The MPDU Process for Developers and Builders

• Introduction
• Planning and Development Review Process
• Required Agreement Related to MPDUs
• Determining Sales Prices and Rents for MPDUs
• The Sales/Rental Process for MPDUs

Introduction

This summary briefly describes for developers/builders the regulatory process for developing Moderately Priced Dwelling Units (MPDUs) in Montgomery County.  Please note that the actual laws implementing the MPDU program in Montgomery County are found in Chapter 25A (the Moderately Priced Housing Law) and Chapter 59 (the Zoning Ordinance) of the Montgomery County Code, 2004, as amended.  This summary is intended to supplement those sources - please refer to these laws to fully reference and understand the requirements of the MPDU program.  The Montgomery County Code can be referenced online here.

Planning and Development Review Process

Minimum Threshold and Percentage Required

The requirement to provide a certain percentage of Moderately Priced Dwelling Units (MPDUs) applies to any new development in Montgomery County with 20 or more units.  This requirement applies even if the development is phased in over time.  The law specifically requires a developer to identify all land in the County that the developer owns or controls that is suitable for development so that the law can not be circumvented by breaking a development up in to separate developments of 19 units or fewer. 

The percentage of MPDUs required varies from 12.5% to 15% of the total number of units in the development, with the actual percentage for any particlular development based upon the density bonus achieved.  Developments that receive no density bonus are still required to provide 12.5% of the total number of units as MPDUs.

The actual percentage and number of MPDUs required is set by the Montgomery County Planning Board at the time it approves the preliminary plan and/or site plan for the development.  Please contact the Maryland-National Capital Park and Planning Commission (M-NCPPC) for information on the development review and approval process.  In addition, please review the site plan guidelines for developments with MPDUs. 

Required Agreement Related to MPDUs

There are two main agreements the developer/builder must execute with the Department of Housing and Community Affairs (DHCA) relating to MPDUs.  The first is the Agreement to Build Moderately Priced Dwelling Units, which is required before building permits may be obtained.  The second is an Offering Agreement, which is submitted to DHCA once the developer (or the builder) is ready to make the MPDUs available for sale or rent to eligible MPDU certificate holders.

When the developer and the builder(s) are separate, please note that the Agreement to Build is executed between DHCA and the developer, while individual Offering Agreements are executed between DHCA and the builder(s) offering the units.  In all case, however, Montgomery County law recognizes the developer as the responsible entity for ensuring that the MPDUs are provided as required.

The Agreement to Build MPDUs

Once the MPDU requirement has been set as part of the development review and approval process, the developer must execute an Agreement to Build Moderately Priced Dwelling Units with the DHCA.  This agreement must be executed before building permits will be issued by the Department of Permitting Services (DPS).

Along with the standard form document, the Agreement to Build must include:  (1) a listing of the individual addresses of the MPDUs and the market rate units; (2) an unexecuted copy of the standard MPDU restrictive covenants (either for sale or rental, depending on the development); and (3) a copy of the final approved site plan with the MPDUs clearly highlighted.  Assuming the developer submits a complete and acceptable Agreement, DHCA will make every effort to return the executed document within 7 to 14 days so that the developer/builder may obtain building permits.

The Agreement to Build is the document that enforces the development requirements of Section 25A-5 of Chapter 25A (the Moderately Priced Housing law).  Among other things, this agreement must require that:

• a specific number of MPDUs must be constructed on an approved time schedule;
• in single-family dwelling unit subdivisions, each MPDU must have 3 or more bedrooms; and
• in multi-family dwelling units subdivisions, the number of efficiency and one-bedroom MPDUs each must not exceed the ratio that market-rate efficiency and one-bedroom units respectively bear to the total number of market-rate units in the subdivision.

Additionally, the Agreement requires that the construction phasing requirements for building MPDUs comply with the law so that:

• MPDUs are built along with or before other dwelling units;
• no or few market rate dwellings are built before any MPDUs are built;
• the pace of MPDU production reasonably coincides with the construction of market rate units; and
• the last building built must not contain only MPDUs.

Please refer to Chapter 25A to review the full requirements of the law.

Amendments to the Agreement to Build

If at any time the MPDU requirement for a development changes (due to a site plan amendment, for example), or if the construction schedule contained in the agreement changes, the developer must notify DHCA and  request an amendment to the agreement to build to reflect the changes.  Failure to do so may result in sanctions ranging from "stop permitting" orders to civil fines.

MPDU Offering Agreements

At the time the MPDUs are ready to be offered for sale or rent to eligible MPDU certificate holders, the developer/builder must submit an Offering Agreement to DHCA for its review and approval.  In "for sale" developments, the Offering Agreement may be submitted no more than 365 days from the expected delivery date of the MPDUs.  Larger developments, or developments that are built out over a greater length of time, may require more than one Offering Agreement to make all the required MPDUs available to certificate holders.  DHCA staff will work with developer/builders to schedule multiple offerings in the most efficient manner. 

For rental developments, the Offering Agreement may be submitted up to 120 days from the date the rental units will be available for use and occupancy by qualified tenants (as determined under the county's building code requirements).  In the case of staggered unit delivery over a longer period of time, more than one offering agreement may be required.

At a minimum, the Offering Agreement must contain:

• the applicable standard form Offering Agreement (either for sales units or rental units) with the number of units indicated;
• the lot/block, street addresses, and tax account numbers of the MPDUs;
• a recorded subdivision plat, a copy of the approved preliminary plan and/or site development plan designating the location of the MPDUs;
• an executed copy of the applicable covenants (in recordable form);
• a copy of the floor plans for of each unit type; and
• completed price calculation worksheets for each unit type (for sales units), or approved rent schedule by unit type (for rental units).  Additional information on setting sales prices and rents is included below.

Notifying HOC  Once DHCA has approved the Offering Agreement, DHCA staff notifies the Montgomery County Housing Opportunities Commission (the County's public housing authority) and certain non-profit organizations of the offering.  These agencies have 21 days to review the offering and make their selection of units, if any.  (Under law, HOC and the non-profits are eligible to purchase up to 40% of the units offered; HOC may choose up to 33% of the units for itself).  If any of these agencies choose to purchase some of the MPDUs, that agencies' staff will work directly with the developer/builder's sales agent.

MPDU Lottery  Concurrently with the above agencies' review, DHCA staff will work with the sales agent to finalize the lottery flyer that will be sent to MPDU certificate holders, and to schedule the lottery.  The lottery is scheduled so that it will occur shortly after HOC and the non-profits announce their decision.  The 90 day priority offering period required under the MPDU law begins on the date of the lottery (the "priority offering period" is that period of time during which the MPDUs may only be offered to eligible MPDU certificate holders).

From the lottery drawing, DHCA will generate a list of names that will be immediately forwarded to the developer's sales agent.  DHCA usually picks 2 to 2.5 times as many names as there are MPDUs available to send to the sales agent.  The sales agent then contacts the MPDU certificate holders in the order that their names appear on the list to arrange for a sales meeting.  If the sales agent has MPDUs left over after the initial lottery list is exhausted, the agent must contact DHCA to request more names.  This process is repeated as often as necessary during the 90 day priority marketing period.

If, towards the end of the 90 day priority market period, it appears MPDUs will remain after all the names provided by DHCA have been exhausted, the developer/builder must contact DHCA to discuss next steps.

Determining Sales Prices and Rents for MPDUs

Developers/builders may hold initial discussions with DHCA staff to explore sales prices and rents at any time during the development and planning phases (this is especially true in the case of high cost, high rise buildings).  However, the final sales prices and rents for MPDUs are set at the time the developer/builder submits, and DHCA approves, an Offering Agreement for a specific number of MPDUs in a development.  The methodology used to determine sales prices and rents for MPDUs is outlined in the Executive Regulations governing the MPDU program (specifically, Executive Regulations 13-05AM and 75-92). 

Sales prices for MPDUs are developed according to DHCA's minimum specifications and price standards in effect at the time the prices are calculated for inclusion with the Offering Agreement.  Prices are calculated using a sales price worksheet.  DHCA must review the sales prices calculated using these standards, and compare the resulting price against the ability of MPDU certificate holders to afford the unit.  Where a resulting MPDU price is higher than MPDU households can afford, the specifications of the MPDU may need to be revised (such as leaving certain space unfinished, removing a deck, or reducing the grade of the interior finishes).

Minimum Specifications and Prices for Sale MPDUs

For Sale MPDUs

According to the MPDU Executive Regulations, DHCA has established minimum specifications and per square foot construction price standards for sale MPDUs.  DHCA has also set allowable soft costs and applicable soft cost percentages that may be attributable to the construction of an MPDU.  Because the maximum household income of households participating in the MPDU sales program is capped at an annual maximum limit, DHCA must review its MPDU specifications and pricing to balance the need for compensating developers/builders against the ability of MPDU program participants to afford the MPDUs.

In order to help make MPDUs available at an affordable price, DHCA allows, among other things:

• MPDUs may be smaller in terms of square footage;
• the finishes of MPDUs may be of a lower standard than for market rate units (for example, formica countertops instead of granite, and/or standard builder grade cabinetry instead of hard wood finishes, standard builder grade plumbing fixtures instead of top of the line fixtures, etc.); 
• in single-family detached subdivisions, MPDUs may be single-family attached units; and
• some interior space, such as basements, third bedrooms, and lofts, may be left unfinished, and extra bathrooms may be roughed-in, and left unfinished.

Rental MPDUs

The rental rates for MPDUs are set according to a household's ability to pay.  The household maximum income for renters in the MPDU program is set at 65% of the are median income (for the Washington MSA).  DHCA then uses a  housing cost standard under which a households pays no more than 25% of their gross monthly income towards rent.  Rents may be adjusted to reflect utilities paid by the apartment complex.  For detailed information on calculating rental rates for MPDUs, please click here.

Waiver of Certain Fees

Please note that the Systems Development Charge (SDC) imposed by the Washington Sanitary Sewer Commission (WSSC), and the development impact tax collected by DPS may be waived for MPDUs upon request and approval.  To request such a waiver, please send a letter to the MPDU Administrator, with an attachment listing each MPDU by street address and/or unit number.  MPDUs also qualify for "green tape" processing status at DPS.

The Sales/Rental Process for MPDUs

The sales or rental process for an MPDU is a private transaction between the developer/builder and the MPDU certificate holder.  While DHCA certifies program participants as eligible and provides names to the developer/builder, DHCA does not act as an intermediary, or involve itself in the process except in the rare case of a dispute between the two parties.

DHCA does not provide financing, financial assistance, or rental assistance to MPDU purchasers or renters.  Each MPDU purchaser must qualify for and secure their own mortgage financing.  Every MPDU renter must meet the necessary credit checks and income tests as other rental applicants, and must have the resources (which may include rental assistance form third parties) to pay the monthly rent.

The sales and rental agent is a partner in helping DHCA enforce the MPDU program rules.  DHCA does its best to qualify applicants as eligible under the law, but the sales agent is an invaluable resource to help ensure the MPDU program serves the households it is intended to serve.  Each household certified as eligible receives an MPDU Eligibility Certificate (for sales, for rental, or for both).  The primary eligibility criteria are below; if the sale agent discovers a potential purchaser no longer meets these eligibility criteria, please notify DHCA right away:

• MPDU purchasers must be first-time homebuyers (meaning thay can not currently own a home, or have owned a home anywhere within the last 5 years);
• MPDU purchasers and renters must earn below the maximum MPDU income, adjusted for household size, as is indicated on their Eligibility Certificate;
• MPDU purchasers must remain income eligible up to the time their mortgage loan is submitted for underwriting; and
• MPDU renters are certified as income eligible each year; income verifications are conducted by the apartment complex.  MPDU renters may continue to reside in their MPDU as long as they earn below 130% of the maximum MPDU rental income based on their family size.

Sales and Rental Forms

In order to enforce the MPDU program's rules and requirements, DHCA requires several forms for each MPDU purchaser or renter.  Some of the forms are generated by the MPDU program, while others are copies of forms signed at contract signing, leasing date, or settlement.

Sales  The following forms are required for each purchaser of an MPDU; some must be signed at contract signing, and some are due after settlement has occured:

• After Contract Signing (the following must be received at least 30 days prior to settlement)
  • the original copy of the Purchaser's Agreement form
  • the original copy of the purchaser's Acknowledgement of Receipt of Covenants
  • the purchaser's original Certificate of Eligibility from the MPDU office
  • the purchaser's original Homebuyer's Seminar Certificate
  • a copy of the initial sales contract or agreement
• After Settlement (within 45 days)
  • a copy of the final settlement sheet
  • a copy of the two-party deed
  • a copy of the financing statement recorded against the proceeds of sale

Rental  The following documents must be sent to the MPDU office within 14 days of the date of lease ratification on an MPDU rental unit:

• a copy of the lease
• the renter's original Certificate of Eligibility from the MPDU office
• the MPDU Renters Agreement form

Contact Information

For more information on the MPDU program's requirements for developers, builders, and sales agents, please contact Lisa Schwartz, Senior Planning Specialist, MPDU Program.

For information on the process of offering MPDUs for sale, please contact Emilia McCarthy, MPDU Program Manager.  For information on the process of offering MPDUs for rent, contact Maureen Harzinski, MPDU Program Manager.