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01/11/2019

HUD Guidance on How Low Physical Inspection Scores Will be Handled

By A.J. Johnson

On October 29, 2018, HUD issued Notice H-2018-08 to provide guidance to HUD Multifamily staff regarding actions that should be taken when privately owned properties governed by various HUD housing programs score less than 60 or REAC inspections. The notice also explains what should happen if an owner fails to certify within three business days that exigent health and safety (EHS) violations have been corrected.

The notice was effective on October 29, 2018 and applies to projects for which a physical inspection score was released on or after May 5, 2017. Notice H-2018-08 replaces Notices H-2015-02 and 2012-16.

Properties participating in the following programs are subject to the Notice:

Actions to be taken by HUD if a property scores less than 60 on a REAC and/or when an owner fails to certify within three business days that EHS deficiencies have been corrected include:

  1. Issue within 15-days of the physical inspection report a Notice of Violation of Regulatory Agreement (NOV) and/or a Notice of Default of Subsidy Contract (NOD). The NOV/NOD must notify the owner of the violation/default and provide a reasonable time to correct the deficiency - that is, a "cure period." Owners must provide a copy of the NOV/NOD to residents by leaving a notice under each door, posting the notice in the mail room, and on each floor, or by other means. HUD must also provide a copy of the NOV/NOD to the chief executive officer of the locality.
    1. These are two of the most important components of the Notice - both the residents of the property and the local government must be informed about the poor physical condition of the property.
  2. Issue a Demand for Corrective Action (DCA) if a property scores above 60, but HUD staff believes that unsatisfactory conditions exist (this provides a good deal of discretion to HUD staff). The DCA may require the owner to perform a unit survey and conduct necessary repairs.
  3. Conduct a REAC inspection to ensure that all deficiencies have been corrected. The timeframe for conducting the reinspection depends on whether the REAC score was 30 or less.
    1. If the score is 30 or less, the re-inspection should occur as soon as possible after the expiration of the cure period. If the score is above 30, and the owner meets the required deadlines for correction, the re-inspection should occur within one-year after the date of the last inspection.

Finally, federal regulations require HUD to submit quarterly reports to Congress. The reports must include all sites that receive a REAC score of less than 60 or that receive an Unsatisfactory Management & Occupancy Review (MOR) within the prior 36-months. The report must include actions taken to address each site’s physical condition to protect residents.

This Notice should serve as a warning to owners of properties operating under the applicable HUD programs. Failure to maintain these developments in sound physical condition and operate them in accordance with HUD regulations will result in punitive action by HUD, negative reaction by residents, and possible local regulatory enforcement by cities or counties.

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