News

IRS Provides Clarification on COVID-19 Issues

The IRS recently issued guidance relating to COVID-19 relief for LIHTC projects (July 1). The National Council of State Housing Agencies (NCSHA) requested clarification from the IRS on two of the provisions in the IRS Notice (Notice 2020-53): (1) suspension of the owner requirement to perform tenant income recertifications, and (2) suspending the Housing Credit allocating agency requirement to conduct compliance monitoring inspections or reviews. The IRS has provided clarification to NCSHA in these two areas and Erica Etterling, the Rental Compliance Support Manager at Virginia Housing, was kind enough to share that response with me - I am now sharing it with my subscribers. Income Recertifications According to IRS Notice 2020-53, an Owner of a LIHTC project is not required to perform tenant income recertifications that were due for the period April 1, 2020 to December 31, 2020. The owner must resume the income recertifications as due after December 31, 2020. NCSHA asked whether owners need to perform income recertifications that are skipped during this period after December 31, and if so, the timeframe the owner has for completing them. In response to this question, the IRS indicated that the income recertifications do not need to be made up because the requirement to perform them during this time period is waived. So, income recertification due between April 1, 2020 and December 31, 2020 do not need to be done. Owners should commence the 2021 recertifications when they would have been due if the 2020 recertifications had not been waived. Compliance Monitoring Based on Notice 2020-53, HFAs are not required to conduct compliance monitoring reviews or inspections during the period April 1, 2020 to December 31, 2020. The HFA must resume compliance monitoring inspections or reviews as due after December 31, 2020. NCSHA asked two questions relative to this guidance: Does the word "reviews" in this section refer to tenant file reviews, or is the relief in this section limited to physical inspections only? In response, the IRS indicated that the word "reviews" refers to tenant file reviews.Do HFAs need to conduct the inspections or reviews skipped from April 1, 2020 to December 31,2020 in 2021, and if so, what timeframe does the Agency have for completing them? The IRS indicated that the compliance monitoring inspections or reviews do not need to be made up because the requirement to perform them during this time is waived. Owners should keep in mind that HFAs may impose their own requirements in these areas and that should be expected. Three potential areas where the agencies may impose more stringent requirements are (1) the recertification requirements for first year recertifications (i.e., the first year after move-in), (2) student status and household composition recertifications, and (3) the agencies may not want to go six years between reviews of a property, which based on the waiver of reviews and inspections could theoretically occur. As always, owners and managers should coordinate closely with the appropriate HFA with regard to annual recertifications and monitoring.

Normal Wear & Tear - What is it?

A question I often get from clients with regard to the requirement to return security deposits is "What is the difference between normal wear and tear and tenant damage?" It s an important question, because the landlord/tenant laws in virtually every state prohibit the use of tenant security deposits for "normal wear and tear" in apartments. Normal wear and tear is damage that naturally occurs in an apartment due to aging and regular use. It typically results from a resident living in the property and is considered normal depreciation. It is not caused by neglect or abuse of the property. Landlords need to repair normal wear and tear at their own expense - but this is not the case for tenant damages. Normal Wear and Tear vs. Damage Normal wear and tear is different than tenant caused damage. Normal wear and tear occurs naturally over time. Damage caused by tenants is not a result of aging but is a result of negligence, carelessness or abuse. Normal wear and tear is required to be paid for by the landlord and tenant damage is not. Let s take a look at some examples of types of normal wear and tear and tenant caused damage and the differences between the two: Carpet: The average useful life of carpet is five years. Normal wear and tear of carpet would be gently worn carpets that show some worn patches but no holes or stains. Examples of tenant damage to carpet would be pet stains and ripped carpeting. Cigarette burn holes are another example of tenant damage to carpet.Hardwood Floors: The average useful life of hardwood floors is 25 years. Fading of such flooring due to sunlight exposure is normal wear and tear, as would light surface scratches. However, deeply scratched hardwood floors or pieces of the hardwood missing would be considered tenant damage.Tile: The average useful life of tile is 25 years. Dirty grout surrounding the tiles is normal wear and tear, but broken, chipped, or missing tiles is tenant damage.Windows: The average useful life of windows is 20 years. Lightly scratched glass and worn, loose hardware is normal, while broken glass, ripped screens, and broken hardware are tenant damage.Countertops: Depending on the quality of the countertop, the useful life can be 20 years or more. All countertops can be expected to have scratches and watermarks, but chips, burnt areas, and/or multiple stains should be considered tenant damage.Walls: Walls should last for the lifetime of the structure. Cracks in the walls caused by building settling would be normal wear and tear, but holes or damage from hanging pictures is tenant damage.Paint: Most paint has a useful life of three years. Fading paint from sunlight minor scuffing from daily use is normal, but paint that has been scribbled on or unauthorized paint colors should be paid for by the tenant. The two most common areas of dispute between landlords and tenants regarding normal wear and tear or damage are carpet and paint, so a deeper dive into these areas may be useful. Normal Wear & Tear vs Damaged Carpet If the carpet has been in place for five years or longer, it s the landlord s responsibility to replace it, since that is generally recognized as the useful life of apartment carpet. If the carpet has light sun damage or is showing signs of wear, that is normal wear and tear and the landlord cannot blame the tenant. It is the landlord s responsibility to keep a unit free of hazards. So, if the carpet has worn out over the years and becomes a tripping hazard, it should be immediately replaced and paid for by the landlord. But, if the carpet has been ripped or has excessive fraying, it is the tenant s fault and the replacement cost may be deducted from the tenant s security deposit. Further, if the carpet is stained either by a pet or spilling food, wine, dirt, and more, it is considered tenant-caused damage and may also be deducted from the security deposit. Also, odors from heavy smokers that require replacement of carpet in less than five years could be considered tenant caused damage, although if smoking is permitted, a court could reasonably take the position that this is normal wear and tear for a smoker s unit. State laws vary on landlord-tenant laws regarding security deposits, but generally, the landlord needs to get a repair quote from a licensed contractor and send the tenant an itemized list of the damage along with a check for the remainder of the security deposit. Normal Wear & Tear vs Damaged Paint Peeling paint, sun damage, or a small number of scuffs are considered normal wear and tear and the landlord should touch them up or re-paint between tenants. Ceiling paint usually lasts longer since no one is constantly touching the ceiling. Ceiling paint should be touched up when a leak occurs or on an as-needed basis. If the paint has holes in it, excessive scuff marks or other marks such as drawings or scribbles, it is considered damage caused by a tenant. In this case, the cost to fix the damage and paint the walls may be deducted from the tenant s security deposit. You can do this by getting a quote from a licensed contractor and sending the tenant an itemized list of damages, along with a check for the rest of the deposit. Ultimately, the difference between normal wear and tear and tenant damage must be judged case-by-case. But, damage caused by natural forces or daily use should generally be considered normal wear and tear, while damage requiring more than routine maintenance or replacement is often beyond normal wear and tear. If challenged by a tenant with regard to the return of a security deposit for damages, a landlord must be prepared to show clearly that the issue goes beyond what would be considered "normal" wear and tear.

National Fair Housing Alliance Files Suit Against Multiple Assisted Living Operators

The National Fair Housing Alliance (NFHA) has filed suit against eight companies that operate 16 assisted living facilities in the Salt Lake City, Albuquerque, and Santa Fe metropolitan areas. The suits were filed in the U.S. District Court for the District of Utah and the U.S. District Court for the District of New Mexico and allege that the companies are discriminating against prospective elderly residents who have been deaf since birth and primarily communicate in American Sign Language (ASL). In a series of phone calls and on-site visits conducted by fair housing testers over an 18-month period, staff at each assisted living facility either refused to provide a potential elderly deaf resident with a qualified ASL interpreter or other aids and services to ensure they would be able to communicate effectively or said that interpretation services would be charged to the applicant or the applicant s family. Fair housing law provides distinct protections for people who are deaf or hard of hearing. One protection is the right to interpreters or other aids to ensure they can effectively communicate with housing providers. Housing providers may not refuse a reasonable accommodation request from a person who is deaf or hard of hearing to have important information communicated through ASL or other effective auxiliary aids. Housing providers are required to provide interpretation services to people who are deaf or hard of hearing free of charge unless doing so would place an undue financial and administrative burden on the provider. Examples of discriminatory conduct contained in the eight lawsuits include: The facility s flat refusal to provide an ASL interpreter;The facility s provision that it would allow an interpreter, but only if the applicant or the applicant s family would pay for those services;The facility s recommendation that the applicant s family use a senior living placement service to find a senior living facility that better served the needs of the potential resident;The facility s statement that it would not be a good fit for the prospective deaf applicant; andThe facility s statement that, while it had access to ASL resources, it could not guarantee the service would be available on a continual basis and that, if there were costs associated with the service, the resident may have to pay half the charges. The lawsuits have been filed against Brookdale Senior Living;Spectrum Retirement Communities;Pacifica Senior Living;LifeSpire Assisted Living;LeisureCare; andBeeHive Homes. These companies operate 16 facilities investigated by NFHA in New Mexico and Utah and provide over 1,100 beds. This case is a strong reminder of the responsibility of housing providers relative to reasonable accommodation requests. When such requests are necessary due to a disability, and do not result in an undue financial burden or fundamentally alter how a property will operate, the accommodation must be granted and the housing provider must pay the cost of the accommodation.

A. J. Johnson to Offer Fair Housing Webinar

A. J. Johnson will be conducting a webinar on July 23, 2020 on Compliance with Federal and State Fair Housing Requirements. The Webinar will be held from 1:00 PM to 4 PM Eastern Time. This training will equip attendees with the knowledge and understanding needed to avoid fair housing violations.The course curriculum is centered around the regulations in the two major fair housing laws, The Fair Housing Act (Title VIII of the Civil Rights Act of 1968) and Section 504 of the Rehabilitation Act of 1973. The course also includes a discussion of the additional state and local protected characteristic. Also, relevant portions of the American with Disabilities Act (ADA) are covered.In addition to covering each of the protected classes in detail, the session will feature the most up-to-date information on the new HUD guidance regarding assistance animals and criminal record screening. The course concludes with a review of advertising requirements and how the law is enforced at the federal level. Those interested in participating in the Webinar may register on the A. J. Johnson Consulting Services website (www.ajjcs.net) under "Training."

Webinar on VAWA Plans for LIHTC Properties

A. J. Johnson will be conducting a webinar on July 22, 2020 on The Violence Against Women Act (VAWA) - Guidance for LIHTC Owners & Management Agents. The Webinar will be held at 1:00 PM Eastern Time. The Violence Against Women (VAWA) Reauthorization Act of 2013 expanded VAWA protections to many different affordable housing programs - including the Low-Income Housing Tax Credit (LIHTC) Program. While HUD has provided detailed requirements on VAWA implementation at HUD properties, there has been no uniform guidance for LIHTC owners and managers. A proposal before Congress would legislate that LIHTC Extended Use Agreements contain VAWA requirements. The IRS has not provided guidance and while many state agencies are requiring VAWA plans, they are not providing information on what the plans should look like. This one-hour training - when combined with the course materials- will review VAWA requirements and recommend best practices for developing VAWA plans at LIHTC properties. The session will be presented by A. J. Johnson, a recognized expert in the affordable housing field and the author of "A Property Manager s Guide to the Violence Against Women Act." Those interested in participating in the Webinar may register on the A. J. Johnson Consulting Services website (www.ajjcs.net) under "Training."

HUD Updates Guidance on CARES Act Eviction Moratorium

On July 1, 2020, HUD issued Notice H-20-07, Coronavirus Aid, Relief, and Economic Security (CARES) Act Eviction Moratorium. This Notice provides background and up-to-date guidance on HUD s policies and procedures regarding the eviction relief provided to tenants of certain multifamily properties under the CARES Act (signed into law on March 27, 2020). Specifically, the Notice extends the moratorium on evictions for all HUD-insured or HUD-held mortgages while under forbearance and also provides guidance on tenant protections for multifamily properties not subject to forbearance and those with HUD-assisted units. Unless rescinded or amended, this Notice will be HUD Multifamily Housing s procedures for the duration of the COVID-19 emergency. Background HUD is particularly concerned about the impact of the expiration of the tenant protections provided by the CARES Act, and encourages owners, agents, and contract administrators to work with those residents who have been impacted by the COVID-19 emergency to the extent practicable. During the period March 27, 2020 to July 24, 2020, the CARES Act prohibits owners of certain multifamily properties from certain acts; such owners may not: Make, or cause to be made, any filing to initiate a legal action to recover possession of a covered dwelling unit from a tenant for nonpayment of rent or other fees or charges; orCharge fees, penalties, or other charges to the tenant related to the nonpayment of rent. In addition, covered tenants may not be given a notice to vacate until after July 24, 2020 for nonpayment of rent and then must be given at least 30 days to vacate after the notice is given. While the CARES Act is silent on what an owner or agent can charge after the eviction moratorium ends, HUD interprets the law to mean that unpaid rents will accrue during the moratorium and may be collected from tenants after it concludes, along with any fees or charges that were assessed and left unpaid prior to March 27, 2020.  However, fees and charges for rent due during the moratorium may not be accrued. Some owners of certain HUD projects requested mortgage forbearance that took effect shortly after March 27, 2020. This 90-day forbearance period will be ending shortly, but these owners are still subject to the eviction moratorium until July 24, 2020. Owners who received mortgage forbearance for a 90-day period after the March 27 date, remain subject to the eviction moratorium and renter protections until both the moratorium and forbearance period have expired. If an owner negotiates an extension to the forbearance period, the eviction moratorium must be extended for the full term of any negotiated extension of forbearance. The Notice provides the following additional requirements for owners who receive extended forbearance protection: Tenants who missed rent payments during the forbearance period must be allowed to make up the missed payments over a reasonable time as determined in the sole discretion of the borrower. The owner may not require that missed rent payments be repaid in one lump sum at the end of the forbearance period.During the time an owner is repaying missed mortgage payments due to forbearance, the owner may not charge tenants late fees or penalties due to late or missed rent payments. Tenant Protections for Mortgaged Properties Not Subject to Forbearance Many HUD-insured properties and those with HUD-held mortgages, as well as Section 202 and Section 811 financing did not receive mortgage forbearance, and tenants in those properties are not protected under the CARES Act. HUD is "encouraging" all owners of properties with FHA insured, HUD-held mortgages, and Section 202/811 financing to work with tenants to avoid evictions. Such measures could include rent payment plans, delayed evictions, and/or other measures to avoid evictions. Owners of these properties may pursue available financial relief measures when necessary, including reserve for replacement and residual receipt account releases; suspension of reserve for replacement account deposits; owner advances; and/or loans or other resources from outside sources to lessen the impact of lost rental income during the pandemic. Owners of HUD properties should obtain a copy of HUD Notice H-20-07 and familiarize themselves with the requirements of the Notice.

HUD Issues Update Notice on COVID-19 Statutory and Regulatory Waivers

On July 2, 2020, the Department of Housing & Urban Development (HUD) issued Notice PIH 2020-05, Rev. 1 "COVID-19 Statutory and Regulatory Waivers and Alternative Requirements for the Public Housing, Housing Choice Voucher, Indian Housing Block Grant and Indian Community Development Block Grant programs, Suspension of Public Housing Assessment System and Section 8 Management Assessment Program." These waivers provide alternative requirements for Housing Quality Standards (HQS) inspections of Section 8 Voucher units, resident income recertifications, and other requirements. On April 10, 2020, HUD published Notice PIH 2020-05 using authority granted under the CARES Act to establish waivers and administrative flexibilities to provide relief to PHAs, Indian Tribes,  and Tribally Designated Housing Entities (TDHEs) in response to the COVID-19 pandemic. In this revised Notice, HUD reinstates the waivers and alternative requirements published in the initial notice, provides additional waivers and alternative requirements, extends the periods of availability for previously established waivers and alternative requirements, and issues technical  amendments to several of the previously established waivers and alternative requirements. Affected entities may choose in implement any or all of these waivers, immediately or at any point during the applicability period. Most provisions of the Notice have been extended through December 31, 2020. Provisions of the Notice follow: HQS Waivers PHAs can enter into a Housing Assistance Payment (HAP) contract for tenant-based or PBV units, turn over units to a new family, add new units to a PBV contract, or substitute units on a PBV contract without conducting a HQS inspection through December 31, 2020. In lieu of the HQS inspection, the PHA may accept a certification from the project owner that the owner "has not reasonable basis to have knowledge that life threatening conditions exist" in the units. Units must be inspected within one year of the owner certification. These same alternate requirements apply to PHAs choosing to utilize the alternative inspection flexibility that had previously been provided under the Housing Opportunity Through Modernization Act of 2016 (HOTMA), which allows the PHA to recognize alternative inspection regimes such as REAC. In lieu of a PHA inspection within 15 days, the PHA may accept an owner s certification of no knowledge of life threatening conditions, and then the unit would have to be inspected within one year of the certification. If an HQS inspection has been conducted but the PHA utilizes the Non-Life Threatening Deficiencies (NLT) flexibility that had previously been provided under HOTMA, project owners can have up to 60 days, instead of 30, to make NLT repairs; this authority runs through December 31, 2020. For units already under a HAP contract, PHAs may delay the required biennial HQS inspections until no later than one year from the date the biennial inspection would have been required absent the waiver. If a tenant notifies a PHA that their unit does not comply with HQS, through December 31, 2020, the PHA may notify the project owner in lieu of conducting an HQS inspection. For life threatening deficiencies, the owner must either correct the deficiency or provide evidence that the deficiency does not exist within 24 hours.  For non-life threatening deficiencies, the project owner must either correct the deficiency or provide evidence that the deficiency does not exist within 30 days of the PHA notification. HUD is waiving the HQS requirement that a leased unit have at least one bedroom or sleeping room for every two people in order to accommodate residents who may need to add household members as a result of the pandemic. Recertifications of Income and Family Composition for Public Housing & HCV/Section 8 PHAs can delay annual re-examinations of family income and composition until December 31, 2020.If a PHA wishes to proceed with recertifications, through December 31, 2020, PHAs may rely on family self-certification and forego reliance on third-party income verification, such as the EIV. HUD is even allowing this self-certification to occur over the phone if the PHA staff creates a contemporary written record.Interim certifications can be used to adjust a family s tenant portion of rent if they have lost income. Again, PHAs may rely on family self-certifications and need not rely on EIV or other third-party verification through December 31, 2020. Further, PHAs may wish to review and adjust their interim re-examination policies, such as when increases in family income must be reported or how to determine the effective date of the interim recertification.Mandatory EIV monitoring is waived through December 31, 2020. However, families will be responsible if significant discrepancies from their self-certification are later discovered.Additionally, if a PHA s payment standard increases, PHAs need not wait until the regular family re-examination for a unit to increase the HAP subsidy. Additional Waivers Applicable to PIH and HCV/Section 8 Programs Section 8 Administrative Plans and Public Housing Admissions and Continued Occupancy Policies (ACOPs) may be temporarily amended without board of director s approval until September 30, 2020; the PHA must formally adopt any such changes by December 31, 2020.PHA Annual Plan/5-Year Plan submission dates have been extended - PHAs with June 30 and September 30 fiscal year ends now have until October 18, 2020, to submit their annual or five-year plans. PHAs with December 31 fiscal year ends have until January 16, 2021. In addition, plan amendments, except for amendments required by RAD, Section 18, and Section 22 repositioning efforts, may be adopted without an open public meeting of the PHAs board of directors.HUD is still requiring PHAs to notify tenants of policy changes, but 30-day advanced notice is no longer required.PHAs have been given broad latitude to extend a family s initial voucher, execute HAP contracts up to 120 days after the start of a family s lease, allow vacancies for more than 180 days, and retain units on a HAP contract even if the unit does not generate subsidy for more than 180 days.COVID-19 qualifies as "good cause" through December 31, 2020, to extend a family s participation in the FSS program for up to two years.Raises the age of eligibility from 24 to 25 in the Family Unification Program (FUP); extends the length of assistance for a year for youths who were approaching the 36 month cut-off for assistance under FUP; and extends the length of time that a youth has to find a unit under FUP from 90 to 120 days.Extends the period of eligibility for Section 8 homeownership assistance by one year for families approaching their maximum term of assistance prior to December 31, 2020.Public notice for PHAs opening or closing waiting lists can be provided by leaving an outgoing voice message on its answering system and website, if the messages are accessible for hearing, visual, and other communication-related disabilities.Suspends the requirement, through December 31, 2020, the PHAs that own or operate public housing make an annual inspection of each public housing project to determine whether units in the project are maintained to applicable standards and remain safe for residents.Capital Fund obligation end dates and expenditures end dates are extended by one year. PHAs may exceed Total Development Cost (TDC) and Housing Construction Cost (HCC) limits by 25% and may seek HUD approval to exceed these costs by up to 50%.PHAs may use force account labor, rather than contracted labor, for modernization activities.Energy audits are suspended and PHAs need not review utility allowances until December 31, 2020.HUD is temporarily suspending the Public Housing Assessment System (PHAS) and the Section 8 Management Assessment Program (SEMAP) for PHAs with a fiscal year end on or before December 31, 2020; HUD will begin issuing new PHAS and SEMAP scores for PHAs with fiscal year end dates of March 31, 2021.Financial statement submission deadlines have been extended by six months.Through December 31, 2020, PHAs have 90 - rather than 60 - days to submit form HUD-50058 for transactions impacted by these waivers. HUD will provide future guidance regarding reporting work-arounds in the PIH Information Center (PIC) system. The CARES Act also provides supplemental funding for the Public Housing and HCV programs and additional flexibility to move monies between Operating and Capital Funds. HUD published additional guidance regarding these aspects of the CARES Act on Notices PIH 2020-07 and 2020-08.

Webinar on Average Income Requirements & Best Practices

A. J. Johnson will be conducting a webinar on July 14, 2020 on Requirements & Best Practices Relating to the Average Income Minimum Set-Aside for LIHTC Properties. The Webinar will be held at 1:00 PM Eastern Time. The Average Income Minimum Set-Aside Test ("AI") was added to the LIHTC program in March 2018. While it is being implemented successfully on many properties, there remains a good deal of industry-wide confusion about the use of the AI set-aside and the risks involved.  This one-hour live webinar will review the requirements of the AI, discuss the risks of this set-aside, and provide best practice recommendations for implementation of the Average Income test. The Webinar will be presented by A. J. Johnson, a nationally recognized expert on affordable housing who has already provided compliance oversight on multiple properties using the AI set-aside. Those interested in participating in the Webinar may register on the A. J. Johnson Consulting Services website (www.ajjcs.net) under "Training."