News

HUD Reduces Time for Advance Notice of REAC Inspections

On February 20, 2019, HUD announced in a press release a new Notice that reduces to 14 calendar days (from 120-days) the advance notification inspectors will give before conducting physical inspections of public housing and private HUD-assisted multifamily housing. The intent is to reduce the lead time owners and PHAs have to make cosmetic repairs in order to secure a passing score on a REAC inspection. The Notice - PIH-2019-02/H-2019-04 - applies to all properties subject to REAC inspections. If an owner refuses to accept an inspection on the date contained within the notification, HUD will take the following steps: 1. If an owner/agent (O/A) declines to accept an inspection at the time initially scheduled by an inspector, the property will receive a REAC score of zero. A second attempt to schedule an inspection is possible. 2. If an O/A cancels or refuses entry for an inspection scheduled during the initial notification by an inspector, the property will receive a REAC score of zero. A second attempt to schedule an inspection is possible. 3. If a second attempt results in a completed inspection within seven calendar days of the initially scheduled date, the resulting score will be recorded. 4. If the second attempt does not result in a completed inspection within seven calendar days of the initially scheduled date due to the fault of the O/A, the property will receive a REAC score of zero, and the O/A may be subject to penalties established in statute, regulation, and other sub-regulatory documents. Based on this Notice, starting in the third week in March 2019, HUD employees and REAC inspectors will only give affordable property owners 14 calendar days of notice prior to their inspection. This significant policy change is a reminder that owners should perform regular maintenance on their properties and do repairs on a year-round basis.

IRS Final Regulation on LIHTC Compliance Monitoring

On Tuesday, February 26, 2019, the IRS will publish in the Federal Register a final regulation on how state Housing Finance Agencies (HFAs) must monitor low-income housing tax credit (LIHTC) properties for compliance with the requirements of Section 42 of the Internal Revenue Code.             This final regulation amends the compliance monitoring regulations concerning the LIHTC program, and revise and clarify the requirement to conduct physical inspections and review low-income certifications and other documentation. This final regulation replaces the temporary regulation that was issued on February 25, 2016 and amends 26 CFR part 1 to finalize rules relating to IRC Section 42.             Under the temporary regulation and Revenue Procedure 2016-15, it was determined that the HUD Real Estate Assessment Center (REAC) protocol satisfies the Section 42 physical inspection requirements. The Revenue Procedure provides that, in a LIHTC project, the minimum number of low-income units that must undergo physical inspection is the lesser of 20 percent of the low-income units in the project, rounded up to the nearest whole number of units, or the number of low-income units set forth in the Low-Income Housing Credit Minimum Unit Sample Size Reference Chart in the revenue procedure (the requirements will be outlined in this article). This same requirement applies to the number of files that have to be reviewed.             Revenue Procedure 2016-15 also provided an exception to the requirement that at least one unit in each building be inspected. Under the procedure, the all-buildings requirement does not apply to an agency that uses the REAC protocol to satisfy the physical inspection requirement.             Finally, the temporary regulations decoupled the physical inspection and low-income certification review and ended the same units requirement. An HFA is no longer required to conduct a physical inspection and file review of the same unit. In addition, an Agency may choose a different number of units for physical inspection and for file review provided the Agency chooses at least the minimum number of low-income units. Further, an Agency may choose to conduct a physical inspection and file review at different times.             This final regulation makes a number of important changes from the Temporary Regulation and Revenue Procedure and will significantly alter how HFAs monitor LIHTC properties for compliance. Provisions of the Final Regulation 1. The final regulations remove the rule that allows minimum sample size to be the lesser of 20-percent of the total number of low-income units or the minimum unit sample size set forth in the Low-Income Housing Credit Minimum Unit Sample Size Reference Chart. The final requirement is that HFAs must inspect no fewer units than the number specified for projects of the relevant size as set forth in the Low-Income Housing Credit Minimum Unit Sample Size Reference Chart. Agencies have discretion to inspect and review more units as they see fit. 2. The "all-buildings" rule is retained in the final regulation except for properties that undergo REAC inspections. The IRS does is concerned that HFAs may not all have inspectors as well-trained as the HUD-approved REAC inspectors and is therefore requiring a physical inspection of all buildings when the property is not undergoing a REAC inspection. 3. A major change in the final regulation is the "reasonable notice time frame." The temporary regulations provide that reasonable notice is generally no more than 30-days, but they also provide a very limited extension for certain extraordinary circumstances beyond an Agency s control such as natural disasters and severe weather conditions. These final regulations shorten the reasonable notice requirement to a 15-day notice that a project will experience an upcoming physical inspection or file review.             The reason for this shortened timeframe is that the validity of an inspection sample would be destroyed if a project owner had an opportunity to selectively prepare the units in the sample for inspection. For this reason, an HFA must select the low-income units to inspect in a manner that will not give advance notice that a particular low-income unit will or will not be inspected. Accordingly, the final regulations clarify that an Agency may notify the owner of the particular low-income units for inspection only on the day of the inspection. As noted in the regulation, under the REAC protocol, HUD or HUD-certified REAC inspectors randomly select low-income units for inspection on the day of the inspection; HFAs are now required to do the same. 4. Treatment of scattered site or multiple buildings with a common owner and plan of financing. While a number of industry practioners recommended that in the case of scattered site or multiple buildings with common ownership and financing, the HFA be able to treat the project as a single project for compliance monitoring purposes - regardless of whether or not the owner made the multiple building election on the IRS Form 8609, the final regulation does not adopt this regulation. For compliance monitoring purposes, a project will be defined in accordance with Section 42 - an HFA cannot deem separate buildings to be a project if the 8609 multiple building project election has not been made. 5. All HFAs are required to amend their Qualified Allocation Plans (QAP) to include the requirements of this final regulation. On the date the QAP is amended, Revenue Procedure 2016-15 will be considered obsolete. QAPs must be amended no later than December 31, 2020. 6. The number of low-income units to be inspected and the number of low-income files to be reviewed may not be fewer than the numbers shown below: Low-Income Units in Project Minimum Units to Review 1 1 2                                                                      2 3                                                                      3 4                                                                      4 5-6                                                                   5 7                                                                      6 8-9                                                                   7 10-11                                                               8 12-13                                                               9 14-16                                                               10 17-18                                                               11 19-21                                                               12 22-25                                                               13 26-29                                                               14 30-34                                                               15 35-40                                                               16 41-47                                                               17 48-56                                                               18 57-67                                                               19 68-81                                                               20 82-101                                                             21 102-130                                                           22 131-175                                                           23 176-257                                                           24 258-449                                                           25 450-1,461                                                        26 1,462-9,999                                                     27 7. Random Selection Requirements: Agencies generally may not select the same low-income units of a low-income housing project for on-site inspections and file reviews, because doing so would usually give prohibited advance notice. This is a complete reversal of the original requirement that the units for physical inspection and file review be the same. The units must select the units for inspections or low-income certification review separately and in a random manner. 8. Meaning of Reasonable Notice: the 15-day notice period begins on the date the Agency informs the owner that an on-site inspection of a project and low-income unit file review will occur. Notice of more than 15-days, however, may be reasonable in extraordinary circumstances that are beyond an Agency s control and that prevent an Agency from carrying out within 15-days an on-site inspection for file review. Extraordinary circumstances include, but are not limited to, natural disasters and severe weather conditions. In the event of extraordinary circumstances that result in a reasonable-notice period longer than 15-days, an Agency must still select the relevant units and conduct the same-day on-site inspection or file review as soon as possible. 9. Use of the REAC Protocol: In order to use the inspection requirements relating to the REAC protocol, the inspection must satisfy the following requirements:             (i) Both vacant and occupied low-income units must be included in the population of units from which units are selected for inspection;             (ii) The inspection complies with the procedural and substantive requirements of the REAC protocol, including the requirements of the most recent REAC Uniform Physical Condition Standards (UPCS) inspection software, or software accepted by HUD;             (iii) The inspection is performed by HUD or HUD-Certified REAC inspectors; and             (iv) The inspection results are sent to HUD, the results are reviewed and scored within HUD s secure system without any involvement of the inspector who conducted the inspection, and HUD makes its inspection report available. 10. HUD Inspections that comply with the requirements of the REAC Protocol: the number of units required to be inspected under the REAC protocol satisfies the requirements of the final regulation concerning the number of low-income units the Agency must inspect. Also, the manner in which the low-income units are selected for inspection under the REAC protocol satisfies the requirements of the final regulation. 11. File Reviews for HUD Inspections that comply with the requirements of the REAC Protocol: An Agency that conducts physical inspections using the REAC protocol if not excused from following the requirements of the final regulations in selecting the files for review. 12. Circumstances under which the same files and units may be chosen for inspection: If an agency chooses to select the same units for on-site inspections and file reviews, the Agency must complete both the inspections and file reviews before the end of the day on which the units are selected.             It is important to note that the final regulation does not include a provision for desk audits of files. The regulation states that the Agency may review the low-income certifications wherever the owner maintains or stores the records (either on-site or off-site).             Clearly this final regulation makes some significant changes to the way HFAs will monitor LIHTC properties for compliance and will require that owners adjust expectations relative to manner in which the reviews will be performed. As noted earlier, all these changes must be in place no later than December 31, 2020.

The Family Self-Sufficiency (FSS) Program - A Tool for Section 8 Owners

The Family Self-Sufficiency (FSS) Program was authorized by Congress in 1990 and is administered by the Department of Housing & Urban Development (HUD). FSS helps low-income families get out of poverty by combining financial education and coaching with savings incentives. Eligible residents include those associated with (1) vouchers; (2) public housing; and (3) Project-Based Rental Assistance (PBRA). FSS allows participating households to save rent increases attributable to earnings growth in a special escrow account, the savings of which can be accessed for long-term financial goals, like homeownership or college. FSS turns the disincentive of getting a better job into a powerful incentive for employment and earnings. Despite this, less than five percent of eligible families nationwide are enrolled. At its core, FSS is an asset-building tool and financial incentive. A key to success in the FSS program is high-quality, individualized financial coaching to help residents devise plans, set goals and work toward these goals. PHAs and multifamily owners that want to operate an FSS program must submit an FSS Action Plan to the Regional HUD field office. The action plan must describe the PHA or owner s policies and procedures for the FSS program, providing information on the number of families expected to participate, selection procedures, incentives to encourage participation, activities and supportive services, and a timetable for program implementation. When an individual enrolls in FSS, the program lasts five years with an option to extend. Participating residents can graduate early if they are employed and have been free of cash welfare assistance for 12-months. Financial Coaches Financial coaches assist with the project launch process, outreach to residents, enrollment, and coordination with property management in setting up escrow accounts. They also provide workshops on budgeting, credit/debt management and saving, as well as individualized coaching. Participation Participation in the FSS program is voluntary for owners of Section 8 housing. Those who are interested should contact their HUD Regional Office for detailed information.

How to Properly Apply the HUD Minimum Rent Requirements

Owners participating in HUD Multifamily Housing Programs (MFH) are sometimes unsure of exactly how to apply HUD s minimum rent rules. HUD occupancy regulations require all households (except those with hardship exemptions) to pay a monthly rent of at least $25 [HUD Handbook 4350.3, par. 5-26(D)]. The minimum rent does not apply to Section 202 PAC, Section 202 PRAC, Section 811 PRAC, RAP, Rent Supplement, Section 221(d)(3) BMIR, or the Section 236 program.             When implementing the minimum rent rule, there are four basic requirements that owners must follow: Deduct the utility allowance (UA) from the minimum rent. The "minimum rent" is the "total tenant payment," which is rent plus the UA [4350.3, par. 5-26(D)(2)]. For example, assume a UA for a two-bedroom unit of $100. 30% of the resident s adjusted income is $15. The minimum rent is $25. $25 minus $100 = $75; the owner will send a utility reimbursement check of $75 to the tenant.Do not impose a minimum rent if a household is eligible for a hardship exemption. Households qualify for the exemption if they have a "financial hardship." 4350.3, par. 5-26(D)(3) states that a household qualifies for the exemption if they "would be evicted if the minimum rent requirement was imposed." Any household that cannot afford the minimum rent - for any reason - could be evicted. So, any household that cannot pay the minimum rent is exempt. HUD rules provide four specific circumstances for the exemption:The household lost eligibility for - or is awaiting an eligibility determination for - a federal, state, or local assistance program;The household would be evicted if the minimum rent was imposed;The household s income has decreased because of changed circumstances, including the loss of employment; orA death has occurred in the household.Households may not be evicted while the request for a hardship exemption is being considered. During this period of time, the minimum rent must be suspended. If a hardship is temporary, the household is exempt from minimum rent for 90-days but will have to repay the back rent. At the end of the 90-day period, the household must pay the minimum rent, retroactive to the initial date of the suspension [4350.3, par. 5-26(D)(3)(b)(2)]. Only households subject to minimum rent are eligible for hardship exemptions. Other households unable to pay rent due to income reductions should request an interim recertification.

Major Fair Housing Settlement in Housing Accessibility Case

The Department of Justice (DOJ) has settled a major fair housing and American with Disabilities Act (ADA) lawsuit against Mid-America Apartment Communities, Inc., and Mid-America Apartments, LP for $11.3 million to resolve allegations that these owners failed to build 50 apartment complexes in six states and the District of Columbia in accordance with the accessibility features required by the Fair Housing Amendments Act of 1988 and the ADA.             Under the agreement, the defendants must spend $8.7 million to retrofit 36 properties that they currently own. This is in addition to $2.4 million in retrofits that had been made after the DOJ filed suit. The defendants must also pay $175,000 to compensate victims and up to $25,000 for retrofits at properties they no longer own. They must also undergo training, construct any new multifamily housing in accordance with the applicable laws, and provide periodic reports to DOJ.             Most multifamily housing built for first occupancy after March 13, 1991 is required to have basic accessibility features. Public spaces (e.g., parking lots and leasing offices) built for first occupancy after January 26, 1993 are required to comply with ADA accessibility features.             Primary violations in housing developed by the defendants include: Routes to building entrances had steps and excessive slopes;Electrical outlets and thermostats were beyond the reach of wheelchair users; andKitchens and bathrooms had insufficient space for persons in wheelchairs to maneuver. Owners and managers of multifamily housing built for first occupancy after March 13, 1991 should fully understand the required design elements for these projects. These requirements apply to buildings with four or more units. In these buildings, all ground floor units must be accessible and if the building has an elevator, all units must be accessible. There are seven basic requirements that must be met: 1. There must be at least one building entrance on an accessible route; 2. Common and public use areas must be accessible and usable; 3. Buildings must have usable doors; 4. There must be an accessible route into and through the covered apartments; 5. Light switches, electrical outlets, thermostats and other environmental controls must be in accessible locations in covered apartments; 6. Bathroom walls in covered apartments must be reinforces for possible installation of grab bars; and 7. Kitchens and bathrooms in covered apartments must be usable.

HUD Resumption of Multifamily Production and Asset Management Activities

The HUD Office of Multifamily Housing (MFH) issued two memorandums on February 1, 2019 outlining the departments plan for prioritizing the backlog of work from the shutdown. One memo deals with the resumption of multifamily production activities and the other with asset management activities. Production Activities HUD is prioritizing its production activities as follows: Identify and prioritize work on loans that have been issued a firm commitment and are in a position to reach initial or final endorsement, meaning the complete closing package was submitted prior to 12/21/18, with only minor corrections necessary to close. Priority will be given to loans that have critical external deadlines such as LIHTCs, rate lock extension fees, and purchase sales agreements with substantial penalties.Conduct an inventory of applications currently in process that were received prior to the shutdown. Applications that were submitted during the shutdown will be date stamped 1/28/19 (the end of the shutdown) and assigned to underwriters for future processing. These assignments should be made by 2/5/19.Process applications that were in process prior to the shutdown. HUD will begin with applications that are close to issuance of either a commitment or an invite letter as determined by the HUD Regional Office.Address applications that were in mid-process or received immediately prior to the shutdown.Applications that were submitted during the shutdown. Lenders may continue to submit new applications for mortgage insurance. New concept meetings will not be scheduled until 2/19/19. Concept meetings already scheduled may be conducted at the discretion of the HUD field office. Third party reports (appraisals, market studies, environmental reports and CNA submissions) whose expiration dates have lapsed pending submission of an application due to the shutdown may have the expiration waived at the discretion of the Regional Office. For the foreseeable future, it is likely that lenders, borrowers, and other affected program participants will experience longer than normal application processing times. HUD expects to issue another update on development processing timing in a few weeks. Asset Management Activities HUD asset management priorities are as follows: Work related to tenant health and safety, including contract renewals and subsidy payments. HUD is currently allocating new funding provided by the Continuing Resolution (CR) to support the renewal of expiring Section 8 Project Based Rental Assistance (PBRA), Section 202 and Section 811 contracts. Additional funding is now available for ongoing Section 8 PBRA contracts to ensure timely payments through April 1. There are some properties with expiring contracts whose renewals were not fully processed by February 1. If affected properties have HUD-controlled reserves, loans may be requested from the reserve accounts. Requests may be sent to the assigned incoming field email box and must include a completed HUD-9250, the current balance in the account, the withdrawal amount, and a statement certifying that released funds will be reimbursed to the reserve account once subsidy payments are received.Meeting critical external deadlines, such as servicing actions in connection with FHA closings, and property sales that require HAP Assignment processing or 2530 clearance. If your property is in this category, you should submit a request for HUD to prioritize your action via the assigned incoming field email box.Other requests such as standard reserve for replacement withdrawals will be processed in the order received. Questions should be directed to assigned multifamily field offices as shown below. The HUD HQ contact is Brian Murray, Acting Director of the Office of Asset Management and Portfolio Oversight at Brian.A.Murray@HUD.gov or 202-402-2059. Office                   Email Atlanta                  Atl.incoming@HUD.gov Baltimore               BAL.incoming@HUD.gov Boston                  Bos.incoming@HUD.gov Chicago                 Chi.incoming@HUD.gov Detroit                  Det.incoming@HUD.gov Denver                  Den.incoming@HUD.gov Fort Worth             MFSoutwest@HUD.gov Jacksonville           Jax.incoming@HUD.gov Kansas City           MFSouthwest@HUD.gov Minneapolis            Mn.incoming@HUD.gov New York              NYC.incoming@HUD.gov San Francisco         SF.incoming@HUD.gov

Affordable Senior Housing - Demand Exceeds Supply

The Harvard Joint Center for Housing Studies recently published Housing America s Older Adults 2018. A highlight of the report is that over half of U.S. households are now headed by someone age 50 or older. This indicates that the living arrangements, financial resources, health, and functional abilities of those households will present serious challenges in the years to come. Baby boomers will soon begin turning 80 and will increasingly need more accessible and supportive housing than is either currently available or in the pipeline. In addition, many households in their 50s and early 60s are not financially prepared for retirement. A major reason for this is that fewer of these households are homeowners or have built the wealth that prior generations had by the same age. Other notable trends in the study: Many older Americans are burdened by housing costs. Nearly a third of households age 65+ (9.7 million) pay at least 30% of their income for housing, and more than half of these pay over 50%.There is a large wealth gap between older homeowners and renters. The median net worth of homeowners age 50-64 was $292,000 in 2016 - almost 60 times that of renters of the same age. The importance of homeownership in wealth building cannot be overstated. It is the single most valuable asset for most seniors and often enables a comfortable retirement.While median incomes in the last five rose for older adults, gains were not evenly distributed. From 2011 to 2016, median incomes rose 9.6% for those 65 to 79 and 5.2% for those 80 and older, but people age 50 to 64 saw an increase of only 2.6%.There is an historically high gap in homeownership rates between older whites and blacks. 81% of white households age 50+ own their homes compared to 57% of older black households. This 24% gap is the largest since record-keeping began in 1976.Growing numbers of older adults live in low-density areas. Between 2000 and 2016, the share of older adults living in low-density census tracts in 95 of the 100 largest U.S. metropolitan areas rose from 24% to 32%, an increase of almost six million adults. Providing services and transportation alternatives is more difficult in locations with more dispersed housing.There are not enough accessible units to serve the growing number of those with physical challenges. In 2016, 17% of households age 50+ included someone who had difficulty climbing stairs or walking (including 43% of those age 80+). Yet, only 3.5% of homes had the three key accessibility features: (1) single-floor living; (2) no-step entries; and (3) extra wide halls and doors.Many of the most vulnerable live alone. The share of households age 80+ that are single - person is now 57%. However, among renters of the same age, it is 77%. Single person households in need of support or care must rely on non-resident or paid caregivers, yet also have lower incomes than larger households. What this study makes clear is that there is currently a lack of adequate housing for seniors - especially affordable housing, and, in years to come, the need will grow. Unfortunately, the combination of greater numbers of lower-income older households and limited federal subsidies will only increase the gap between need and supply. This will result in more older adults being forced to cut back on necessities in order to pay for housing. At this point, there is no indication that there is the political will - or even recognition of the problem - to begin developing a long-term solution. While only a coordinated response from the nation s public, private, and non-profit entities will begin to address this issue, there is clearly almost no action at the public policy level. Until our elected officials begin to recognize and deal with this growing crisis, the private and non-profit sectors will have to find innovative ways to at least begin to address this growing problem.

Exceptions to Criminal Screening Policies as a Reasonable Accommodation

A court case in early 2018 provides a case study in why a company s criminal screening policies must sometimes be waived as a reasonable accommodation for a disabled person. The case was Simmons v. T.M. Associates Management, VA - February 2018. Facts 1. A community resident wanted her adult son to move in with her; 2. It was alleged that the son had a misdemeanor conviction for indecent exposure and the community denied his application on that basis alone; 3. The son asserted that his mental illness caused the act resulting in his conviction; 4. The mother asked the complex for an accommodation and reconsideration of the decision due to the mental disability; 5. The community refused, arguing that the Fair Housing Act (FHA) does not require a reasonable accommodation for persons convicted of a crime. The community argued that housing providers may issue blanket denials of housing to those convicted of crimes, regardless of an applicant s disability status - even if the crime derived from the disability. This was an elemental error in the respondent s argument and indicates a significant lack of understanding relative to fair housing law. While the FHA does not require an accommodation when the person requesting the accommodation represents a clear danger to the property, residents, or staff, there is no blanket exclusion from reasonable accommodations for persons with criminal records. Finding The court denied the community s request to dismiss the case. Reasoning 1. While the FHA does not always require an accommodation for a crime committed due to a disability (and certain drug and sex offender crimes need never be accommodated0, each case must still be considered on its own merits. 2. The son s misdemeanor conviction for indecent exposure does not make him a direct threat to the health and safety of others. Lesson s from this Case The primary lesson to be learned from this case is that owner s/manager s cannot have a blanket policy of rejection of either applicants or live-in aides based on criminal records.