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Information to Obtain When Assuming Management of a LIHTC Property

When assuming management of a Low-Income Housing Tax Credit (LIHTC) property during the 15-year compliance period, there is critical information the new agent must have. The following list provides a good starting point for the information to obtain when assuming management of one of these properties: Location of the Resident Files: All tenant files and other information relating to property operations must be at the site. Determine the location of the initial resident files and whether copies have been made.Required Minimum Set-Aside & Applicable Fraction: Determine the applicable fraction required for each building. Keep in mind that each building has a separate Building Identification Number (BIN) and this applicable fraction is applied per BIN. The IRS Forms 8609 for each BIN are a good source for determining the Minimum Set-Aside and applicable fraction. The 8609 will also confirm whether the project is deep rent skewed. Line 8b of the 8609 will also confirm whether or not it is a multiple building project.What are the requirements of the Extended Use Agreement (EUA)? A copy of the EUA should always be available at the site. This is the deed restriction between the owner and the Housing Finance Agency (HFA) that will outline any special set-asides in addition to the minimum set-aside shown on the 8609s. It is also a good idea to obtain a copy of the original LIHTC application to the HFA and clarify any differences between the application and the EUA, keeping in mind that the EUA is the legally binding document.Is the property subject to any other housing programs? It is common for LIHTC properties to be involved in more than just the tax credit program. Examples are the HOME program, Tax-Exempt Bonds, Rural Development Section 515, HUD Section 8, and the Federal Home Loan Board s Affordable Housing Program. In situations where there is more than one program present at a property, the most restrictive rules should be followed.Have there been past violations and if so, were they corrected? If there are any outstanding violations (as determined by examining any prior 8823s issued against the project), determine what is needed for correction and confirm how long the HFA is allowing for the correction. Prior to assuming management of a tax credit property, a new agent should request copies of any prior 8823s.Have there been any fair housing complaints against the property? If there are pending actions, get the files and talk to the attorney that is representing the property.Are any low-income households over-income? If the site is mixed-income (i.e., has both low-income and market units), determine if any low-income households currently have income in excess of 140% of the currently qualifying income limit (170% if the project is deep rent skewed). Request documentation that shows the Available Unit Rule (or deep rent skewing rule) is being followed. Examine the files of all households in a BIN that moved in after a household recertified with income in excess of the 140% or 170% levels.Are there any vacant units? If there are vacant units, confirm the following: (1) the last household in the unit was eligible; (2) the unit is suitable for occupancy; and (3) reasonable attempts are being made to rent the vacant units. Also, obtain copies of all marketing materials.When does the compliance period end? This information can be confirmed by reviewing the 8609s. Once the 15-year compliance period has ended, the EUA becomes the governing document for the property and any HFA year-15 requirements should be followed. All of the information outlined above is critical to obtain prior to assuming management of an existing LIHTC property. Once a new owner acquires an existing property, or a new management company assumes management, operational responsibilities shift to the new entity. Pleading ignorance of a problem at that point will not hold water with either an HFA or the IRS. 

Determining the Income of LIHTC Applicants and Residents

The determination of income is a primary requirement when determining the eligibility of applicants and residents at Low-Income Housing Tax Credit (LIHTC) Properties. While individual Housing Finance Agencies (HFAs) have their own requirements relating to the determination of income, there are some "best practices" that may be applied in most jurisdictions. Some types of income - especially relating to employment - can be challenging to calculate. This article will provide suggestions and recommendations for determining various types of income, but all LIHTC managers should be aware of any specific requirements of their HFA. Regular Income There are generally three ways to determine income from employment: (1) a verification of annual income (VOE) from the employer; (2) a projection from year-to-date [YTD) income, which may be found on an employment verification or pay stubs; and (3) the average number of hours/overtime hours as shown on pay stubs. Generally, if there is a different result when calculating income using more than one of the methods, it is recommended that management follow up to determine the "most likely" income and use that as the certified income. However, some HFAs require the use of the "highest" result when the calculations show different figures, so managers should have a clear understanding of the HFA requirement in this area. If there is conflicting information between documents (e.g., the VOE and pay stubs), managers should attempt to obtain written clarification from the employer. If written clarification cannot be obtained, it may be possible to use an oral clarification. It is also a good idea to request additional pay stubs, which may enable a more accurate determination of income. Self-Employment In general, the following information is recommended for verifying income from self-employment: Tax returns from the prior one to three years. These should be obtained through the IRS transcript service (1-800-908-9946); the use of self-prepared returns is not recommended since there is no way to know if the returns were actually sent to the IRS.Note: for self-employed individuals who claim not to file tax returns, managers should obtain a completed copy of IRS Form 4506-T - Request for Verification of Tax Filing with the IRS - in order to verify that no return has been filed. The IRS requires that all self-employed individuals making $400 or more per year must file a federal tax return, regardless of tax liability.If a 4506-T shows that no return has been filed, the following information may be obtained to assist in determining self-employment income:Profit & Loss Statement; orStatements from recurring clientsIt is also recommended that all self-employed individuals provide an Affidavit of Self-Employment on which they state an estimate of their gross and net business income for the upcoming 12-months. Day Labor Day labor is generally applicable to a person who waits in a specified location to do various odd jobs and is paid with cash. Day Labor does not usually have a recurring clientele and can have a significant variance in terms of income or hours worked. In certain cases it is not possible to obtain third party verification of Day Labor. For this reason, a self-certification of income from the applicant/tenant may be the only option. However, before accepting such a self-certification, management should demonstrate due diligence in processing the certification. Such diligence will include a written statement from the applicant outlining details of their work, including: (1) dates of work; (2) work locations; (3) types of work; and (4) income earned for the work that is done. Since this is a type of work that can be very difficult to verify, management should ensure that any verification method used meets the requirements of the HFA. Anticipated Earnings Generally, income for the upcoming 12-months should be based on current circumstances, which should be annualized. It is not recommended that anticipated earnings be used unless there is documentation supporting such anticipation. For example, unless there is a pending offer of a salaried position - including a start date - no anticipation of employment income should be made. If the only form of income is from a household s "hope" for a future job, an HFA is very likely to question how the household will pay for rent, food, utilities, etc., and may require management to demonstrate how such items will be paid for. Cash Wages If an applicant claims that they do not receive pay stubs because they are paid in cash, the IRS has indicated that such individuals should be considered "independent contractors" and as such should file a 1040 tax return. In such cases, management should obtain a copy of the tax return (as outlined earlier) and should obtain a statement from the employer indicating the name of the employee, their position/title, and how much the employee is paid in cash each pay period. If a household that is paid in cash claims they do not file a tax return, the 4506-T (as noted above) should be required, verifying the non-filing status, in addition to the third party statement from the employer. Farm Labor Farm labor presents unique verification challenges due to the varying employment timeframes. The growing seasons are often determined based on weather and cannot be precisely predicted. If the applicant/tenant receives unemployment assistance during the off-season, only the unemployment received during the layoff period should be counted - i.e., the unemployment does not need to be annualized, as is normally the case. To adequately determine income eligibility for farm labor applicants, the following procedures are recommended: Maintain a spreadsheet tracking the growing seasons of the farms in the area around the property. This will provide a historical perspective of work and lay-off periods for prospective residents.Require a completed VOE showing the anticipated lay-off period.Obtain a payroll printout (in addition to piece count paystubs) that shows gross amounts earned per pay period.The payroll printout should include the name of the applicant/tenant, the farm they work for, and the pay rate of the employee. If this information is not included, the printout will not be an acceptable verification. Other Forms of Income Social Security and Supplemental Security Income (SSI): Most HFAs will accept the current year award letters for regular Social Security and a current Proof of Income Letter (with 120-days) for SSI. Note that some HFAs may require a confirmation of Social Security income if the Award Letter is more than 120-days old.Unemployment and TANF: Benefit letters dated within 120-days of the move-in/effective date should be obtained.Pensions, Annuity Payments, or any other form of recurring payment (excluding gifts): a document from the entity providing the payment dated within 120-days of the move-in/effective date should be obtained.Gifts: a signed and dated statement (notarized or witnessed) from the person providing the gift indicating the amount and frequency of the gift. An updated statement should be obtained for each recertification.Unemployment Income: If the tenant does not have a seasonal/recurring job, the unemployment income should be annualized for 52 weeks, even if a "maximum benefit" amount is noted on the verification letter. If the applicant/tenant has a seasonal job, recurring job, or a firm job offer, the unemployment should only be calculated for the period it will be received. Importance of Proper Verification If an HFA is not satisfied with the documentation of income in a file, it is very likely to request additional documentation to demonstrate household eligibility. Such documentation may include: Tax returns or W-2s for the move-in or recertification year;Additional paystubs;Clarification regarding the disposal of an asset; orVerification of the termination of employment Best Practice Forms There are certain forms every well-run LIHTC property will have - many of which are required by HFAs. Some of these forms are as follows: Comprehensive rental applications;Recertification Questionnaires;Child/Spousal Support Affidavits/Verifications;$5,000 and Under Asset Affidavits or third party verification when assets exceed $5,000;Student Status Affidavits;Survival Statements for assisted households claiming zero income; andLive-in Aide Verification Forms (if applicable). Ultimately, the HFAs will be looking for "due diligence" on the part of owners and managers. While each type of income will present its own challenges, the documentation outlined in this article will serve the purpose of verification in most cases.

RAD First Component - Eligibility, Conversion Requirements, and Financing Considerations

On September 5, 2019, HUD issued Notice H-2019-09, PIH-2019-23 (HA), Rental Assistance Demonstration - Final Implementation, Revision 4. This revised notice provides program instructions for the Rental Assistance Demonstration (RAD) Program, including eligibility and selection criteria. Background The RAD program was created by Congress in 2011 and provides the opportunity to test the conversion of public housing and other HUD-assisted properties to long-term, project-based Section 8 rental assistance to achieve certain goals, including the preservation and upgrading of these properties by enabling Public Housing Agencies (PHAs) to access private and public debt and equity to address immediate and long-term capital needs. RAD is also designed to test the extent to which residents have increased housing choices after the conversion, and the overall impact on the properties. RAD has two components: First Component: The First Component allows projects funded under the public housing (Section 9) program to convert their assistance to long-term, project-based Section 8 rental assistance contracts. PHAs may choose between two forms of Section 8 Housing Assistance Payment (HAP) Contracts: project-based vouchers (PBVs) or project-based rental assistance (PBRA). PHAs will convert assistance at current subsidy levels and there will be no increase in funding. The law authorizes the conversion of up to 455,000 public housing units under this component. Section I of the Notice provides instructions for PHAs applying for conversion under the First Component. While the RAD statute authorizes HUD to convert Section 8 Moderate Rehabilitation Projects (Mod Rehab) under the First Component, HUD is exercising its discretion to prioritize public housing conversions under the competitive requirements of the First Component. The demand for public housing conversions is extremely high and significantly exceeded the initial limitation on the number of units that could be converted under the First Component.  Consequently, Mod Rehab conversions will be processed exclusively under the Second Component of RAD, which is non-competitive.Second Component: The Second Component allows owners of projects funded under the Rent Supplement (Rent Supp), Rental Assistance Payment (RAP), and Mod Rehab programs to convert to PBV or PBRA contracts upon contract expiration or termination occurring after October 1, 2006. The Second Component further allows owners of projects funded under the Project Rental Assistance Contracts (PRAC) under the Section 202 program to convert to PBV or PBRA contracts. The purpose of this article is to review the basic RAD elements of the First Component relative to eligibility, conversion requirements, and financing considerations. As noted above, under the First Component of RAD, PHAs may choose between two forms of Section 8 Housing Assistance Payment (HAP) Contracts; project-based vouchers (PBVs) or project-based rental assistance (PBRA). No incremental funds are authorized for this component. As such, initial contract rents are established based on public housing funding levels and are subject to applicable program rent caps. Applications may be submitted for a specific project or a PHA-defined portfolio of projects. If a PHA applies for a portfolio award, HUD will reserve RAD conversion authority for the number of units covered by the award, and the PHA will be required to submit a RAD application for each individual project. After HUD approval, a project will receive a long-term Section 8 HAP Contract. PBV Conversions Where the PHA converts assistance of a public housing project to Section 8 PBVs, the HAP contract will be administered by the agency with which HUD has entered into the applicable Voucher ACC, which is usually the same agency that is converting assistance. Contract rents will be established and will be adjusted annually by HUD s published OCAF on each anniversary of the HAP Contract subject to appropriations and the rent reasonableness requirement. The initial contract will be for a period of at least 15-years (but may be up to 20-years). At or prior to the expiration of the initial contract and each renewal contract thereafter, the Voucher Agency shall offer, and the Project Owner shall accept, a renewal contract for the prescribed number and mix of units, either at the site of the project subject to the expiring contract, or upon request of the Project Owner and subject to PHA and HUD approval, at another site through a future transfer of assistance. PBRA Conversions Where the PHA converts assistance of a public housing project to Section 8 PBRA, the HAP Contract will generally be administered by HUD s Office of Housing, unless later assigned to a PHA that is under ACC with HUD for the purpose of administering project-based Section 8 HAP Contracts. Contract rents will be established and will be adjusted annually by HUD s published OCAF at each anniversary of the HAP Contract. The initial contract will be for a period of 20 years and will be subject to annual appropriations. At expiration of the initial contract and each renewal contract, HUD shall offer, and the project owner shall accept, a renewal contract for the prescribed number and mix of units, either on the site of the project subject to the expiring contract, or upon request of the Project Owner and subject to HUD approval, at another site through a future transfer of assistance. Eligibility To be eligible for RAD, a PHA must: Have public housing units under an ACC;Be classified as a Standard or High Performer under the Public Housing Assessment System (PHAS). If classified as "troubled," the PHA may still be eligible if the PHA is making substantial progress under its Recovery Agreement, Action Plan, Corrective Action Plan (CAP) or Memorandum of Agreement (MOA) or proposes a revision to such agreement or plan that incorporates conversion under RAD and that is acceptable to HUD.Be classified as a Standard or High Performer under the Section 8 Management Assessment Program (SEMAP) if the PHA will be administering the PBV contract under RAD. If classified as Troubled, the PHA must be making substantial progress under the CAP and HUD must have determined that the factors resulting in the PHA s Troubled status will not affect its capacity to carry out a successful conversion under RAD;Be in substantial compliance with HUD reporting and programmatic requirements and/or satisfactorily in compliance with any CAP or MOA related to any (1) program finding or (2) failure to carry out, to the satisfaction of HUD, management decisions relating to an audit by the OIG;Not have a debarment, suspension, or Limited Denial of Participation (LDP) in Federal programs lodged against the applicant, PHA Executive Director, Board members, or affiliates, unless HUD has determined that the RAD conversion is likely to place the property under the control of a more capable entity; Submit a completed application that complies with all RAD application instructions; andResolve to HUD s satisfaction any outstanding civil rights matters prior to conversion. Project Conversion Requirements and Financing Considerations HUD expects that the majority of projects undergoing conversion of assistance through RAD will do at least some rehabilitation or reconstruction. The following include requirements related to conversion plans more broadly, including those involving rehab and construction: Conversion Planning Requirements Capital Needs Assessment (CNA). Except as noted below, each project selected for award will be required to perform a detailed physical inspection to determine both short-term rehab needs and long-term capital needs. Short term needs will be included in the RAD scope of work conversion and long-term needs will be addressed through a Reserve for Replacement Account. A CNA must be submitted with the Financing Plan and must have been completed no earlier than 180 days prior to submission of the Financing Plan, unless HUD approves otherwise.The CNA must be completed by a qualified, independent third-party professional.HUD may exempt the following transaction types from a CNA:For non-FHA transactions, neither component of the CNA will be required as long as the annual deposit to the Replacement Reserve is no less than $450 per unit, and the Project:Has been newly constructed for financed with 9% LIHTC within the last five years, as calculated from the date the final certificate or occupancy was issued, orQualifies as new construction of will be financed with 9% LIHTC;For non-FHA transactions, the narrative will not be required where the transaction will be financed with 4% LIHTC;For non-FHA transactions, neither component of the CNA will be required where the total assisted units at the project will constitute less than 20% of the total units at the project.No utility consumption baseline analysis is necessary as part of the CNA conducted for the RAD conversion.Healthy Housing & Energy Efficiency. For all projects retrofitted under a RAD conversion, if systems and appliances are being replaced as part of the Work identified in the approved Financing Plan, PHAs shall utilize the most energy and water efficient options that are financially feasible and that are found to be cost effective by the CNA. Where a project is planning to use a RAD conversion in conjunction with new construction, projects shall at a minimum meet or exceed the 2009 International Energy Conservation Code (IECC) for single family or low-rise multifamily properties or the ASHRAE 90.1-2007 standard for mid- or high-rise multifamily projects.Environmental Review. Proposed RAD projects are subject to environmental review and environmental documents are required to be submitted no later than the submission of the Financing Plan.Substantial Conversion of Assistance. Conversions may not result in a reduction of the number of assisted units, except by a de minimis amount. A de minimis reduction of units may include any of the following:The greater of five units or the number of units (rounded to the nearest whole number) corresponding to five percent of the number of ACC units in the Project immediately prior to conversion;Any unit that has been vacant for more than 24 months at the time of RAD Application; andUnits that, if removed from assistance, will allow the PHA to more effectively or efficiently serve assisted households through: (1) reconfiguring apartments; or (2) facilitating social service delivery, subject to HUD approval. The de minimis allowance may be calculated across portfolio conversions but the number of de minimis units allowed must be calculated based on the RAD conversions closed prior to or simultaneous with the execution of the de minimis reduction. For example, a PHA that is converting 200 units across three properties is permitted to replace 190 RAD-assisted units (i.e., 95% of 200) across its portfolio and apply the unit reduction to a single property. However, the property that would have ten fewer units assisted under a RAD HAP Contract must convert simultaneous with or after the first two properties - not before. A PHA must demonstrate that any reduction in units better serves residents, the Covered Project, or the operating viability of the PHA s RAD or public housing portfolio, will not result in the involuntary  permanent displacement of any tenant family, and will not result in discrimination based on federally protected characteristics. Relocation Requirements. The RAD Fair Housing, Civil Rights, and Relocation Notice provides guidance on relocation planning, resident right to return, relocation assistance, resident notification, initiation of relocation, and the fair housing and civil rights requirements applicable to these activities.Right to Return. Any resident that may need to be temporarily relocated to facilitate rehab or construction has a right to return to an assisted unit at the Covered Project once rehab or construction is completed. Permanent involuntary displacement of residents may not occur as a result of a project s conversion, including, but not limited to, as a result of a change in bedroom distribution, a de minimis reduction of units, the reconfiguration of efficiency apartments, or the repurposing of dwelling units in order to facilitate social service delivery. Where the transfer of assistance to a new site is warranted and approved, residents of the Converting Project will have the right to reside in an assisted unit at the new site once rehab or construction is complete.Ineligibility of Tenant Protection Vouchers. Conversion of assistance is not an event that triggers the issuance of Tenant Protection Vouchers to residents of public housing projects going through a RAD conversion.Accessibility Requirements. Federal accessibility requirements apply to all conversions, whether they entail new construction, alterations, or existing facilities. Compliance with Section 504, the ADA, and the Fair Housing Act is required.Demolition. Conversion plans may include the partial or complete demolition of a project and replacement of assistance either on - site or off - site. A PHA may not demolish and/or dispose of units until after the closing of construction financing for the new project.Change in Unit Configuration. If a PHA is proposing to change the unit configuration as part of the conversion, the PHA must demonstrate that the change in bedroom distribution will not result in the involuntary displacement of any resident. For example, if three and four-bedroom units are replaced with one and two-bedroom units, the conversion may, but not in all cases, result in discrimination against families with children. HUD will perform an up-front review when a PHA proposes to change the unit configuration of a project.Ownership & Control. Except where permitted to facilitate the use of tax credits, during both the initial term and all renewal terms of the HAP Contract, HUD will require ownership or control of the project by a public or non-profit entity. HUD may allow ownership of a project to be transferred to a tax credit entity controlled by a for-profit to facilitate the use of the tax credits, but only if HUD determines that the PHA or a non-profit entity preserves an interest in the property.Transfer of Assistance. Approvals of a PHA or owner s request to transfer assistance will be determined in HUD s sole discretion considering the condition and needs of the Converting Project, the nature of the proposed Project, and the impact on the project residents. The transfer shall not place housing in neighborhoods with highly concentrated poverty based on the criteria formulated for transfers under Section 8(bb) of the Housing Act. The project to which assistance is transferred will be subject to all of the contract terms as described in the HAP Contract, RAD Conversion Commitment (RCC), and RAD Use Agreement.RAD Use Agreement. Pursuant to the RAD Statute, a Covered Project must have a RAD Use Agreement that will be in a form prescribed by HUD, including, but not limited to the following:Be recorded in a superior position to all other liens on the property;Run until the conclusion of the initial term of the HAP Contract, automatically renew upon extension or renewal of the HAP Contract for a term that coincides with the renewal term of the HAP Contract, and remain in effect even in the case of abatement or termination of the HAP Contract;Provide that in the event the HAP Contract is removed due to breach, non-compliance or insufficiency of Appropriations, for all units previously covered under the HAP Contract new tenants must have incomes at or below 80% of the area median income (AMI) at the time of admission and rents may not exceed 30% of 80% of AMI for an appropriate-size unit for the remainder of the term of the RAD Use Agreement; andRequire compliance with all applicable fair housing and civil rights requirements, including the obligation to affirmatively further fair housing.Davis-Bacon Prevailing Wages. The Davis-Bacon Prevailing Wage requirements apply to all work, including any new construction, that is identified in the Financing Plan and RCC to the extent that such work qualifies as development. This includes remodeling that alters the nature or type of housing units, reconstruction, or substantial improvement and is initiated within 18 months following the effective date of the HAP Contract. Davis-Bacon applies only to projects with nine or more assisted units.Lead Based Paint Hazards. PHAs are required to conduct lead-based paint inspections and lead risk assessments on any pre-1978 public housing properties. Financing Requirements & Considerations If a PHA lacks recent experience in accessing various forms of debt and/or equity capital, it may wish to consider engaging technical assistance offered by local or national development intermediaries, professional financing advisors, consultants, and/or development partners to augment its capacities. HUD will assess the capacity of the development team. Low-Income Housing Tax Credits (LIHTCs), Historic Tax Credits (HTCs), and Opportunity Zones Applicants are encouraged to use LIHTCs and, if eligible, historic preservation tax credits, opportunity zones and state or local tax incentive structures, to support capitalization. Applicants are also encouraged to assess local demand and supply considerations if proposing to utilize LIHTCs and to discuss their interest in applying for LIHTCs as soon as possible with state or local tax credit issuing agencies to obtain guidance on how to compete for awards most effectively. While the applicant must indicate in its application if it intends to use tax credits, there is no requirement to have secured those credits prior to submitting an application. This article has dealt with the RAD project conversion basic requirements and financing considerations. The next article on the RAD Notice will focus on waivers, alternatives, and other public housing requirements.

Dealing with Resident Owned Real Estate at Affordable Housing Properties

When determining the income of a household at an affordable housing complex with income limitations, the valuation of resident owned assets and the calculation of real or possible income from those assets is critical to the process. Assets are items of value, other than necessary personal items. Asset information (asset value and income from the asset) should be obtained at the time of application. While standard bank accounts and cash-on-hand are the most commonly held assets, a fairly high percentage of affordable housing residents own real estate; this is especially true in the case of seniors. Knowing how to value and determine income from real estate is a required area of knowledge for affordable housing managers. Normal Valuation of Real Estate When deriving the asset value of real estate that is owned but has not been sold, management must determine the actual cash value of the property, and if the value is more than $5,000, income must be imputed to the property - even if it is not actually rented (the only way to receive "actual" income from property is rental). If a property is being rented, and the cash value of the property exceeds $5,000, the rental income must be compared to the imputed income, and the higher of the two figures must be counted as asset income. To determine the cash value of real estate, the market value must be determined. This can be done through the use of tax assessments (if the assessment is at market value), appraisals, brokers estimates, listing agreements, or as illustrated by a bona fide sales contract. Once the market value is established, the cost of sale may be deducted to determine cash value. Costs relating to the sale of real estate include commissions, broker fees, closing costs, principal mortgage balance, etc. Many state agencies allow an assumed 10% cost of sale for commissions/broker fees/closing costs, but managers should check with the agency on exactly what they will permit. Once the costs of sale have been deducted, the remaining amount is the cash value of the real estate and is the value that should be shown on the Tenant Income Certification (TIC). If the value is a negative amount, the cash value should be shown as zero. Real Estate Used As Rental Property If real estate is being rented, the value of the property is derived as outline above. The income for the asset will be the greater of the net rent collected or the imputed income (if the total cash value of household assets exceeds $5,000). However, managers should remember that income is only imputed when the total cash value of a household s assets exceed $5,000 - not individual assets. For example, if the cash value of real estate is $3,000 and the average six-month balance of a checking account is $2,500, the total cash value of the assets is $5,500 and income will be imputed on the $5,500 - not separately on the individual assets. If rent is being collected on real estate, it is considered asset income, but only the net rent must be counted. So, if there are verifiable operating expenses associated with renting the real estate, those expenses may be deducted from the gross rent in order to determine the net rent. E.g., an applicant owns a house that is being rented for $1,000 per month ($12,000 annually). The applicant provides documentation showing annual taxes and insurance of $5,500, homeowners association fee of $800, and mortgage interest over the next 12 months of $2,200. These are all valid operating expenses and may be deducted, leaving net income of $3,500; this is the income from the asset. Remember - only the interest portion of mortgage payments may be deducted as an operating expense - not the principal. Foreclosure A foreclosure should be treated as a zero value asset in most cases. Usually, following a foreclosure, an owner will receive no proceeds from a sale. If proceeds are received after a foreclosure, the proceeds themselves will be considered an asset, but not the real estate, since it is no longer owned by the applicant. Also, a foreclosed property is not an asset disposed of for less than fair market value. However, until the final foreclosure documents are provided, the house is sold at auction, or the title transfers to a new owner, the real estate is still owned by the applicant and must be valued as an asset. Short Sale If a tenant engages in a "short sale" in order to avoid a foreclosure, this is not an asset disposed of for less than fair market value. A short sale is a financial option that is sometimes available to homeowners who are distressed borrowers. They are behind on their mortgage payments and have a home that is "underwater." In other words, the home is worth less than the outstanding balance on the mortgage. Reverse Mortgage A "reverse mortgage" is a loan against a home that does not have to be paid back for as long as the homeowner lives there. Once the owner moves out of the home, the loan will become due (with very limited exceptions). The homeowner still owns the home! The real estate is the asset and the market value, less the amount owed plus a cost of sale on the real estate, is the cash value of the asset.                   (As a practical matter, since the loan must usually be paid off when the homeowner moves, this would rarely, if ever, be an issue.) In most cases, the valuation of real estate and the determination of income from real estate is straightforward and relatively simple. The procedures outlined above will work in the vast majority of cases, but if there is a complicated owner structure involving real estate (e.g., real estate owned as part of a partnership), professional assistance may be required in valuing the property.

HUD Issues Revised Final Implementation Notice for RAD Program

On September 5, 2019, HUD issued Notice H-2019-09, PIH-2019-23 (HA), Rental Assistance Demonstration - Final Implementation, Revision 4. This revised notice provides program instructions for the Rental Assistance Demonstration (RAD) Program, including eligibility and selection criteria. Background The RAD program was created by Congress in 2011 and provides the opportunity to test the conversion of public housing and other HUD-assisted properties to long-term, project-based Section 8 rental assistance to achieve certain goals, including the preservation and upgrading of these properties by enabling Public Housing Agencies (PHAs) to access private and public debt and equity to address immediate and long-term capital needs. RAD is also designed to test the extent to which residents have increased housing choices after the conversion, and the overall impact on the properties. RAD has two components: First Component: The First Component allows projects funded under the public housing (Section 9) program to convert their assistance to long-term, project-based Section 8 rental assistance contracts. PHAs may choose between two forms of Section 8 Housing Assistance Payment (HAP) Contracts: project-based vouchers (PBVs) or project-based rental assistance (PBRA). PHAs will convert assistance at current subsidy levels and there will be no increase in funding. The law authorizes the conversion of up to 455,000 public housing units under this component. Section I of the Notice provides instructions for PHAs applying for conversion under the First Component. While the RAD statute authorizes HUD to convert Section 8 Moderate Rehabilitation Projects (Mod Rehab) under the First Component, HUD is exercising its discretion to prioritize public housing conversions under the competitive requirements of the First Component. The demand for public housing conversions is extremely high and significantly exceeded the initial limitation on the number of units that could be converted under the First Component.  Consequently, Mod Rehab conversions will be processed exclusively under the Second Component of RAD, which is non-competitive.Second Component: The Second Component allows owners of projects funded under the Rent Supplement (Rent Supp), Rental Assistance Payment (RAP), and Mod Rehab programs to convert to PBV or PBRA contracts upon contract expiration or termination occurring after October 1, 2006. The Second Component further allows owners of projects funded under the Project Rental Assistance Contracts (PRAC) under the Section 202 program to convert to PBV or PBRA contracts. Major Revisions in Revision 4 This revised Notice includes a change in eligibility and selection criteria as well as clarifications of existing instructions and is more than 300 pages long. Following is a summary of the major revisions: First Component (Public Housing Conversions) Extends all resident rights to households that will reside in non-RAD Project-Based Voucher (PBV) units placed in a converted public housing project so as to facilitate the standard protection of residents;Increases resident notice requirements;Establishes a mechanism for PHAs to enter into partnerships with other PHAs in order to pool resources or capacity;Allows limited rent increases for public housing conversions to PBRA contracts in certain scenarios, including in designated Opportunity Zones (OZs);Modifies the requirements for portfolio awards so as to provide PHAs greater flexibility in staging the conversion of their properties;Streamlines Capital Needs Assessment (CAN) requirements to eliminate the submission of the CNA Tool when certain conditions have been met;Introduces a "Concept Call" so that PHAs can receive confirmation that project plans are sufficiently advanced to submit a Financing Plan;Prohibits PHAs from entering debt into the EIV "Debts Owed" module purely as a result of the 50058 End of Participations that is required to be submitted into Public and Indian Housing Information Center (PIC) as part of the conversion;Broadens the use of "tiered" environmental reviews, requires the use of the HUD Environmental Review Online System, and requires radon testing for PBRA and PBV conversions;Establishes policy that RAD rents will be updated every two years and the updated rents will be applied to new awards issued after those established dates; andEstablishes a priority for "Section 3" employment and other economic opportunities for residents of public housing or Section 8 assisted housing. Two additional First Component Changes are subject to Notice and Comment because they impact eligibility and selection criteria: Removing restrictions on certain HOPE VI projects that are under ten years old; andEliminating the selection of applications based on previously established "Priority Categories," so that HUD may review and approve applications on a first-come, first serve basis. In the event that a waiting list forms, properties located in OZs will be given priority. Second Component (Section 202 PRAC, Mod Rehab, Mod Rehab SRO, Rent Supp, RAP Conversions) Implements the provision of the 2018 Appropriations Act authorizing the conversion of Section 202 PRAC projects to Section 8 PBRA or PBV contracts;Streamlines  CNA requirements for Mod Rehab conversion to eliminate the submission of the CNA Tool in certain cases;Broadens the use of "tiered" environmental reviews, requires the use of the HUD Environmental Review Online System, and requires radon testing for PBRA and PBV conversions;Streamlines the Conversion Plan requirements for Mod Rehab Conversion when certain criteria are met;Creates an ability for Mod Rehab and SRO projects converting to PBRA to use contract rents based on the condition of the property following rehab;Provides an ability for owners or converting SRO projects serving the homeless to establish a leasing or occupancy preference that facilitates permanent supportive housing;Fully establishes resident right of return and the prohibition against re-screening for existing residents; andEstablishes a final date that any remaining RAP properties may make a submission of conversion under RAD. Notice and Comment for Changes in Eligibility and Selection Criteria This Notice is effective immediately except with respect to changes in the project eligibility and selection criteria, which are subject to a 30-day comment period. Unless HUD receives comment that would lead to the reconsideration of any of the indicated changes in eligibility and selection criteria, these changes will become effective seven calendar days following expiration of the 30-day comment period. PHAs and owners applying to RAD during the 30-day public comment period will be subject to the new eligibility and selection criteria of this Notice unless HUD makes a change based on the comments. Notice Organization The Notice is divided into four sections: Section I: Instructions to PHAs and others converting under the First Component;Section II: Instructions to owners of Mod Rehab projects converting under the Second Component;Section III: Instructions to owners of Rent Supp and RAP projects converting under the Second Component; andSection IV: Instructions to owners of 202 PRAC projects converting under the Second Component. The Notice is long, technical, and complex. PHAs and owners who are intending to participate in a RAD conversion should obtain the Notice and become familiar with the requirements. Over the next few weeks I will prepare and publish on our website a series of articles on all four sections of the Notice.

Hoarding - Reasonable Accommodation Requirements Under Fair Housing Law

A "reasonable accommodation" (RA) is the request for a waiver of a policy, practice, or procedure of a housing provider in order to provide equal access and opportunity for people with disabilities. Any request for an RA must be approved as long as it is directly related to the person s disability and does not cause an undue financial and administrative burden or fundamentally alter how a community operates. The Reasonable Accommodation Process Generally, managers should not initiate conversations with residents about possible accommodations - they should wait for an accommodation to be requested. Hoarding is different - discussions with the resident may have to be initiated because the situation is dangerous or unsanitary, and because the resident may not be aware of the problem. Why Hoarding is a Fair Housing Issue Since 2013, hoarding has been considered a disability. The fair housing definition of a disability is "with respect to a person, (i) a physical or mental impairment that substantially limits one or more of such person s major life activities; (ii) a record of having such an impairment, or (iii) being regarded as having such an impairment." Hoarding may be a mental impairment that limits a person s ability to care for themselves (a major life activity). Hoarding becomes a legitimate concern to housing providers when it affects the health and safety of the hoarder, other residents, staff, and/or the property. Hoarding According to Kenneth J. Weiss and Aneela Khan in "Hoarding, Housing, and DSM-5," (American Academy of Psychiatry Law, 2015), about 5.8% of Americans suffer from hoarding; this is 15 - 20 million people. When the American Psychiatric Association declared hoarding a clinical disability in 2013, it gave tenants with hoarding issues certain fair housing protections. The diagnostic criteria for hoarding include: Persistent difficulty discarding or parting with possessions regardless of actual value;A perceived need to save items and distress associated with discarding them;The accumulation of possessions that congest and clutter living areas and substantially compromises their intended use; andClinically significant distress or impairment in social, occupational or other important areas of functioning (including maintaining an environment safe for oneself and others). Fair Housing Implications of Hoarding Even prior to 2013, hoarding had some fair housing protection. In Douglas v. Kreigsfeld Corp., 884A. 2d 1109 (DC 2005), a court ruled that a tenant s request for an RA plan to clean a unit due to the tenant s mental disability and avoid eviction was reasonable. Hoarders tend to be secretive so they rarely will request an accommodation. It is often up to management to start the process. When dealing with a resident with a hoarding problem, it is important not to use the term "hoarder" or to refer to their items as junk, trash, or clutter. Facts About Hoarding Hoarding is the excessive accumulation of items along with the inability to discard them - even when they appear useless.Hoarding & Squalor are not the same. Squalor is defined as filthiness or degradation from neglect.Animal Hoarding involves accumulation of multiple animals. This is a very serious type of hoarding because of fecal and urine smells, sickly or diseased animals, and lack of control by the pet owner/resident. These cases should immediately be referred to animal control or the SPCA.Compulsive hoarding may be a mental disability and 92 percent of hoarders also suffer from one or more other mental health disorders, such as depression, anxiety, OCD, and social phobia.Hoarders are often unable to use their kitchens and bathrooms as intended. This is one of the clearest indicators of a hoarding problem.Hoarding creates health and safety concerns that may lead to lease violations, such as fire hazards, blocked entry/exit, trip and fall risks, infestation, non-working plumbing, and unsafe structural or sanitation systems. Hoarding Characteristics Serious clutter or disorganization including what appears to be random piles or paths;Indecisiveness about discarding items for fear of making the "wrong" decision or not being able to see their things;Hoarders are very private and may not acknowledge that they have a problem;Hoarders are often intelligent and include people from all backgrounds and walks of life, including teachers, engineers, rocket scientists, and business owners;Hoarders are most often elderly women;Hoarders are frequently obese; andHoarders do not create squalor and are not lazy or defiant. Clutter vs. Hoarding Many people live in messy homes, but the home is safe to move around in; they can straighten up enough to feel at ease having guests. Rooms are used for their intended purpose. Housing providers must be able to distinguish between poor housekeeping and a hoarding situation. If in doubt, help should be sought from a social service or fair housing agency. Example of Hoarding A maintenance worker enters a unit to make a repair and finds the unit filled with so much paper and other belongings that walking through it is difficult and unsafe. The tenant is given 30-days to correct the issues but fails to do so. As a result, management begins eviction. Should the owner have taken a different approach to the problem? The answer is probably "yes." Residents who are compulsive hoarders have the right to request a RA from housing providers - even though they may not always ask for an accommodation. This is one time when an accommodation should be offered without specifically being requested by the resident. If a housing provider knows (or should have known) that the resident is a hoarder with a disability, the law requires attempts to reasonably accommodate prior to eviction. However, minimum health and safety standards must be met, even if the resident who hoards requests or is offered a RA. The RA request will sometimes be for an extension of time to bring the unit up to housing codes before the lease termination or eviction proceedings begin. It is this extra time that is the most common accommodation for hoarding. A "Plan of Action" included in the RA offer is a useful tool for helping hold the resident accountable - and for documenting the housing providers efforts to accommodate the disabled resident. Example of a Reasonable Accommodation for a Hoarder If a housing provider is considering eviction of a hoarder, a "remediation plan" can be offered as a RA to preserve the tenancy. Such a plan could include support services plus an individualized schedule for clean-up and inspections. As noted above, the most common RA for hoarding is more time for the person to obtain supportive and mental health services that would allow the tenant to bring the unit into compliance with the lease. Collaboration between the tenant, the housing provider, mental health professionals, social workers, and/or other advocates is critical. Family members and friends may also play a role. Tips for Working with a Resident Who Hoards Early identification and intervention are key. Educate staff about hoarding.Partner with code enforcement agencies and mental health providers.Develop clear, mutually agreed upon goals and timeframes for meeting expectations.Schedule regular inspections to monitor concerns about possible hoarding problemsAsk open-ended questions - mirror the language used by the resident and listen carefully.Be respectful and non-judgmental.Try to understand why the accumulated items are so important.Helping means working with the resident and not doing the work for the resident.Assist the resident in setting limits and self-monitor his/her hoarding.Reach agreement on post-compliance inspections.Treat residents the way you would want to be treated.Do not immediately begin the eviction process.Document the condition of the apartment with photos and detailed notes, noting the specific code and lease violations.Involve your legal counsel - a full understanding of state and local law is essential.Give the resident a chance to rectify the situation. Include timeframes in the written Plan of Action (this "Plan" is the most common accommodation).The Plan should give the resident a chance to cure the problem at a pace that is conducive to long-term success. Challenges to Working with Hoarders Working with hoarders is one of the most difficult accommodations a housing manager may be called on to make. There are many difficult situations that will arise in this process, including: No support system to assist with clean-up. Actually helping with the physical clean-up is a "slippery slope."Finding help that will enable the hoarder to stick to the plan. Both psychological and physical help is necessary, but finding the physical help is often the most difficult.A lot of hoarders are elderly or have physical conditions that prevent them from being able to do the work themselves. They may have no family (or unwilling family) and cannot afford to hire help. In these cases, housing providers should check with local boy scout troops, fraternities, churches, etc. What does NOT Work When Dealing With Hoarders? Ignoring the problem - it will only get worse;Blaming & Shaming;Avoiding the Discussion;Removing clutter yourself;Unsupported clean-up jobs;Working in isolation; andLack of follow-up monitoring. What If the Accommodation Plan Does Not Work? Due to the nature of hoarding, it should be made flexible enough to deal with the inevitable set-backs. Neither state nor federal fair housing laws limit the number of times a RA may be requested, but if it is unreasonable - for the reasons previously cited - it may be denied. Failure to comply with sanitation, building, or fire codes could be interpreted as an undue financial and administrative burden for the housing provider. Eviction of a Hoarder Depending on state or local law, eviction may be possible for animal hoarding, explosives, the blocking of emergency exits, or directly damaging (and refusing to pay for) the property. It may also be possible to evict a hoarder if, after multiple attempts to accommodate the disability, nothing has worked and the resident is not cooperating with ongoing efforts to resolve the issues. In such cases, close consultation with local counsel is a must. Conclusion Hoarding is a disability, protected by fair housing law. As many as 20 million Americans suffer from hoarding and housing providers must be able to recognize it when they see it. When hoarding is discovered, landlords should generally not begin immediate eviction procedures, nor should they wait for the tenant to request a reasonable accommodation. Instead, owners should enter into an interactive discussion with the resident regarding whether they will cooperate with the implementation of an Active Plan to resolve the problem. If the resident agrees to cooperate, a written "Plan of Action" should be developed. Any plan should be flexible enough to allow for set-backs, but it should require ultimate compliance. Ultimately, while landlords are required to offer reasonable accommodations to residents with hoarding issues, they are not required to tolerate dangerous conditions for the property, staff, or other residents. If such conditions cannot be rectified by a reasonable accommodation, removal of the resident may be the only option. But, removal of a resident with a hoarding issue should be viewed as the last option - not the first.

Rental Application/Lease/Lease Riders - Critical LIHTC Documents

It is important that early in the application process, prospects be advised of the applicable income limits and student requirements for occupancy in a Low-Income Housing Tax Credit (LIHTC) property. Management should explain that the total gross income of all members of the household will be verified and included in income for eligibility purposes. Prospects should also be informed that they may be required to go through this same process on an annual basis. In addition to all the verification forms and affidavits that applicants will be required to deal with as part of the qualifying process, there are three other documents that are critical to the qualification process for LIHTC residents: the rental application, the lease, and required lease riders or addenda. The Rental Application A fully completed application is critical to being able to determine tenant eligibility. The information provided on the application is the basis on which eligibility will be determined and must be comprehensive enough to provide all income sources - including assets. The application must be completed in its entirety, whether it is completed by the applicant or by the manager during the interview process. At a minimum, a comprehensive LIHTC rental application will request the following information: The name and age of each person that will occupy the unit (legal name should be required as it will appear on the lease and tenant income certification).All sources and amounts of current and known projected annual income expected to be received during the 12-month certification period. Include assets currently owned and determine whether household members disposed of assets for less than fair market value during the prior 24 months.The current and anticipated student status of each member of the household during the 12-month certification period.A screening procedure such as credit checks, prior landlord checks, criminal record screening, etc. The application should request information on whether the family s assistance or tenancy has ever been terminated for fraud, nonpayment of rent or failure to cooperate with required recertification procedures.Housing history for the two prior years.The signature of the applicant and the date the application was completed. Lease All residents occupying LIHTC units should be certified and under lease no later than the date the household occupies the unit. Leasing guidelines to keep in mind include: At a minimum the lease should include, but is not limited to:The legal name of all parties to the agreement and all other occupants (live-in aides/caregivers should not be shown on a lease);A description of the unit to be rented;The date the lease becomes effective;Any mandatory charges to the tenant;Optional payments being made by the household;Use of premisesThe term of the lease (should be at least six months at move-in); andThe rental amount. It is important that the rental amount not exceed the amount permitted under Section 42 of the Internal Revenue Code (IRC) or stated in the project s Extended Use Agreement, whichever is lower.As noted in (6) above, the term of the initial lease must be at least six months for all LIHTC units (unless the project is Single Room Occupancy or Transitional Housing for the Homeless). Lease renewals are not subject to the six-month minimum.It is important that the lease reflect the correct move-in date, or the date the tenant takes possession of the unit. This date should match the move-in date shown on the Tenant Income Certification (TIC). Lease Rider/Addendum In addition to a standard lease that meets the applicable requirements of state law, there should be language in the lease or a lease rider/addendum that outlines all the LIHTC requirements per Section 42 of the IRC. Language in this rider/addendum will relate to the rights and obligation of the parties, income requirements, annual certification requirements, and student requirements. Additional clauses will detail requirements relating to: Increases in income;Utility allowance increase/decreases;Income limit increases;Rent changes;Student restrictions and exceptions; andChanges in household composition. Finally, every lease should contain language relating to the "good cause" protection that is afforded to all households that qualify under the LIHTC program. This language should inform all residents that they may not be evicted or otherwise have their tenancy terminated by the owner or management unless there is "Good Cause" to do so. The three documents outline here (application/lease/lease rider) are critical elements relating to LIHTC household eligibility and should be reviewed regularly in order to ensure that they meet the requirements of the LIHTC program.

HUD Issues Guidance on Tenant Notification Requirements Relating to Physical Inspections

On July 8, 2019, the Department of Housing & Urban Development (HUD) issued a memo for HUD staff and multifamily owners and agents (O/As) clarifying owner responsibilities to notify residents in advance of physical inspections and to make final inspection documents available for review and comment. The memo also encourages collaborative implementation of new house rules. In addition, the memo provides guidance on sharing responses to tenant complaints and encourages tenants to report false owner certifications of completed repairs of exigent health & safety (EH&S) findings. Notifying Residents of a Physical Inspection HUD is encouraging owners to give as much advance notice as possible to residents of a planned inspection. Residents should be given at least 24-hour notice of a planned inspection unless state or local law requires more than a 24-hour notice. With Notice H-2019-04, HUD employees and contract inspectors acting on behalf of HUD will give site owners and their agents 14 calendar days of notice prior to an inspection. This was a dramatic reduction from the prior notice, which was frequently extended up to four months. An extension of up to seven days is permitted under the new procedures, but if the second attempt does not result in a completed inspection due to the fault of the O/A, a REAC score of zero will be registered and the owner is subject to HUD s remedies for a failing score. Making Inspection Documents Available for Comment & Review Owners are obligated to make certain inspection documents available for review and comment. Once the 30-day technical review appeal period and the 45-day database adjustment appeal period have expired, the owner must make its physical inspection report and all related documents available to the residents during regular business hours and upon reasonable requests for review and copying. Related documents include: Notice of Default (NOD) or Housing Assistance Contract or a Notice of Violation (NOV) or Regulatory Agreement. A copy of the notice must be left under each tenant door, posted in the mail room, and on each floor, or by other means;"Owner s Certification that the Physical Condition of the Project is in compliance with HUD contracts and the Physical Condition Standards of 24 CFR 5.703;" andOwners Plan of Corrective Action, if one is submitted. Once the owner s final physical inspection score is issued, the owner must make any additional information available for review and copying by residents upon reasonable requests during regular business hours. All documents must remain available for review for 60-days from the date the final score was issued. The owner must also post a notice to the residents in the management office and in any bulletin boards in all common areas that advises the residents of the availability of the materials noted above. Responding to Resident Complaints When an O/A submits a written response to a resident complaint to HUD or the PBCA, a copy of that response should be given to the person who made the complaint, but only if requested. If the owner discusses more than one topic in the document, only the portions related to the resident s complaint should be provided. Self-Certifying Completed Repairs of EH&S Findings According to the memo, resident advocates have raised concerns about owner self-certification of completed repairs. As a result, O/As are encouraged to submit supporting documentation with their reports identifying and certifying completed repairs, such as: Photos taken before and after repairs;Work orders or invoices from the contractor who completed the repairs; orLetters from relevant tenant organizations satisfied with the repairs. The memo also gives HUD staff the authority to request whatever supporting documentation they feel is necessary in order to ensure that work has been properly completed.