AN ACT Relating to right of first refusal to purchase federally assisted housing developments; adding a new chapter to Title 59 RCW; and prescribing penalties.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. This chapter may be known and cited as the federally assisted housing purchase act.

NEW SECTION. Sec. 2. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter:

(1) "Department" means the department of community development.

(2) "Director" means the director of the department of community development.

(3) "Federally assisted housing development" and "development" mean a multifamily rental housing development that is defined as "federally assisted housing" under RCW 59.28.020.

(4) "Owner" means an individual, corporation, association, partnership, joint venture, or business entity which holds title to a federally assisted housing development.

(5) "Tenant" means a tenant, subtenant, lessee, sublessee, or other person entitled to possession, occupancy, or benefits of a rental unit within a federally assisted housing development.

(6) "Tenant association" means a group of tenants whose purposes include the acquisition of a federally assisted housing development.

(7) "Low income" means a total household income that is less than eighty percent of the median income for comparably sized households in the standard metropolitan statistical area in which the development is located.

(8) "Very low income" means a total household income that is less than fifty percent of the median income for comparably sized households in the standard metropolitan statistical area in which the development is located.

(9) "Local nonprofit organization" means not-for-profit community or neighborhood-based organizations, including public development authorities, which serve or will serve the area within which the federally assisted housing development is located.

(10) "Local public agency" means a public housing authority, or any other agency of the city, county, or state which is authorized to own, develop, or manage housing or community development projects for persons and families of low income and very low income and which is situated in the area in which the federally assisted housing development is located.

(11) "Regional organization or national organization" means not-for-profit charitable organizations organized on a county, multicounty, state, or multistate basis which have as a purpose the ownership, development, or management of housing or community development projects for persons and families of low or very low income.

(12) "Use restrictions" means any federal, state, or local statute, regulation, ordinance, or contract which, as a condition of receipt of any housing assistance including a rental subsidy, mortgage subsidy, or mortgage insurance, by a federally assisted housing development, establishes maximum limitations on tenant income as a condition of eligibility for occupancy of the units within a development, imposes any restrictions on the maximum rents that could be charged for any of the units within a development, or requires that rent for any of the units within a development be reviewed by any governmental body or agency before the rents are implemented.

NEW SECTION. Sec. 3. (1) An owner of a federally assisted housing development shall not serve a written notice of the anticipated expiration of a rental assistance contract or prepayment of a mortgage or loan, under RCW 59.28.040, terminate a rental assistance contract, prepay a mortgage or loan, cancel or permit cancellation of mortgage insurance, sell, lease, transfer, convey, or otherwise dispose of the development in a manner which would result in either: (a) A discontinuance of its use as a federally assisted housing development; or (b) the termination of any low-income use restrictions which apply to the development, unless the owner or its agent shall first have provided each of the entities listed in subsection (2) of this section, an opportunity to purchase the development at a price and upon terms which represent a bona fide offer for sale, in compliance with section 4 of this act.

(2) The right of first refusal created under this chapter is created and conferred to the following entities in the following order and in accordance with the following priorities:

(a) A tenant association of the development, first priority;

(b) A local nonprofit organization, second priority;

(d) The city or county in which the development is located, fourth priority; and

(e) A regional or national organization, fifth priority.

(3) The eligible entities identified in subsection (2) of this section are entitled to receive a bona fide offer to sell the development and have an opportunity to purchase the development, under section 4 of this act. An eligible purchaser is not, however, automatically deemed a qualified purchaser. For the purposes of this section, to qualify as a purchaser of a federally assisted housing development, an entity listed in subsection (2) of this section shall do all of the following:

(a) Demonstrate to the department that it possesses the financial and organizational capacity to acquire the development and manage the housing and related facilities for their remaining useful life, either by itself, or in cooperation with others.

(b) Agree to obligate itself and any successors in interest to maintain the federally assisted housing development for low-income and very low-income persons and families for the remaining useful life of the development in at least the approximate percentages that those persons and families occupied that development at the date the owner submits a bona fide offer for sale or at least the approximate percentages specified in existing use restrictions, whichever is higher, and agree to seek any additional subsidies that may reasonably be available to attain the most affordable rents and highest percentages of occupancy by those persons and families. A memorandum of this obligation shall be recorded in the department of records of the county in which the development is located.

(c) Have no person among its officers, directors, or those holding legal or beneficial ownership with a financial interest in the federally assisted housing development or with a prior financial interest in a federally assisted housing development that has previously terminated a subsidy contract or prepaid a mortgage on the development. However, an eligible purchaser may have participation by bona fide tenants of the federally assisted housing development and not be disqualified pursuant to this subsection.

(4) If it is not economically feasible for a development to continue to conform to the use and occupancy restrictions described in subsection (3)(b) of this section, a purchaser shall be entitled to remove one or more units from the rent and occupancy requirements as may be necessary for the development to become economically feasible, except that once the development is again economically feasible, the purchaser shall designate the next available unit or units as low-income units until the original number of low-income units has been reestablished. However, any removal of units authorized by this subsection is subject to the prior review and approval of the department.

NEW SECTION. Sec. 4. (1) Before an owner takes any of the actions described in section 3(1) of this act, the owner shall first make a bona fide offer to sell the development to each entity described in section 3(2) of this act which has either been included on a list of all entities maintained by the department and made available to the owner upon request at the time of the bona fide offer to sell, or which has informed the owner that it desires to receive such an offer.

(2) If, at the time the owner is required to make an offer to sell pursuant to this section, the owner is making an offer to sell the development to any other entity or has received an offer to purchase the development from any other entity which the owner is prepared to accept, then the terms of the owner's offer to sell to eligible purchasers under this section shall be no less favorable than those contained in the existing offer to sell or purchase. Terms include, but are not limited to, the purchase price, terms of payment, any contingencies, and any assumable or purchase money financing.

(3) The offer to sell shall be in the form of a written copy of a bona fide offer for sale, as defined in subsection (4) of this section, sent to the entities by registered or certified mail, return receipt requested. The owner shall also post a copy of the offer for sale in a conspicuous place in the common area of the development.

(4) The initial bona fide offer for sale shall be in a form to be approved by the department and shall contain at least the following information and include the following statements with which the owner must comply:

(a) The sales price, the terms of assumable or purchase money financing, if any, the terms of the subsidy contract, if any, and proposed improvements to the development to be made by the owner in connection with the sale, if any;

(b) A statement that each of the entities listed in section 3(2) of this act has the right to purchase the development under this section, in the order and according to the priorities established in section 3(2) of this act;

(c) A statement that the owner will make available to each of the entities listed in section 3(2) of this act, within fifteen days of receiving the request, the regulatory agreement for the development, promissory notes, mortgages or deeds of trust, itemized lists of monthly operating expenses, capital improvements, as determined by the owner, made within each of the two preceding calendar years, the amount of project reserves, and copies of the two most recent financial and physical inspection reports on the development, if any, filed with federal, state, or local agencies;

(d) A statement that the owner will make available to each of the entities listed in section 3(2) of this act, within fifteen days of a request, the most recent rent roll listing the size and income level of each tenant household, the rent paid by each tenant, the subsidy, if any, paid by a governmental agency as of the date of the bona fide offer for sale, and a statement of the vacancy rate at the development for each of the two preceding calendar years;

(e) A statement that the owner will authorize the release to each of the entities listed in section 3(2) of this act, within fifteen days of a request, of any information relating to the physical and financial condition of the development held by any federal, state, or local agency; and

(f) A statement that the owner will permit reasonable access to the development by each of the entities listed in section 3(2) of this act, upon reasonable advance notice, for the purpose of inspection, taking measurements, conducting surveys, or for any other reasonable purpose.

(5) If an eligible entity elects to purchase a federally assisted housing development, it shall deliver either its acceptance or a written bona fide offer to purchase the development within ninety days from the date of delivery or the date of posting of the owner's bona fide offer for sale. A copy of the acceptance or bona fide offer to purchase shall be delivered promptly to the department. As part of this acceptance or offer, the eligible entity shall identify whether it is a tenant association, a local nonprofit organization, a local public agency, a city or county, or a regional or national organization. If the eligible entity accepts the owner's bona fide offer for sale then the parties shall execute a real estate purchase and sale agreement pursuant to subsection (7) of this section subject to any review or selection undertaken pursuant to section 7 of this act.

(6) An owner shall accept or reject a bona fide offer to purchase in writing within fifteen days after its receipt. A copy of the acceptance or rejection shall be delivered promptly to the department. The owner's duty to accept or reject a bona fide offer applies to all offers received by the owner from eligible entities, contingent on any review or selection undertaken pursuant to section 7 of this act. When an owner does not agree to the sales price or terms offered by the eligible entity in the bona fide offer to purchase, either the owner or the eligible entity may request that the value of the development be determined by an appraisal conducted by a qualified appraiser agreed upon by the owner and eligible entity, with each party to pay one-half of the cost of the appraisal. If the owner and eligible entity cannot agree on an appraiser, then the value of the development shall be determined by two independent appraisers qualified to perform multifamily housing appraisals, one of whom shall be selected and paid by the owner, and the other selected and paid by the eligible entity. If the two appraisers fail to agree upon the fair market value, the owner and eligible entity shall agree to either take an average of the two appraisals, or, jointly select and pay a third appraiser, whose appraisal shall be binding on the parties. The appraisal process shall be completed within one hundred sixty-five days after delivery of the owner's initial bona fide offer to sell, however, the appraisal process completion date shall be extended an additional thirty days when a third appraisal is conducted. All appraisers shall possess qualifications equivalent to those required by the members of the appraisers institute. Appraisals obtained by the owner and eligible entities pursuant to this subsection may be used by the owner and eligible entities in connection with other purchase offers unless there has been a significant change in market conditions.

(7) When a bona fide offer for sale has been accepted by an eligible purchaser, when a bona fide offer to purchase has been made to an owner in response to a bona fide offer for sale and the offer is accepted, or when a bona fide offer to purchase is rejected and a purchase price is determined through the appraisal procedure described in subsection (6) of this section, a real estate purchase and sale agreement shall be executed by the owner and the purchaser within thirty days after delivery of the written acceptance or determination of the purchase price through the appraisal process.

(8) The real estate purchase and sale agreement shall be in a form approved by the department and shall include at least the following:

(a) An agreement by the owner to provide the purchaser with all existing loan documents, including regulatory agreements containing any use restrictions as defined by section 2(12) of this act, promissory notes, and the mortgage or deed of trust within fifteen days from the date of the signing of the real estate purchase and sale agreement by all the parties thereto;

(b) An agreement by the owner to permit reasonable access to the development by the purchaser for the purpose of inspection, taking measurements, conducting surveys, or for any other reasonable purpose;

(c) An agreement by the owner and the purchaser that the transaction will close either one hundred eighty days from the date of the real estate purchase and sale agreement or three hundred sixty days from the date of the owner's bona fide offer to sell, whichever is later, or such shorter or longer period of time as may be agreed upon by the parties or directed by the department;

(d) An agreement by the purchaser to make a reasonable earnest money deposit or deposits, which shall be completely refundable, including accrued interest, unless the purchaser succeeds in removing all inspection and financing contingencies, and agrees to either the sales price offered in the owner's bona fide offer for sale, or a negotiated offer for sale, or the sales price determined as the result of the appraisal process described in subsection (6) of this section, in which case the deposit and accrued interest shall be applied towards the purchase of the development.

NEW SECTION. Sec. 5. Except as provided in section 6 of this act, an owner of a federally assisted housing development shall be released from the obligation to offer the right of first refusal to an eligible entity listed in section 3(2) of this act, upon the expiration of the applicable time periods specified in section 4 of this act, and submission of a written certification to the department, signed by the owner under penalty of perjury, that either of the following occurred:

(1) The owner complied with all notice and information requirements pursuant to a bona fide offer for sale of a federally assisted housing development under this chapter and no written acceptance or bona fide offer to purchase was received from an eligible entity or no real estate purchase and sale agreement was executed by an eligible entity within the time periods specified in this chapter; or

(2) An eligible entity that executed a real estate purchase and sale agreement during the applicable time period elected to terminate the agreement, or was unable to meet the terms of the agreement, the owner exercised due diligence in carrying out the conditions of the real estate purchase and sale agreement, and there was no other eligible entity willing to make a bona fide offer to purchase or fulfill the terms of the real estate purchase and sale agreement within the time remaining prior to expiration of the applicable time periods.

NEW SECTION. Sec. 6. During the one-year period after the date of an owner's release from the obligation to offer the right of first refusal to an eligible entity, as specified in section 5 of this act, an owner may make an offer to or accept an offer from an entity that does not qualify as an eligible entity under section 3(2) of this act at the same or different terms and conditions that were offered to an eligible entity in the initial bona fide offer for sale, made under section 4(4) of this act. However, the offer or acceptance shall be subject to the owner providing each eligible entity the first opportunity to purchase the development at the same terms and conditions, which may be modified by mutual consent, as the pending offer to sell or purchase. The owner shall send written notification of the terms and conditions of the pending offer to sell or purchase to eligible entities by registered or certified mail, return receipt requested. The eligible entities shall have sixty days from the date the notice is received to respond to the owner by submitting a bona fide offer to purchase at the same terms and conditions, unless modified by mutual consent, which offer shall be accepted by the owner. The owner shall not be required to comply with the provisions of this section if the entity to which the offer is made or from which the offer is received during this time period agrees to maintain the development for persons and families of low and very low income, in accordance with the provisions of section 3(3)(b) of this act.

NEW SECTION. Sec. 7. (1) Within ninety days of the effective date of this act, the department shall prepare a list of all known entities described in section 3(2) of this act which are eligible to receive a bona fide offer to sell pursuant to section 4(1) of this act. The department shall update the list of eligible entities at reasonable intervals. An entity's inclusion on the department's list of eligible entities does not constitute endorsement or approval of that entity's qualifications or capacity to acquire and manage any development and shall not be construed as such. The department's failure to include an entity on the list shall not deprive an eligible entity of the right to exercise its opportunity to purchase a development pursuant to section 4 of this act.

(2) The department shall develop criteria for determining the financial and organizational qualifications of purchasers and may establish minimum standards which must be met by such purchasers. General criteria will consider the purchaser's knowledge and experience in acquisition and management of similar projects, staff capacity to handle acquisition and management, financial capacity to handle acquisition and management, references regarding experience, and demonstrated interest in effectuating the purposes of this chapter.

(3) The department shall promptly determine the financial and organizational qualifications of any eligible purchaser who has entered into a real estate purchase and sale agreement with an owner for a development under this chapter. The department may determine whether minimum qualification standards have been met by an eligible purchaser before an owner will be required to proceed with the sale of the development under this chapter.

(4) If an owner has entered into more than one real estate purchase and sale agreement with an eligible purchaser or has received more than one offer to purchase from eligible purchasers under this chapter, the department shall, subject to the priorities identified in section 3(2) of this act, determine which purchaser is most qualified to proceed with the purchase of the development and shall advise the owner and eligible purchasers accordingly.

(5) Within ninety days of the effective date of this act, the director shall appoint a task force to develop criteria for evaluating development acquisition opportunities and development acquisition feasibility. The task force will also advise the department on the promulgation of any rules which may be necessary or appropriate to effectuate the purposes of this chapter. The task force shall be composed of nine members including individuals who, in the director's judgment, are generally representative of the interests of the following: Cities, counties, public housing authorities, realtors, mortgage lending or servicing institutions, local nonprofit housing organizations, and tenant organizations. Two at-large members shall also be appointed.

(6) The department shall have the authority to promulgate rules under chapter 34.05 RCW which may be necessary or appropriate to effectuate the purposes of this chapter.

NEW SECTION. Sec. 8. The department may, at its option, record a summary of the requirements of this chapter with the department of records of the county in which the development is located, as to each federally assisted housing development in the state. The summary shall contain a legal description of the assisted housing development, shall state the name of the owner as grantor, and shall impart notice to any encumbrancers, purchasers, or transferees of the requirements contained in this chapter.

NEW SECTION. Sec. 9. The provisions of this chapter may be enforced either in law or in equity by any entity entitled to exercise the right of first refusal, by any tenant in a federally assisted housing development, by the department, or by any other person adversely affected by an owner's or purchaser's failure to comply with the provisions of this chapter.

NEW SECTION. Sec. 10. In addition to any other sanction or remedial procedure which may be available, any owner failing to comply with the requirements of this chapter is subject to a civil penalty of up to twenty-five thousand dollars for each rental unit in a federally assisted housing development that is subject to this chapter. The penalty shall be recovered in a civil action brought on behalf of the state by the attorney general. Any civil penalties collected pursuant to this section shall be deposited in the housing trust fund established under chapter 43.185 RCW.

NEW SECTION. Sec. 11. This chapter does not limit the authority of local jurisdictions to enact laws granting a right of first refusal to purchase federally assisted housing developments within their jurisdiction. If the director determines that a local right of first refusal law provides rights, remedies, and procedures which are substantially equivalent to the rights, remedies, and procedures provided in this chapter, the director shall authorize the local jurisdiction to make an election to require owners to either comply with the local right of first refusal law or comply with the requirements of this chapter. The local jurisdiction shall promptly send written notification of its election to owners of federally assisted housing developments within its jurisdiction.

NEW SECTION. Sec. 12. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION. Sec. 13. Sections 1 through 12 of this act shall constitute a new chapter in Title 59 RCW.