesting entity.
15. (o) The Board may provide a suspension of previous participation reviews for a single award or action or at their discretion for set period of time. In the event that the Board chooses to suspend previous participation reviews for a set period of time, the conditions existing at the time the reviews were suspended will not be taken into consideration. However, if there are any new events of noncompliance or any new issues described in this subsection (d) of this section, the matter will be brought back to the Board for consideration.
16. (p) An entity may not request a suspension of previous participation reviews prior to applying for funding or requesting assistance.

Source Note:The provisions of this §1.5 adopted to be effective December 5, 2012, 37 TexReg 9494; amended to be effective May 5, 2013, 38 TexReg 2617.