News

A. J. Johnson Partnering with Mid-Atlantic AHMA for March 2024 Affordable Housing Training

During March 2024, A. J. Johnson will be partnering with the MidAtlantic Affordable Housing Management Association for five live webinar training sessions intended for real estate professionals, particularly those in the affordable multifamily housing field. The following sessions will be presented: March 12: Intermediate LIHTC Compliance - Designed for more experienced managers, supervisory personnel, investment asset managers, and compliance specialists, this program expands on the information covered in the Basics of Tax Credit Site Management. A more in-depth discussion of income verification issues is included as well as a discussion of minimum set-aside issues (including the Average Income Minimum Set-Aside), optional fees, and use of common areas. The Available Unit Rule is covered in great detail, as are the requirements for units occupied by students. Attendees will also learn the requirements relating to setting rents at a tax-credit property. This course includes the recent HOTMA changes and contains some practice problems but is more discussion-oriented than the Basic course. A calculator is required for this course. March 19: Two separate webinars will be offered on this date. An Overview of the HOME Program with HOTMA Changes will be offered in the morning. This three-hour course outlines the basic requirements of the HOME Investment Partnership Program, with particular emphasis on combining HOME funds with the federal Low-Income Housing Tax Credit. The training provides an overview of HOME Program regulations, including rent rules, unit designations, income restrictions, and recertification requirements. The course also includes the recent HOTMA changes that impact the HOME program.  The course concludes with a detailed discussion of combining HOME and tax credits, focusing on occupancy requirements and rents, tenant eligibility differences, handling over-income residents, and monitoring requirements. March 19: The afternoon session will be Management of Rural Development Section 515 Layered Deals. The development of affordable rental housing is a complex undertaking that often requires a combination of programs to succeed. While the foundation of most affordable rental housing today is the Low-Income Housing Tax Credit Program, the tax credits alone are often not enough to ensure project feasibility. Successful properties often must "layer" programs to work. One such program is the Rural Development Section 515 program. When combining other programs with a Section 515 project, management must understand the rules of all, and be able to implement them at the project level. This three-hour session will cover some of the most common pitfalls when managing Section 515 layered properties and guide the knowledge required to be successful. Questions and discussions will be encouraged, and attendees will be able to ask specific questions about the issues facing their properties. March 20: Advanced LIHTC Compliance - This full-day training is intended for senior management staff, developers, corporate finance officers, and others involved in decision-making concerning how LIHTC deals are structured. This training covers complex issues such as eligible and qualified basis, applicable fraction, credit calculation (including first-year calculation), placed-in-service issues, rehab projects, tax-exempt bonds, projects with HOME funds, Next Available Unit Rule, employee units, mixed-income properties, the Average Income Minimum Set-Aside, vacant unit rule, and dealing effectively with State Agencies. March 21: Preparing Affordable Housing Properties for Agency Required Physical Inspections - Agency inspections of affordable housing properties are required for all affordable housing programs, and failure to meet the required inspection standards can result in significant financial and administrative penalties for property owners. This three-hour training focuses on how owners and managers may prepare for such inspections, with a concentration on State Housing Finance Agency inspections for the LIHTC program. Specific training areas include (1) a complete discussion of the most serious violations, including health & safety; (2) how vacant units are addressed during inspections; (3) when violations will be reported to the IRS; (4) the 20 most common deficiencies; (5) how to prepare a property for an inspection; (6) strategies for successful inspections; and (7) a review of the most important NSPIRE inspection requirements. As part of the training, attendees will have a blueprint they can use to prepare their properties for agency-required physical inspections - regardless of the program under which they operate. These sessions are part of the year-long collaboration between A. J. Johnson and MidAtlantic AHMA that is designed to provide affordable housing professionals with the knowledge needed to effectively manage the complex requirements of the various agencies overseeing these programs. Persons interested in any (or all) of these training sessions may register by visiting either www.ajjcs.net or https://www.mid-atlanticahma.org.

HUD Issues Clarifying HOTMA Guidance

Last week, the U.S. Department of Housing and Urban Development issued more detailed guidelines to assist in the enactment of the Housing Opportunity Through Modernization Act (HOTMA) of 2016. This Act aims to simplify procedures and lessen the responsibilities of public housing authorities (PHAs), private affordable housing owners, and residents. The recent Notice H 2023-10 introduces a range of technical adjustments and clarifications, sets the commencement date as January 1, 2024, and outlines the compliance timeline and necessary measures for owners of affordable multifamily rental properties, which include those financed by the low-income housing tax credit (LIHTC) equity. Key clarifications from the Notice include: Public housing authorities are required to revise their Annual Plan and Moving to Work (MTW) Plans. For Annual Recertification of income, owners may rely on verification from an interim reexamination, provided there have been no changes to the annual income since that interim assessment. The new deduction for elderly/disabled families, effective January 1, 2024, will be applied by PHAs and Multifamily Housing (MFH) Owners at the upcoming annual or interim reexamination, whichever occurs first, after the new deduction has been adopted by the PHA/MFH Owner. The phased-in relief will commence concurrently. Any tax refund or credit must be deducted from the total net assets of a family, irrespective of the deposit location. Owners are not required to apply the new passbook rate until they have updated their software systems. It has been clarified that workers compensation should always be excluded from annual income calculations, no matter the duration or frequency of the payments. Owners and managers of properties governed by the HOTMA regulations are advised to examine the revised notice to determine its relevance to their properties.

Legislation Introduced for Middle Income Tax Credit

In December 2023, Congress considered a new approach to America's housing affordability crisis with the introduction of the "Workforce Housing Tax Credit Act" in both the House and Senate. This proposed bill aims to establish a Middle-Income Housing Tax Credit, focusing on providing affordable housing options for middle-class families and young professionals who are beginning their careers. The United States is currently grappling with a housing affordability crisis that has transformed the landscape of American renters. With a decline in homeownership and a rise in rental demand, there is a pressing need for housing that bridges the gap between low-income options and high-end residences. This 'missing middle' represents a vast segment of the population, including families and individuals who earn too much to qualify for low-income housing but are priced out of the expensive housing market. The Workforce Housing Tax Credit (WHTC) aims to supplement the highly successful Low-Income Housing Tax Credit (LIHTC) program. The WHTC proposes additional tax incentives that would encourage the development of housing for tenants earning 60% to 100% of the area median income (AMI). These credits could also be transferred to the LIHTC program to benefit tenants generally earning below 60% of AMI. A key feature of the WHTC is its strategic utilization of state and local housing authorities' expertise in determining the most suitable projects for their communities. It also emphasizes the importance of public-private partnerships to leverage private investment in the housing sector. States are afforded significant flexibility in resource allocation, including the ability to transfer middle-income housing allocations to LIHTC and the combination of credits within housing projects. Notable aspects of the Workforce Housing Tax Credit Act include: State housing finance agencies will allocate tax credits to developers through a competitive process, akin to the LIHTC program. These tax credits are distributed over 15 years, accompanied by a 15-year compliance timeframe and a 30-year extended commitment. The allocation of tax credits to states is population-based, with the 2024 allocation set at $1 per capita and a minimum of $1.5 million for smaller states. An extra 5% of the allocation is reserved for middle-income housing in rural locations. For new construction, the credit would cover 50% of the construction costs over the life of the credit, while rehabilitated and bond-financed buildings would receive a credit equating to 20% of the construction costs. Additional credits are available for developments in areas that are challenging to develop, as identified by HUD. To be eligible for the credit, a minimum of 60% of a building s units must house individuals earning an AMI of 100% or less, with rent restrictions capped at 30% of the applicable income level. These affordability conditions are maintained for up to 15 years following the compliance period, totaling a 30-year affordability duration. The WHTC is designed to work in tandem with the LIHTC to bolster low-income housing. States can adjust allocations to address specific needs and may transfer any portion of their middle-income allocation to LIHTC anytime during the year. The WHTC can also enhance the financial viability of affordable housing projects by combining LIHTC and middle-income credits, provided that at least 20% of units cater to the middle-income bracket. The enactment of the WHTC is yet to be determined and has seen resistance from some low-income housing advocates who argue for the expansion of the LIHTC program instead. However, developers and managers of affordable housing recognize the necessity of a workforce housing initiative. If passed, the WHTC could significantly alleviate the current housing affordability issues. The Workforce Housing Tax Credit Act intends to build on the achievements of LIHTC and presents a critical solution that Congress could adopt to address the ongoing housing affordability dilemma. As the legislation progresses, the appropriate committees in both the House and Senate will deliberate over the bills. At present, no specific timeline has been established for the passage or concrete legislative action regarding the Act.

Verification of Value and Determination of Income from Real Estate Investments

Virtually all affordable housing programs, including those using assistance from the Department of Housing & Urban Development (HUD) and the Rural Housing Service (RHS), as well as Low-Income Housing Tax Credit (LIHTC) projects, must determine actual or potential income from assets when projecting the income of applicants and residents. The rules governing how to do this are contained in HUD Handbook 4350.3. One of the more complex assets to deal with when projecting income is real estate. In many - if not most cases - real estate owned by a member of an assisted family will be considered an asset. In this article, I will outline the circumstances under which real estate is not an asset and will explain how to determine income from real estate when it is an asset. When is real estate not an asset to a family? The decision as to whether to treat real estate as an asset depends on family circumstances. The net income derived from an applicant s real estate holdings will either be considered business income or income from an asset. If the resident s main business is real estate, income from the rental of real estate is considered business income, and since the real estate is an asset of an active business, it should not be considered an asset to the household. To consider real estate as the primary business of the individual, income from real estate should generate most of the income for the person. While relatively rare in affordable housing, the presence of residents whose main business is real estate is not unheard of. And, in such cases, the net income from the business will be counted as household income. The best documentation of such business income is IRS Schedule E (Form 1040). This form is used to report income (or loss) from rental real estate. When is the real estate an asset to the family? If real estate is not the main business of an applicant or household, then the real estate is considered an asset. If the property is rented, the net income from rent is considered asset income. To determine the value of the property, subtract amounts owed on the property, as well as a reasonable cost of sale, from its market value. For example, assume an applicant owns a single-family home that is rented. The market value of the home is $250,000, and the applicant owes $105,000 on the mortgage. Assume a cost of sale of $20,000. Cash value is determined by subtracting the cost of sale from the market value, and then subtracting the balance on the mortgage. So, the calculation is $250,000 minus $20,000 minus $105,000 = $125,000 cash value. In order to determine income from the asset, the rental income must be verified. Once the gross rent is verified, you may deduct any verifiable operating expenses, such as mortgage interest payments, taxes, insurance, and maintenance. The resulting net income is considered asset income. Verification of Cash Value To determine cash value, the fair market value must first be determined. The fair market value (FMV) is the amount that another person would pay to acquire the property in an open-market transaction. There are several ways to verify market value, including (1) tax assessments {in some states}; (2) online real estate listing; (3) an estimate from a qualified broker; or (4) a bona fide sales contract. Once the market value has been determined, a verification of any outstanding mortgage balance is required. Then, the process outlined above for determining cash value is followed. Verification of Rental Income A variety of documents may be used to verify rental income. These include a current lease, recent rent checks, or the latest IRS Schedule E (Supplemental Income and Loss). HOTMA and Real Estate HUD s Final Rule relating to the implementation of The Housing Opportunity Through Modernization Act (HOTMA) is now in effect. The final rule did not change how the cash value and income from real estate is determined. But HOTMA did establish new household asset limitations preventing households that own real property "suitable for occupancy," or assets over $100,000, from receiving HUD rental assistance. However, housing providers may establish exceptions and have a great deal of discretion in enforcing the new limits on current residents. It is also important to note that these limitations apply to HUD programs only - not RHS or LIHTC.

HUD NSPIRE Standards Include "Affirmative" Requirements

HUD s new housing inspection process provides a single inspection standard for all units under the Public Housing, Housing Choice Voucher, Multifamily, and Community Planning & Development (CPD) housing programs. The National Standards for the Physical Inspection of Real Estate (NSPIRE) replaces Housing Quality Standards (HQS) that were created in the 1970s and the Uniform Physical Condition Standards (UPCS) that were developed in the 1990s. Over the years, it became clear that the older standards provided inaccurate and inconsistent results. These prior standards placed a disproportionate emphasis on physical inspections around the appearance of items that were actually safe and functional, while a lack of attention was given to the health and safety of the properties. As a result, NSPIRE emphasizes habitability and the residential use of structures, and most importantly, the health and safety of residents. Inspectable areas under NSPIRE are the apartments themselves, elements of the building s non-residential interiors, and the outside of buildings. The goal is to ensure that the elements of these three areas are "functionally adequate, operable, and free of health and safety hazards" [24 CFR 5.703(a)]. As part of the NSPIRE standard, HUD has developed "affirmative requirements" for all units that participate in HUD s rental assistance programs. And, because the physical inspection process for the Low-Income Housing Tax Credit Program (LIHTC) is required to follow HUD inspection standards, these affirmative requirements also apply to LIHTC properties. These include basic requirements for habitability such as kitchens and flushable toilets as well as important safety concerns like Ground Fault Circuit Interrupter (GFCI) Outlets, a permanent heating source, and safe drinking water. Here are the affirmative requirements for each area: Units (A dwelling unit refers to the interior components of a household s home). Bathtub or shower must be usable in privacy. There must be food storage space. CO alarms in proper locations are required. Must be a primary cooking appliance. Any outlet within six feet of a water source must be protected. Must have a food preparation area. Guardrails must be present in required areas. The inspection date is on or between October 1 and March 31 and the permanently installed heating source is not working or is working but the interior temperature is below 68 degrees. The inspection date is on or between April 1 and September 30 and a permanently installed heating source is damaged, inoperable, missing or not installed. There is an unvented space heater that burns gas, oil, or kerosene. There must be at least one (1) permanently installed light fixture in the kitchen and bathroom. There must be at least two working outlets in each habitable room OR at least one working outlet and one (1) permanently installed light fixture. There must be a refrigerator. Hot and cold water must run from sinks. There must be a sink in the primary kitchen. Smoke alarms must be installed where required. Toilets must be usable in private. Inside (These areas refer to the common areas and building systems generally found within a residential building s interior that are not inside a unit). CO alarms in proper locations are required. Any outlet within six feet of a water source must be protected. Guardrails must be present in required areas. There is an unvented space heater that burns gas, oil, or kerosene. The inspection date is on or between October 1 and March 31 and the permanently installed heating source is not working. There must be at least one (1) permanently installed light fixture in the kitchen and bathroom. Smoke alarms must be installed where required. Outside (Outside areas refer to a building site, building exterior components, and any building systems located outside of a building or unit. These include items and places such as mailboxes, walkways, lighting, roads, parking lots, play areas and equipment, and non-dwelling buildings. Components on the exterior of a building are also considered outside areas, such as doors, fire escapes, lighting, roofs, walls, windows, foundations, and attached porches). Any outlet within six feet of a water source must be GFCI protected. Guardrails must be present in required areas. Bottom Line - owners and managers of properties subject to NSPIRE must ensure that all the noted affirmative requirements are in place prior to the first inspection using the NSPIRE standards.

A. J. Johnson Partners with Mid-Atlantic AHMA for December Training on Affordable Housing - February 2024

During February 2024, A. J. Johnson will be partnering with the MidAtlantic Affordable Housing Management Association for four live webinar training sessions intended for real estate professionals, particularly those in the affordable multifamily housing field. The following sessions will be presented: February 13: HOTMA - Update on HUD Requirements - On January 9, 2023, HUD published a final rule implementing The Housing Opportunity Through Modernization Act (HOTMA), which was signed into law on July 29, 2016. This final rule was published in the Federal Register on February 14, 2023, and will become effective on January 1, 2024. Virtually all HUD programs are impacted by the rule, as are the Low-Income Housing Tax Credit (LIHTC) Program and the Rural Development Section 515 Program. Since publishing the final rule in February 2023, HUD has provided additional guidance in the implementation of the rule. This three-hour training will explain the new HUD guidance and will cover the following areas: (1) Definitional changes relating to earned and unearned income, non-recurring income, and foster children; (2) Revised Income Exclusions; (3) New requirements relative to Student Financial Assistance; (4) Changes to the HUD permitted deductions from gross income, including a full review of the new "hardship exemptions;" (5) Brand new rules regarding assets; (6) New Interim Recertification requirements; (6); and (7) the new definition of "annual income." This session is a must for all managers of HUD, Rural Development, and LIHTC properties, and will provide plenty of opportunity for Q & A. February 15: The Basics of Low-Income Housing Tax Credit Management -  This training is designed primarily for site managers and investment asset managers responsible for site-related asset management and is especially beneficial to those managers who are relatively inexperienced in the tax credit program. It covers all aspects of credit related to on-site management, including the applicant interview process, the determination of resident eligibility (income and student issues), handling recertification, setting rents - including a full review of utility allowance requirements - lease issues, and the importance of maintaining the property. The training includes problems and questions designed to ensure that students are fully comprehending the material. February 20: Documentation of Lease Violations - Managers of multifamily housing properties too often find themselves in the position of not being able to enforce the terms of a lease or evict a resident for severe violations simply because of a failure to properly document the file. While failure to pay rent is the most common lease violation, other issues create the greatest challenge concerning eviction or lease enforcement. This 90-minute session will review some of the most problematic material lease violations and discuss how to properly document those violations. Topics to be discussed will include hoarding, tenant-on-tenant harassment, assistance animal violations, smoking violations (in non-smoking buildings), unauthorized occupants, and "quiet use and enjoyment" issues. The training is intended for site managers and leasing staff, as well as regional property managers. This session is a must for all managers of HUD, Rural Development, and LIHTC properties, and will provide plenty of opportunity for Q & A. February 22: The Verification and Calculation of Income and Assets on Affordable Housing Properties - This five-hour live webinar (there will be a 1.5-hour lunch break) provides concentrated instruction on the required methodology for calculating and verifying income, and for determining the value of assets and income generated by those assets. The first section of the course involves a comprehensive discussion of employment income, along with military pay, pensions/social security, self-employment income, and child support. It concludes with workshop problems designed to test what the student has learned during the discussion phase of the training and serve to reinforce HUD-required techniques for the determination of income. The second component of the training focuses on a detailed discussion of requirements related to the determination of asset value and income and applies to all federal housing programs, including the low-income housing tax credit, tax-exempt bonds, Section 8, Section 515, and HOME. Multiple types of assets are covered, both in terms of what constitutes an asset and how must they be verified. This section also concludes with a series of problems, designed to test the student s understanding of the basic requirements relative to assets. These sessions are part of the year-long collaboration between A. J. Johnson and MidAtlantic AHMA that is designed to provide affordable housing professionals with the knowledge needed to effectively manage the complex requirements of the various agencies overseeing these programs. Persons interested in any (or all) of these training sessions may register by visiting either www.ajjcs.net or https://www.mid-atlanticahma.org.

HUD Imputed Rate on Assets Changes on January 1, 2024

Effective January 1, 2024, the HUD imputed rate on assets over $50,000 will increase from .06% to .40%. This is a significant increase in the imputed rate but comes with other changes to how income will be imputed to assets for properties subject to the HUD imputing rule. HOTMA and the final rule specifically include "actual" income from assets in the definition of income. Therefore, any actual income received must be counted as family income. Imputed income on assets of a combined value of more than $50,000 must be calculated if no actual income can be computed. In a major procedural change, if the actual income can be computed for some assets, but not all assets, housing providers must compute the actual income for those assets, calculate the imputed income for all remaining assets where the actual income cannot be computed, and combine both amounts to account for assets with a combined value of more than $50,000. Notice the significant difference from the current rule where income from assets more than $5,000 is the greater of the total actual income or total imputed income. Actual and imputed income are never combined. Financial assets (e.g., bank accounts) that generate no income (i.e., 0% interest or no dividends) are not assets on which income will be imputed. Non-financial assets (e.g., real property or non-necessary personal property) are subject to imputing. Owners and operators of HUD projects are subject to the imputing rule, as are operators of LIHTC and Rural Development Section 515 properties. This new imputed rate and the methodology for imputing will apply to all these properties effective January 1, 2024.

A. J. Johnson to Offer Live Webinar on Assistance Animals

A. J. Johnson will be conducting a one-hour webinar on January 24, 2024, on Assistance Animals in Multifamily Housing - Avoiding Fair Housing Violations. The Webinar will begin at 1:00 PM Eastern Time. Understanding Fair Housing Law regarding assistance animals is crucial for several reasons: Fair housing law ensures that individuals with disabilities have equal access to housing, preventing discrimination. Assistance animals are not pets but are necessary for the well-being of their owners. Landlords and housing providers must comply with these laws to avoid legal repercussions. Ignorance of the law is not a defense. The law clarifies the obligations of housing providers to make reasonable accommodations for assistance animals, even in pet-free housing. It promotes awareness and sensitivity towards the needs of individuals with disabilities, fostering a more inclusive and supportive community. Understanding these laws helps prevent misuse of the system by those who do not genuinely require assistance animals, ensuring resources and accommodations are available for those who truly need them. This one-hour live webinar will provide the information necessary for owners to comply with this complex area of fair housing law. It will cover the difference between service and support animals, how to verify the need for an assistance animal (including a detailed discussion of the "online" verification services), and what types of animals are acceptable as assistance animals. There will be plenty of time for Q&A and at the end of the session, attendees will be more confident when dealing with requests for assistance animals. Those interested in participating in the Webinar may register on the A. J. Johnson Consulting Services website (www.ajjcs.net) under "Training."