News

Rent Guarantors - An Alternative to Rejecting Applicants

Owners and managers of LIHTC properties are often faced with applicants who have less than desirable credit, income below the minimum required by the landlord, or no financial history. The common practice in the industry is to reject such applicants, thus limiting the available market for the units. Some owners will accept "gift" letters from parents or others as a way of ensuring that applicants have the income necessary to pay a property s rent, but this is a poor practice and almost never results in getting the rent paid if a resident falls behind. A better option is a "rent guarantor." A guarantor is someone who signs a legally binding agreement to pay the rent if a resident fails - for any reason - to make required rent payments. Most commonly, parents act as guarantors, assuming the parents are in a sound financial situation and agree to make the guarantee. A guarantor may also be an unrelated friend (this is very unusual), a work colleague, or a business. For example, a company seeking a highly skilled young worker may agree to serve as a guarantor for the worker s apartment. Government agencies also may serve as guarantors. Difference Between Co-Signer and Guarantor Co-signers generally sign a lease and have equal responsibility for payment of rent, while a guarantor is generally required to pay only when the lease-holder is unable to make the rental payment. A co-signer is at slightly higher risk than a guarantor since the landlord is allowed to immediately seek payment from a co-signer. The guarantor, on the other hand, is normally not responsible until the landlord exhausts legal methods for obtaining payment from the leaseholder. Nor does a guarantor have rights to access the apartment in the same manner that a co-signer does. This is why a co-signer is never recommended for a LIHTC apartment. State agencies may consider the co-signer to be a member of the household and require the counting of their income for eligibility purposes. Steps to Take When Considering Accepting a Guarantor From a landlord s perspective, it makes good business sense to examine a guarantor s finances. Consideration should be given to requiring the following documentation from a guarantor: Pay stubs: obtain two or more recent pay stubs. If pay stubs are not available (e.g., the guarantor is self-employed and does not receive a salary), obtain a copy of the most recent federal tax return.Two Bank Statements.Credit Check: This should always be done. When determining whether a guarantor can legitimately guarantee the rent, a minimum income for the guarantor should be required. Typically, a guarantor should be required to make at least 80 to 100 times the monthly rent. So, if your LIHTC rent is $1,100 per month, the guarantor should make at least $88,000 annually. Alternatives to the Guarantor Option There are guarantor services that operate in a number of areas of the country. These provide guarantees to landlords in return for a one-time upfront fee from the rental prospect. These guarantors will generally require that the applicant have good credit and an income of about 28 times the monthly rent (e.g., with a monthly rent of $1,100, the applicant will have to have a minimum income of $30,800 and good credit). However, from a practical standpoint, an applicant with these characteristics will probably qualify for tax credit rental without a guarantor so these services have limited utility for LIHTC owners and managers. Finally, guarantor agreements should be prepared by attorneys familiar with both state and local landlord/tenant laws. Such agreements must be carefully crafted both to serve the purpose of the guarantee (payment of rent) and to protect the interests of all parties. The use of a rent guarantor is superior to acceptance of "gift letters" or other techniques that are designed to qualify otherwise non-qualified applicants, but rarely result in actual payment of rent when a resident fails to make the required payment. When structured properly, a rent guarantor agreement can result in increased occupancy and provide housing for responsible applicants who may not otherwise qualify.

Novogradac Study Outlines Expected Income Increases

Novogradac & Company has released its study of expected increases in state median incomes for 2020 and 2021. Novogradac estimates that the U.S. median income will increase by just less than 4 percent in 2020 and 3.4 percent in 2021. This changes are important for affordable housing programs because they affect the income limits for resident eligibility and maximum rents for Low-Income Housing Tax Credit (LIHTC) properties. Increases in LIHTC and Section 8 income limits are limited to the greater of 5 percent or two times the change in the U.S. median income. Based on this, the cap for 2020 will be just under 8 percent and the cap for 2021 will be slightly less than 7 percent. The Novogradac analysis is based on the U.S. Census Bureau 2018 American Community Survey (ACS) data. This is the same data that HUD will use to determine the 2021 income limits for LIHTC and Section 8 properties, which will be released by HUD in the Spring of 2021. The Novogradac study also provides estimates of the change in state median incomes. There are five states that are estimated to have decreases in median income for 2020 (Alaska, Connecticut, Oklahoma, Vermont and West Virginia), but the income in each of these states is expected to go up in 2021. Three states are expected to have 2021 decreases in income (Montana, Rhode Island, and South Dakota). All other states are expected to have income increases in both 2020 and 2021. Since an understanding of potential income growth is important for project budgeting purposes, the Novogradac study may be useful to developers and managers of LIHTC properties. The Novogradac "Rent & Income Limit Estimator" is now available for purchase. Additional information on this tool may be found at the Novogradac website (www.novoco.com).

HUD Takes Aggressive Position Regarding Online Verification of Assistance Animals

On November 6, 2019, the Department of Housing & Urban Development asked the Federal Trade Commission (FTC) and Bureau of Consumer Protection to investigate websites that sell assistance animal documentation. These certifications - which are almost always bogus - have been the bane of housing managers for years, as applicants get past landlord pet rules by paying for an illegitimate verification of a disability and the need for an assistance animal. The letter from HUD, which was signed by HUD Secretary Ben Carson, provides a stinging rebuke to these websites and makes it clear that in most cases, HUD will not consider the verifications provided by such sites to be legitimate verifications of need. The letter states "the websites also may be selling assistance animal documentation to people who do not have disabilities substantially limiting a major life activity, enabling such people to claim that their pets are assistance animals in order to evade housing providers pet restrictions and pet fees. HUD shares these concerns." As the letter states, "under the FHA, assistance animals are not required to be registered or certified, nor, in HUD s opinion, does certification or registration provide any benefit to the consumer with a disability who needs an assistance animal." Perhaps the most telling statement in the letter is "Certifications, registrations, and other documentation purchased over the Internet through these websites are not necessary, may not contain reliable information, and, in HUD s FHA enforcement process, are insufficient to establish an individual s disability-related need for an assistance animal." (Emphasis added). This statement indicates that HUD does not consider such verifications to be legitimate, meaning that owners and managers generally do not have to rely on this type of verification for purposes of assistance animals. There are circumstances where a healthcare professional may provide services remotely, including over the Internet. But, as stated by HUD, this is only the case when "the provider has personal knowledge of the individual s disability-related need for the animal. Personal knowledge is knowledge of the type that health care providers ordinarily use for diagnosis and treatment." In HUD s opinion, the operators of these websites "lack the personal knowledge that is necessary to make such determinations." As described in the letter, most of these websites rely on online questionnaires, or, at best, a brief interview, prior to issuing the "certification." Finally, HUD stated that "These websites are also interfering with the rights of individuals with disabilities substantially limiting a major life activity under the FHA by selling documentation that people without disabilities can use to pass of their pets as assistance animals." While we cannot know whether the FTC will ultimately take action against these websites, this request from HUD alone will be a dagger to the heart of these shameless scams. It is also very good news for landlords who have been hesitant to reject these sham verifications for fear of being found in violation of fair housing law. The harsh language used by HUD - the federal fair housing enforcement agency - provides serious weight to the rights of landlords with regard to requiring verification of the need for assistance (especially emotional support) animals. It also goes a long way in protecting the rights of disabled individuals who actually need such animals.

Disability Payments- Calculating & Verifying Income

Some applicants and residents of affordable housing properties receive disability payments. These payments may be short-term (temporary) or long-term. Disability payments are intended to offset a reduction in wages for individuals who cannot work due to illness or injury. According to HUD regulations, the full amount of disability payments must be counted as income (HUD Handbook 4350.3, Exhibit 5-1). There may be no deduction for any premiums or payroll deductions that the household member may have made toward the cost of the insurance. Lump sum payments are generally considered assets. This may not be the case in the event of a lump sum disability payment. HUD 4350.3, par. 5-6(Q)(4) states "lump sum payments caused by delays in processing periodic payments for unemployment or welfare assistance are included as income." HUD specifically excludes lump sum payments due to deferred periodic payments for SSI or social security, but since the HUD language noted above only mentions unemployment or welfare, it is not clear that processing delays for disability should be counted as income. Due to this lack of clarity, I recommend discussing this with your Contract Administrator or HFA before deciding whether to count the lump sum payment as an asset or income. With regard to short-term disability, which may last less than a year, the HUD guidance found at 4350.3, par. 5-5(A)(1) should be followed. This requires that income that may terminate be annualized, as if it will last the entire year. If the disability actually does end before the end of the 12-month certification year, for properties where the family s rent is based on income, an interim recertification may be conducted. Verification of Disability Payments While checks or automatic bank deposit records will show the amount of disability that is being received, such verifications may not show the gross amount of the benefit. For this reason, a written verification of the disability payment from the insurer or agency that makes the payments is a better form of verification. A copy of the household member s disability benefit notification letter from the insurer or agency is also acceptable. Finally, HUD and Rural Development managers should remember that the cost of disability insurance is not an allowable medical expense. This insurance does not cover medical care or pay for medical expenses. The premiums also are not permitted for purposes of a disability assistance deduction.

Bedbugs - A Review of Current HUD Guidance

Bedbugs continue to rear their ugly little heads in all types of properties - from luxury hotels to affordable housing. Affordable housing managers are always concerned about what they can and cannot require of residents with regard to bedbug treatments. Affordable housing developments without specific federal management regulations should generally follow state law and the requirements of agencies providing funding. E.g., Low-Income Housing Tax Credit (LIHTC) properties would follow the guidance of the Housing Finance Agency that awarded the credits, as well as state landlord/tenant laws. However, properties with direct HUD assistance, such as project-based Section 8 properties, do have HUD guidance that must be adhered to. That guidance is the focus of this article. Primary HUD guidance is found in HUD Notice H2012-5. This Notice backed away from HUD s prior position that strictly prohibited both charging residents for damage related to bedbugs and the termination of tenancy of noncompliant residents. The notice stated - "All owners (of assisted and unassisted properties) may pursue remedies provided in the lease agreement and in accordance with state and local rental law. Assisted owners must follow additional guidelines including occupancy requirements for assisted housing and must adhere to all HUD and state and local landlord/tenant laws before taking action to deny tenancy or remove residents for causes related to infestations." While HUD does not specifically prohibit owners from charging tenants for bedbug eradication, the process must be outlined in various documents such as the Tenant Selection Plan (TSP), house rules, and Integrated Pest Management (IPM) Plans. In early 2019, HUD released a memorandum, "Clarification to Housing Notice H2012-5 Guidelines on Addressing Infestations in HUD Insured and Assisted Multifamily Housing." Among the clarifying items, HUD stressed the following: Any addendum to the HUD Model Lease requires HUD approval. Since the lease requires the landlord to provide necessary extermination services, lease language shifting the cost to the tenant will be denied, unless the owner can show that the infestation was caused by carelessness or neglect on the part of a resident.While house rules do not require HUD approval, placing the inspection burden on residents would not be considered an acceptable rule, unless management has an educational program to help residents identify and understand the importance of prevention and reporting. An example of questionable rules would include: A provision that transfers the cost of monitoring, prevention, and treatment to residents. If discovered during a HUD MOR, the rule would be denied.;A provision that requires the purchase of equipment, such as mattress covers or vacuum cleaners - this type of rule will also be denied; andTemporary relocation of a resident household for treatment generally is not required, and if necessary, should be a site cost, assuming the resident is not at fault. Based on this guidance, owners/agents (O/As) should not establish policies requiring that residents bear the cost of bedbug eradication - at least until residents have been given the opportunity to cooperate in the eradication process. However, residents may be required to cover costs associated with bedbug infestation if they fail to cooperate with an IPM Plan or interfere with or fail to permit necessary inspections and treatments. All properties should develop IPM Plans (if not done already). Part of such a plan will involve resident education. All infestation treatment plans should be part of a holistic approach at the site level - one that incorporates the TSP and House Rules with the IPM Plan. Ultimately, owners are responsible for maintaining the properties in a way that prevents or eliminates infestation. Only when residents are negligent or refuse to cooperation with prevention or eradication should they be required to bear the cost of treatment and eradication.

Principal or Primary Residence Issue for LIHTC Housing

Virtually all affordable housing programs, including Section 8 and the Low-Income Housing Tax Credit (LIHTC), require that the lessees of the unit use apartments being rented under the applicable program as a "principal residence".  Agencies have not provided a lot of guidance regarding how to define a "principal residence." A common definition of "principal residence" is the home that a person physically occupies and personally uses the most.               The tax code provides no specific definition. With regard to tax law, whether or not a taxpayer uses a property as his principal residence depends on all the facts and circumstances in each case, including the good faith of the taxpayer. Clearly, if someone lives in the same home for years and considers it to be their only home, it is clearly a principal residence. At the same time, taking a couple of weeks vacation from the home each year does not create a situation where the home is no longer a principal residence.             But what about longer absences? The IRS has provided the following example: "Professor Paul Beard, who is single, bought and moved into a house on August 28, 2001. He lived in it as his main home continuously until January 5, 2003, when he went abroad for a one-year sabbatical leave. During part of the period of leave, the house was unoccupied, and during the rest of the period, he rented it. On January 6, 2004, he sold the house at a gain. Because his leave was not a short, temporary absence, he cannot include the period of leave to meet the two-year use test."   The IRS does concede that ownership and use requirements do not have to be continuous, but clearly, they intend that it be the main place of residence.             A court case in Massachusetts has provided some additional guidance on what constitutes a "principal residence." In Boston Redevelopment Authority v. Pham (2015), the Massachusetts Court of Appeals affirmed a Superior Court decision that the owner of an affordable housing condominium unit did not violate the deed, affordable housing covenant, and other documents' restrictions on the use of the unit as the owner's principal residence by using the unit as the home base for extensive business travel and by taking roommates to share housing costs. While this case involved a condo purchase and not a rental apartment, the definitional issues considered by the court are instructional for rental housing.             The condominium covenant required Pham to occupy the unit as his principal residence. The determination of whether he occupied the unit as his principal residence is a mixed question of law and fact.             As the phrase "occupy as principal residence" was not defined in the covenant or other documents (and it is not usually defined in rental leases), the trial court reasonably considered factors such as: (1) Pham neither leased nor owned property elsewhere; (2) he used the unit as his home base despite his extensive work-related travel; (3) Pham kept a room in the unit and was physically present there for one to two weeks per month; (4) he maintained his valuable personal possessions there; (5) he identified the unit as his tax address and address for other official purposes; and (6) he kept the utilities in his name and paid those bills.             Leases generally do not prevent residents of affordable housing from taking jobs demanding frequent travel, assuming they maintain the affordable housing unit as their home. Such restrictions would conflict with the goals of aiding persons of moderate and middle income.             The court found that Pham was an owner/occupier of the unit for residential purposes, and had not leased the entire unit for business, speculative, or investment purposes.             When determining whether an affordable unit is the principal residence, the issues noted above should be considered. Basically, it will boil down to a "facts and circumstance" test, but if it is clear that the apartment is the primary home of the resident - even if they are gone for extended periods of time - it should be considered the principal residence. A question that comes up often regarding tax credit compliance is whether a low-income tenant can have more than one residence and still be considered a qualified low-income resident for LIHTC purposes. The short answer is "yes," but as tax credit professionals, we are expected to know not only the answer to a question, but the reason for the answer. HUD guidance for the Section 8 program is very clear that a Section 8 unit must be the only residence for a Section 8 resident (see paragraph 13 of the HUD Model Lease for Subsidized Programs). However, as with many elements of the LIHTC program, issues are not as clearly defined relative to occupancy requirements. In fact, to confirm that a tax credit unit must be a tenant s sole place of residence, we have to rely on references to sections of the Internal Revenue Code that are not tax credit specific. Section 42 is not clear on the issue. Section 42(i)(3) defines a "low-income unit" as any unit in a building if The unit is rent-restricted; andThe individuals occupying the unit are income eligible. This section of the Code goes on to state that a unit is not considered low-income unless it is suitable for occupancy and used on other than a transient basis (except for SRO units or transitional housing for the homeless). This statement regarding "transient" housing is as close as Section 42 comes to dealing with whether a tax credit unit must be the sole residence in order to be considered low-income. The term "residential rental property" generally has the same meaning for the LIHTC program as for housing financed by tax-exempt bonds. For specific guidance on this, one should refer to the Conference Committee Report to the 1986 Act, CCH Paragraph 7252, and The General Explanation to the Tax Reform Act of 1986, page 157.  See also Revenue Ruling 98-47. Section 42 itself also leads us to this definition in 42(g)(1), which states, "A qualified low-income housing project means any project for residential rental property." This is the identical language contained in IRC 142(d)(1), which is the section of the Code governing tax-exempt bonds. 1.103-8(b)(5)(i), which is part of the Treasury Regulations implementing 142, provides that individuals or families of low or moderate-income must occupy that percentage of completed units in such project applicable to the project under 1.103-8(b)(1) continuously during the project period. It is this regulatory language regarding "continuous" occupancy that indicates that once a resident enters into a lease for a tax credit unit, such unit may be their only residence. If they were to maintain a second residence, then they would not be in "continuous" occupancy of the low-income unit, and the unit would not be considered low-income. Based on this continuous occupancy requirement, I recommend strongly that all leases for LIHTC properties contain language similar to the language in the HUD Model lease. An example of such a clause would be "The tenant must live in the unit and the unit must be the tenant s only place of residence. The Tenant shall use the premises only as a private dwelling for himself/herself and the individuals listed on the Tenant Income Certification. The Tenant agrees to permit other individuals to reside in the unit only after obtaining the prior written approval of the Landlord." In order to ensure that LIHTC units meet the IRC definition of "residential rental property," it is important that the continuous occupancy requirements of the program be met.

Special Considerations When Renting to Members of the Military and Veterans

While federal and state fair housing law does not ban discrimination based on military or veteran status, many state and local governments do. However, disabled veterans are protected (as is any disabled person) under federal fair housing law. Issues to Consider Relating to Veterans & Members of the Military Know your applicable state and local laws: eight states currently have fair housing protection based on military status, but the specific protections vary from state-to-state. For example, New York prohibits discrimination based on military status, but Massachusetts prohibits discrimination specifically against veterans. In some states, such as Illinois, protection for veterans is tied to the nature of a discharge. The Illinois law prohibits discrimination against veterans with a less than honorable discharge but excludes those with a dishonorable discharge. However, Washington state law protects only veterans with an honorable discharge. Rhode Island protects current service members and veterans with honorable or general discharges. While most states offer no military or veteran protection, some localities do. As example is Texas, where there is no state protection, but San Antonio does provide fair housing protection for veterans. The following states currently have fair housing protection based on military or veteran status:ConnecticutIllinoisMassachusettsNew JerseyNew YorkOhioRhode IslandWashington (California is considering such protection). A high percentage of veterans have disabilities: 29% of recent veterans report a service-connected disability, vs 13% of all veterans. One of the more common disabilities among veterans is Traumatic Brain Injury (TBI), TBI is a major focus of the Veterans Administration (VA).PTSD is a common vet-related disability: "Holland v The Related Companies, July 2015," is a California case that dealt specifically with PTSD.Facts of the Case:Resident was an Army combat veteran with PTSD;As the result of noise from ongoing construction, the vet requested a transfer to a unit away from the noise. The vet said the noise triggered nightmares, anxiety, etc., because it reminded him of gunfire, explosions, and screaming, making him feel as if he was in a war zone;The community agreed on the need for the transfer but did not agree on payment of current rent for a more expensive unit. They agreed to move the family to the better unit at current rent but wanted them to move back to their original unit when construction was finished; andThe resident refused, asking for a court order allowing them to stay until the end of the lease (five months).Decision: the court granted the request.Reasoning:The cost of moving the family to the more expensive unit was a reasonable accommodation that would not cause an unreasonable financial burden to the property, and the increased cost of allowing them to stay to the end of the lease was minimal.The need for assistance animals among vets is common: Emotional Support Animals (ESAs) for vets with PTSD are common.There are laws in addition to fair housing laws that protect military and veterans: Servicemembers Civil Relief Act (SCRA) - this was formerly the "Soldiers and Sailors Civil Relief Act," and it protects active duty military. It coversRental agreements;Security deposits;Prepaid rent;Eviction;Installment contracts;Credit card interest rates;Mortgage interest rates;Mortgage foreclosure;Civil judicial proceedings;Auto leases;Life insurance;Health insurance; andIncome tax payments                                     Under certain circumstances, servicemembers may terminate - Without penalty - leases. Communities may not evict military members or their dependents during active military service without a court order. Of all the protections for the military, the SCRA is the most important. A recent example shows how aggressively courts will enforce the SCRA: In March 2019, a Virginia-based property management company paid $1.5 million for violation of the SCRA. This is the largest settlement under the Act. The facts of the case are:From 2006 - 2017, the company obtained 152 default judgments against 127 servicemembers by failing to disclose their military status to the court or by falsely stating that the tenants were not in the military.The company imposed unlawful charges against servicemembers who tried to terminate leases early in order to comply with military orders. Another important law related to servicemembers is "The Uniformed Services Employment & Reemployment Rights Act of 1994 (USERRA)." This law ensures that servicemembers are entitled to return to their civilian employment upon completion of military service and was designed to protect members of the National Guard and Reserve who are called to active duty. These servicemembers should be reinstated with the seniority, status, and rate of pay that they would have obtained had they remained continuously employed by their civilian employer. Summary If your community is subject to state or local laws barring discrimination based on military or veteran status, you need to discuss with your local counsel exactly what protections are offered by the specific laws. Also, while the Fair Housing Act bans discrimination against veterans with disabilities, the law does not protect an individual with a disability whose tenancy would constitute a "direct threat" to a property or the health and safety of other residents or staff. However, before taking adverse action against a disabled resident, management should determine whether there are any reasonable accommodations that would eliminate or significantly reduce the threat.

Recent OIG Audits Show Importance of Training in Section 8 Requirements

The HUD Office of Inspector General (OIG) recently conducted two management agent audits that illustrate the importance of Section 8 training for management agents. In both cases, OIG recommended a significant repayment of assistance by the project owners due to management errors by the agents. A review of both audits is instructive for agents who manage Section 8 properties. HUD Audit 2019-CH-1003 This was an audit of Lake View Towers in Chicago, IL. This 500 unit project contains 395 Section 8 units for which HUD made assistance payments. For the period covered by the audit, HUD provided the owner approximately $8.5 million in Section 8 housing assistance payments. The purpose of the audit was to determine whether the management agent correctly calculated and paid housing assistance, obtained and maintained required eligibility documentation, and administered the waiting list in accordance with HUD s and its own requirements. The audit found that the management agent did not always administer the program in accordance with applicable requirements. The primary issue identified by the audit was that housing assistance payments were not always correctly calculated or supported. In conducting the audit, 120 certifications were reviewed to determine whether housing assistance payments were correctly determined for the period November 2016 - October 2018.  Of the 120 files reviewed, 66 had unsupported or incorrectly calculated housing assistance. Auditors also determined that the property staff did not understand program requirements. For example, the staff was unaware that: Annual income is the amount of income anticipated to be received by the household from all sources during the 12-month period following admission or annual recertification, which includes tips and overtime income;All adult tenants with zero income must self-certify that they do not have income;Tenants must provide the most recent four to six consecutive paystubs to support income;EIV income reports must be checked during recertifications for unreported or underreported income; andTax returns used to support income must be complete and final. The audit found that although the project s assistant manager and occupancy specialist were responsible for performing household certifications, they received no training on HUD program requirements until 2017, and HUD found errors for the period after the training occurred. Based on the audit findings, HUD paid nearly $57,000 in ineligible assistance and more than $399,000 in unsupported housing assistance. The audit also found that housing assistance may have been unjustly denied or delayed for eligible applicants on the project s waiting list. OIG auditors recommended that the Chicago Office of Multifamily Housing Programs require the project owner to reimburse HUD for the ineligible housing assistance payments; reimburse appropriate households for any underpaid housing assistance; support or reimburse HUD for the unsupported housing assistance payments; conduct required criminal record background checks; update its waiting lists to include required notations; and implement adequate policies, procedures, and controls to address the issues found by the audit. HUD Audit 2019 - PH - 1003 The second audit involved multiple projects and was an audit of PK Management, LLC, a Birmingham, AL management company. The audit was initiated following media coverage of conditions at Essex Village, a Section 8 community in Richmond, VA. and the fact that there had been a prior audit of the company but HUD. The objective of the audit was to determine whether PK Management assisted eligible tenants and maintained documentation to support the housing assistance payments it received for residents of the sites it managed in the Philadelphia region. Six projects in PA and VA were audited and OIG found that the management company did not always maintain documentation to show that it assisted eligible tenants and supported the housing assistance payments it received for residents. Of the 60 tenant files reviewed (ten per property), OIG found that 23 did not contain required tenant eligibility documentation. The missing tenant eligibility documentation included (1) background checks for drugs and violent criminal activity; (2) Citizenship Declaration forms; (3) authorizations for release of information and Privacy Act notices; (4) copies of Social Security numbers; (5) third-party verifications; and (6) proof of disability {when required for project eligibility}. 27 of the 60 files lacked other types of required documentation, including (1) family composition; (2) proof of proper selection from the waiting list; (3) disclosure of lead-based paint certification to tenants; and (4) unit inspections {move-in/move-out/annual}. The primary reason for these management failures, according to the auditors, was that PK Management did not have adequate controls to ensure that it maintained documentation to show that tenants were eligible for assistance and that housing assistance payments were supported. As a result, the audit could not support $497,762 in housing assistance payments. The audit recommended that HUD require PK Management to provide documentation to support housing assistance payments it received totaling $497,762 or reimburse HUD from non-project funds for any amount that cannot be supported and implement controls to ensure that documentation showing tenant eligibility is in place going forward. Summary These two audits show the importance of training for staff of management companies charged with the management of Section 8 and other HUD-assisted properties. Failure to properly document resident eligibility for program participation can lead to HUD demanding repayment of unsupported subsidy, and as outlined in these two audits, the required repayments can be substantial.