USDA Proposes Mandatory Deed Recording Requirements for Section 538 Rural Rental Housing Program

The Rural Housing Service (RHS) of the U.S. Department of Agriculture has proposed a new rule requiring separate deed restrictions to be recorded for properties financed under the Guaranteed Rural Rental Housing Program (GRRHP). This proposed change aims to ensure affordable housing remains available for low—and moderate-income households in rural areas even after mortgages are paid off.

Key Changes

The proposed rule would amend 7 CFR 3565.352(b) to require:

  • A separate deed restriction must be recorded containing specific restrictive use language.
  • The deed restriction must be recorded before other transaction documentation.
  • The restriction must state that the housing will remain available for low- and moderate-income households for the original loan term.

Background

Section 538 GRRHP, administered under the Housing Act of 1949, provides loan guarantees for developing housing and related facilities in rural areas. While current regulations require properties to remain affordable for the original loan term, they don’t specifically mandate recording a separate deed restriction. This has created a potential loophole: Restrictive use provisions could be released upon loan prepayment if only included in the mortgage or deed of trust.

Significance

The proposed change addresses a critical preservation issue. Without recorded deed restrictions:

  • Affordable housing requirements could be terminated early through loan prepayment.
  • RHS would have limited ability to enforce continued affordability.
  • Rural communities could lose vital affordable housing resources.

Implementation Details

The rule would allow three exceptions to the deed restriction requirement if the RHS determines:

  1. There is no longer a need for low- and moderate-income housing in the market area;
  2. Housing opportunities for low-income households and minorities won’t be reduced, or
  3. Additional federal assistance won’t be needed.

Public Comment Period

Interested parties can submit comments on the proposed rule through January 6, 2025, via:

  • Federal eRulemaking Portal (regulations.gov)
  • Docket Number: RHS-24-MFH-0016
  • RIN: 0575-AD34

Contact Information

For more information, contact: Tammy Daniels
Finance and Loan Analyst
Multi-Family Housing Production and Preservation Division
Rural Housing Service, USDA
Phone: (202) 720-0021
Email: tammy.daniels@usda.gov

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