News

HUD Allows for Increase in Distribution of Surplus Cash for Insured Properties

The Department of Housing & Urban Development (HUD) issued Mortgagee Letter 2022-16 on September 7, 2022, allowing for an increase in the frequency of the distribution of surplus cash for Non-Assisted HUD Insured properties. Surplus Cash Distributions from insured multifamily projects are governed by the HUD Regulatory Agreement (Form HUD-92466M). Section 13 of this document requires that the Borrower calculate "Surplus Cash" (as that term is defined in the Regulatory Agreement, along with the term "Distributions") as of the last day of its fiscal year and submit a report of its Surplus Cash calculations to HUD with its required annual financial reports, pursuant to Program Obligations. The Borrower may also, at its election, calculate Surplus Cash as of the last day of the sixth month of its fiscal year. The semi-annual distribution rule was created in the 1970s to control Distributions to owners of subsidized housing with extremely constrained operating income due to affordable rental rates (e.g., the Section 236 and Section 8 programs). The primary economic benefit of multifamily equity investment was large tax deductions, and manual bookkeeping methods precluded more frequent reporting. HUD will now permit modification of Section 13 of the Regulatory Agreement (form HUD-92466M) to allow Distributions from Surplus Cash as frequently as monthly for eligible Borrowers. This policy is limited to FHA-insured multifamily properties not subject to a Section 8 project-based rental assistance payments contract or a HUD-held mortgage note. This policy aligns HUD s multifamily insurance for unassisted projects with industry standards and increases its competitive standing in the lending industry. This new policy is only available to eligible multifamily projects with loans endorsed after September 7, 2022. Projects with loans closed before this date are not eligible and HUD will not consider amendments to executed Regulatory Agreements on existing insured projects. Borrowers of such projects with loans closing after September 7, 2022, should obtain a copy of the Notice and follow the guidance provided in order to take advantage of the more frequent distributions. For questions about this Mortgagee Letter, contact Thomas A. Bernaciak, Deputy Director, Office of Multifamily Production at Thomas.A.Bernaciak@hud.gov or (202) 402-3242.

A. J. Johnson to Offer Live Webinar on Interviewing Skills for Affordable Housing Managers

A. J. Johnson will be conducting a webinar on September 29, 2022, on Interviewing Skills for Affordable Housing Managers.  The Webinar will be held from 1:00 PM to 4:00 PM Eastern time. One of the most important skills any affordable housing manager can possess is the ability to interview applicants and residents and obtain the information required to determine eligibility - this is also one of the greatest weaknesses of most affordable housing managers. This training has been developed to address that weakness. This three-hour session focuses on the interview process and provides concepts and tools that will aid managers as they conduct their interviews. Techniques apply to all interview settings including initial eligibility interviews, interim certifications, and annual recertifications. The primary emphasis is on the initial eligibility interview since it is so critical to the housing process. The skills taught during this session will also assist managers in detecting fraud and in dealing with third parties when resolving discrepancies. Those interested in participating in the Webinar may register on the A. J. Johnson Consulting Services website (www.ajjcs.net) under "Training Schedule."

HOME Funds Trigger Section 504 Compliance

One of the most common questions I get from clients with HOME funding for their project is whether Section 504 requirements apply when HOME funding is present. THE ANSWER IS ALMOST ALWAYS - YES! What is Section 504? Section 504 of the Rehabilitation Act of 1973 is a federal law, codified at 29 U.S.C. 794, that prohibits discrimination on the basis of disability in federally assisted programs or activities. Specifically, Section 504 states: "No otherwise qualified individual with a disability in the United States. . .shall, solely by reason of her or his disability, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program, service or activity receiving federal financial assistance or under any program or activity conducted by any Executive agency or by the United States Postal Service." This means that Section 504 prohibits discrimination on the basis of disability in any program or activity that receives financial assistance from any federal agency, including HUD as well as in programs conducted by federal agencies. Who is a recipient of federal financial assistance? The Section 504 regulations define "recipient" as any State or its political subdivision, any instrumentality of a state or its political subdivision, any public or private agency, institution organization, or other entity, or any person to which federal financial assistance is extended for any program or activity directly or through another recipient, including any successor, assignee, or transferee of a recipient, but excluding the ultimate beneficiary of the assistance. (24 C.F.R. 8.3.) Thus, a HUD-funded public housing agency or a HUD-funded non-profit developer of low-income housing is a recipient of federal financial assistance and is subject to Section 504's requirements. Therefore, a public housing agency is covered by Section 504, for example, in the operation of its Section 8 voucher program or activity. However, a private landlord who accepts Section 8 tenant-based vouchers in payment for rent from a low-income individual is not a recipient of federal financial assistance merely by virtue of receipt of such payments. Similarly, while a developer that receives Community Development Block Grant (CDBG) or HOME funds for the rehabilitation of an owner-occupied unit is a recipient for purposes of Section 504, a family that owns the unit is not a recipient because the family is the ultimate beneficiary of the funds. What physical accessibility requirements must a new federally assisted housing development meet in order to be in compliance with Section 504 requirements? New construction of multifamily rental housing with five or more total units (not five or more HOME units) must be designed and constructed to be readily accessible to and usable by persons with disabilities. The common areas in the building must be made accessible, as well as a certain number of units. For a federally assisted new construction housing project, Section 504 requires 5% of the dwelling units, or at least one unit, whichever is greater, to be accessible for persons with mobility disabilities. An additional 2% of the dwelling units, or at least one unit, whichever is greater, must be accessible for persons with hearing or visual disabilities. The project must also meet all Section 504 requirements in HUD s implementing regulation, such as requirements regarding dispersal and utilization of accessible housing units. If a federally assisted housing project is targeted for substantial alteration, what does Section 504 require in terms of accessible units? Under Section 504, alterations are substantial if they are undertaken on a project that has 15 or more units and the cost of the alterations is 75% or more of the replacement cost of the completed facility. (See 24 C.F.R. 8.23(a)). The new construction provisions of 24 C.F.R. 8.22 apply. Section 8.22 requires that a minimum of 5% of the dwelling units, or at least one unit, whichever is greater, shall be made accessible to persons with mobility disabilities and an additional 2% of the dwelling units, or at least one unit, whichever is greater, shall be made accessible to persons with hearing or visual disabilities. Recipients shall pay for reasonable modifications and accommodations needed by the individual (e.g., a ramp to a unit) unless providing that accommodation would be an undue financial and administrative burden or a fundamental alteration of the program. During the development phase, these costs are eligible HOME costs. In summary, if you are developing or operating a multifamily property with five or more total units, and the project has any amount of HOME funding, the entire project is subject to the requirements of Section 504. In addition to the required percentage of accessible units, this means that owners of the project are required to pay the costs of modifications and accommodations for all units in the project - not just the HOME-designated units.

HUD Charges Landlord with Discrimination Against Transgendered Resident

In one of the clearest signals yet that HUD considers the Fair Housing provision against discrimination based on sex to include sexual orientation and gender identity, the Department has filed a charge of Discrimination against an RV resort in central Florida for its treatment of a transgendered individual. This makes Florida the first state to have a transgendered fair housing case. The charges are the first since the U.S. Supreme Court expanded civil rights protections for transgendered Americans with a 2020 ruling in an employment case. While Congress has not formally amended the Fair Housing Act to include protections based on sexual orientation or gender identity, HUD is the federal agency charged with enforcing federal fair housing law, and as such, has discretion in interpreting how court decisions affect the implementation of fair housing law. Nathan Dykgraaf, the owner and manager of 21 Palms RV Resort Park in Davenport, FL has been named as a defendant in the case. In the complaint, HUD alleges that Dykgraaf took issue when an unnamed resident began to dress and present themselves as a transgendered woman. According to the complaint, in January 2021, Dykgraaf gave the resident a handwritten letter telling her to stop presenting herself as a woman. According to HUD, the letter said, "I have been informed of your actions to have your sex changed to a female, I am told you have started taking the necessary medication and that after a period of time, your change will be completed. To avoid problems you must: 1. Act as a man. 2. Talk as a man. 3. Dress as a man. 4. Avoid tight clothing that is revealing sexual organs. If you follow the above steps trouble will be avoided. Sincerely, Nathan D." After getting the letter, the resident stopped fully expressing her gender identity and avoided neighbors, RV park staff, and curtailed her use of the park s amenities. The resident and her family, which included a minor child, moved from the property on August 26, 2021, and filed the complaint with HUD, seeking "actual damages including, but not limited to emotional distress, lost housing opportunity, and out-of-pocket expenses." HUD is stating that the actions of the owner violate the Fair Housing Act by setting illegal conditions or restrictions in order to have housing. The next step in the process will be a hearing by a U.S. Administrative Law Judge or in a federal district court. Damages may be awarded by the ALJ after the hearing, or they may order injunctive relief and payment of attorney s fees, in addition to fines. Federal courts may also impose punitive damages. This charge makes it clear that HUD now considers discrimination based on sex in housing to include sexual orientation and gender identity.

Reminder - HUD to Enforce Carbon Monoxide Protections in HUD-Assisted Projects

In February of this year, I posted an article on the HUD Notice H-2022-10, which clarified federal requirements for carbon monoxide (CO) alarms and detectors. CO is a byproduct of fuel-fired combustion appliances such as furnaces and water heaters. If these appliances are not properly vented, the undetectable gas can be deadly. I am posting again to remind readers and clients that the deadline for having CO detectors in HUD housing is approaching. There have been at least 11 deaths in HUD-assisted housing from CO poisoning since 2003 and HUD has been under increasing pressure to require CO alarms and detectors in HUD-supported properties. In 2019, HUD issued a notice reminding owners of their legal obligation to install working CO detectors in those jurisdictions where such devices are required. However, in areas where CO detectors are not required, HUD only "encouraged" the installation of the devices - it was not a requirement. This HUD notice implements the requirements included in the Consolidated Appropriations Act of 2021, which requires sites to meet certain requirements within two years of the law s enactment, which was December 27, 2020. As a result of the law, public housing agencies (PHAs), and site owners that received federal rental assistance must comply with the International Fire Code (IFC) 2018 standards on the installation of CO alarms or detectors by December 27, 2022, meaning if you have not done so already, you have four months to install the required equipment. The new requirement applies to all Housing Choice Voucher units and all Public Housing, Project Based Voucher, Project Based Rental Assistance, Section 202, and Section 811 properties with a fire-fueled or fire-burning appliance or an attached garage. HUD is requiring that all affected sites have CO detectors installed in all dwelling units. The detectors must meet or exceed the standards of the IFC. The standards are outlined in Chapter 9, Fire Protection and Life Safety Systems, and Chapter 11, Construction Requirements for Existing Buildings of the IFC. It should be noted that if local codes are more stringent than the IFC, the local code must be followed. The IFC defines CO alarms and detectors as follows: Carbon Monoxide Alarm: A single or multiple station alarm intended to detect CO gas and alert occupants by a distinct audible signal. It incorporates a sensor, control components, and an alarm notification appliance in a single unit.Carbon Monoxide Detector: A device with an integral sensor to detect CO gas and transmit an alarm signal to a connected alarm control unit. Hard-Wire Requirements IFC-approved CO alarms must receive their primary power from the building s permanent wiring without a disconnecting switch other than that required for overcurrent protection, and when the primary power service is interrupted, serviced by a battery. UL Rating Requirements CO alarms must meet Underwriters Laboratories UL 2034 standard for sensitivity. Combination CO/smoke alarms are an acceptable alternative to CO alarms but must meet UL 2034 and UL 217 standards for sensitivity. Installation Locations CO detection must be installed in dwelling units that contain a fuel-burning appliance or fuel-burning fireplace.CO detection must be included in any dwelling units with attached private garages - even if the units do not have fuel-burning appliances or fireplaces.When required to be installed, the detectors must be installed outside each sleeping area and in the immediate vicinity of the bedroom. If a fuel-burning appliance is installed in the bedroom, a CO detector must be installed in the bedroom. The types of fuel-burning appliances likely to be present include gas/fuel-fired ranges, stoves, fireplaces, clothes dryers, furnaces, air handlers, boilers, and water heaters. Detectors are not required in dwelling units that do not have openings between the fuel-burning appliance or underground garage and the dwelling unit. This means that if you have a central heating or hot water system that does not distribute heat via forced air, CO detection is not specifically required in the units. Paying for the Required Installation According to the Notice, PHAs operating public housing units may use either operating funds or capital funds for the purchase, installation, and maintenance of CO alarms or detectors. For the HCV and project-based voucher programs, the property owner or landlord is responsible for the cost of the CO alarms or detectors. Owners of properties receiving assistance through the project-based rental assistance, Section 202 or 811 programs may use the property s reserve account, residual receipts, general operating reserves, owner contributions, or secondary financing to fund the purchase, installation, and maintenance of CO alarms and detectors. Such purchases are eligible project expenses. The price for approved detectors (not including the cost of installation) generally runs from $15 to $60 per detector, depending on the make and model. Owners who are required by this notice to install the alarms or detectors must do so by December 27, 2022. HUD MOR and REAC/INSPIRE inspections after this date will note the absence of required detectors. Now is the time for affected properties to begin pricing and planning for the required installation.

State & Local Fiscal Recovery Funds - A Source of Gap Funding for LIHTC Properties

The Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program, a part of the American Rescue Plan, delivers $350 billion to state, local, and Tribal governments across the country to support their response to and recovery from the COVID-19 pandemic. Under the program s final rule, "Development, repair, and operation of affordable housing and services or programs to increase long-term housing security" is a stated eligible use to respond to the negative economic impacts of the pandemic on households and communities. The Department of Treasury and the Department of Housing & Urban Development have prepared guidance on how to use these funds for affordable housing. The guidance, which can be found in the SLFRF Final Rule, clarifies and expands on various uses of the funds. SLFRF Affordable Housing Update Summary Treasury has updated its guidance to clarify two presumptively eligible ways to use SLFRF to fund affordable housing investments under the final rule: SLFRF funds used for affordable housing projects under the public health and negative economic impacts (PH-NEI) eligible use category are presumptively eligible if the project meets certain core requirements of the following expanded list of federal housing: >National Housing Trust Fund HOME Investment Partnerships Program (HOME) Low-Income Housing Credit (LIHTC) Public Housing Capital Fund Section 202 Supportive Housing for the Elderly Program Section 811 Supportive Housing for Persons with Disabilities Program Project-Based Rental Assistance Multifamily Preservation & Revitalization Program Affordable housing projects provided by a Tribal government if they would be eligible for funding under the Indian Housing Block Grant program, the Indian Community Development Block Grant program, or the Bureau of Indian Affairs Housing Improvement Program. There are four core requirements for use of the funds: Resident income restrictions;The affordability period and related covenant requirements for assisted units; Tenant protections; and Housing quality standards.SLFRF funds used for affordable rental housing under the PH-NEI eligible use category are presumptively eligible uses if the units funded serve households at or below 65% of AMI for a period of 20 years or greater. Loan Flexibilities SLFRF can now be used to fund the full principal amount of certain loans that finance long-term affordable housing investments. Among other requirements, the loans must have maturity and affordability covenants of 20 years or longer, including but not limited to loans that fund low-income housing tax credit (LIHTC) projects. Specifically, under the PH-NEI eligible use category, recipients may use SLFRF funds to make loans to finance affordable housing projects, funding the full principal amount of the loan, if the loan and project meet the following requirements: The loan has a term of not less than 20 years;The affordable housing project being financed has an affordability period of not less than 20 years after the project or assisted units are available for occupancy after having received the SLFRF investment; andTo protect affordability, the project owners of any properties receiving SLFRF loans that also receive LIHTC financing must agree to waive their right to request a qualified contract as defined in Section 42(h)(6)(F) of the Internal Revenue Code and repay any loaned funds if the property becomes non-compliant. Layering SLFRF with Other Funding Opportunities SLFRF may be combined with a wide range of other federal, state, local, and private resources to meet housing needs. SLFRF may help fill gaps and expedite the construction or rehabilitation of thousands of affordable housing projects around the nation that face funding gaps. Examples include: LIHTC projects: SLFRF may fill funding gaps to projects that received an allocation of 9 or 4 percent LIHTC, for new construction or preservation of affordable rental housing.Federal Housing Administration (FHA) multifamily mortgage insurance.HOME & Housing Trust Fund.HOME-American Rescue Plan.Project-Based Vouchers (PBVs).Recapitalization of Public Housing through HUD s Rental Assistance Demonstration (RAD).Community Development Block Grants (CDBG) and Section 108 Loan Guarantee Program. Rehabilitation & Adaptive Use Recipients may use SLFRF to acquire properties that will be transitioned into affordable housing for households that experienced the negative economic impacts of the pandemic. Predevelopment Recipients may use SLFRF to help fund pre-project development activities, which could include site work and land acquisition, that precede housing development or rehabilitation of affordable housing. This is an excellent potential source of funds for LIHTC projects with gaps to close. Please visit the State and Local Recovery Funds website (https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments/state-and-local-fiscal-recovery-funds/recipient-compliance-and-reporting-responsibilities), final rule, final rule overview, final rule FAQs, and Compliance and Reporting Guidance for comprehensive information.

A. J. Johnson Partners with Mid-Atlantic AHMA for September Training on Affordable Housing

During the month of September 2022, A. J. Johnson will be partnering with the MidAtlantic Affordable Housing Management Association for three live webinar training sessions intended for real estate professionals, particularly those in the affordable multifamily housing field.  The following sessions will be presented: September 13: Basic LIHTC Compliance (live webinar) - 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. September 15: The Verification and Calculation of Income and Assets on Affordable Housing Properties (live webinar)- 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 is applicable to all federal housing programs, including the low-income housing tax credit, tax-exempt bonds, Section 8, Section 515, HOME, and HOPE VI. Multiple types of assets are covered, both in terms of what constitutes an asset and how they are 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.

A. J. Johnson to Host Live Webinar on End of Year LIHTC Compliance Requirements

A. J. Johnson will be conducting a webinar on September 8, 2022, on Ensuring Section 42 Compliance on December 31.  The Webinar will be held from 1:00 PM to 2:30 PM Eastern time. Experienced LIHTC managers and compliance professionals all know the importance of the last day of the tax year (normally December 31). This session will focus on all the issues to be aware of as the year draws to a close, with recommendations on how to ensure compliance at year-end and the ramifications of noncompliance. The discussion will center on the three primary compliance areas impacting the ability to claim credits - eligibility, affordability, and habitability. The training will stress the importance of year-round compliance relative to rent since excess rent at any point in the year can result in a credit loss. The session will close with a review of casualty loss issues and how these events may (or may not) impact the credits. Those interested in participating in the Webinar may register on the A. J. Johnson Consulting Services website (www.ajjcs.net) under "Training Schedule."