News

Information Contained on Legitimate Pay Stubs

We are now working in an environment where just about anything can be obtained or created online, including fake pay stubs. We all recognize that pay stubs are the primary form of verification for employment income. However, I ve been noticing a growing profusion of online services that are selling fake pay stubs to people. This makes careful examination of the stubs critical in determining whether to conduct more due diligence as part of the income review process. Here are some suggestions to keep in mind when looking at pay stubs: Don t miss the details, such as verifying that the name, address, and social security number on the stub matches the information provided on the application. Verify that the employer information matches what is on the stub. Online printers that make fake pay stubs typically fill in the blanks with generic information, and the applicant may have forgotten to replace the data or made a mistake when adding that information. If the stub is highly detailed, verify that the marital status and number of dependents also match the application. Look at the quality of the stub. The quality of a fake pay stub is only as good as the equipment on which it is printed. While we are not seeing the originals, you should be able to tell if the paper is faded, which may indicate that it was printed on a low-quality printer. Watch for lines or fonts that don t match up properly. This could indicate that the person typed the information on a separate piece of paper and then taped it to the real stub. Look at the check numbers of the stubs. If the paycheck was issued by a small business with few employees, the sequence of numbers should not increase by hundreds of numbers every two weeks. Determine whether the payment was made via direct deposit. If so, recommend that management obtain verification of the bank account to which the deposits are made to make sure the deposits match what is shown on the stub. Compare earnings - most stubs show both current and year-to-date earnings. You guys already do a good job at looking at this information, but fake stubs often show conflicting information. If there is a significant disconnect between periodic pay and YTD, it could indicate a fake stub. Each pay stub must contain certain information, including hours worked, money earned, wages paid, deductions, pay rate, gross wages, and start and end dates for the pay period. The following information will also almost always be included: Name and address of the employer; and Last four digits of the employee s social security number or an employee ID number. Now that pay stubs are the primary method for verifying employment income, it is important that managers be proficient in recognizing the legitimacy of payroll documents.  

Status of Tax Reform - April 2017

For those of us who are heavily involved in the Low-Income Housing Tax Credit (LIHTC) Program, the future of tax reform is not just a casual interest. The survival of the Section 42 Program is by no means assured in this era of federal reallocation of resources. Even if the LIHTC program survives (which I believe is more likely than not), there will be changes. So, in addition to constantly educating our Congressmen and Senators about the value of the program, it is also important that we pay attention to the status of the D.C. tax reform efforts. Early this year, some members of Congress were predicting rapid progress on tax reform with passage by early summer (of course they also predicted rapid repeal of the Affordable Care Act). However, with each week, the estimates of when passage may occur keep getting later and later. Estimates moved from early to mid-summer, then late summer, and now - the end of the year is being discussed as a more realistic timeframe. Tax reform is clearly facing headwinds, and there are a number of reasons why rapid action should not be expected. The President and Congress are not on the same page when it comes to goals. The Trump plan (as proposed on April 26) increases the deficit and wants to use tax reform to fund a massive infrastructure program. The House blueprint is revenue neutral. Lobbyists have an inordinate amount of power in the Beltway and they will marshal all their resources to protect their interests. The House plan reduces tax benefits for charitable donations - this will raise the ire of religious groups. Possible reductions in the mortgage interest deduction for homeownership will be strongly opposed by the powerful real estate lobby. The Trump plan leaves in the deductions for mortgage interest and charitable contributions. There are also proposals to eliminate deductions for state and local taxes, and lawmakers from high tax states, such as California, New Jersey, and New York, will oppose this. Part of the House plan is called the "Border Adjustment Tax." This provision would tax imported goods at a higher rate than domestically manufactured products and is intended to raise $1 trillion to offset cuts to corporate tax rates. Such a provision will be strongly opposed by retailers and conservative advocacy groups, and is not supported by the Trump proposal. Any import tax will be passed onto consumers in the form of higher prices, but without this type of tax, cutting corporate tax rates by any significant amount will be more difficult. The Senate is also a problem. Less conservative than the House, many provisions desired by the House may not be acceptable to the Senate. Also, memories of the health care debacle are fresh in the mind of the House and they do not want to send a dead-on-arrival bill to the Senate. Finally, there will almost certainly be strong opposition from democrats. In addition to basic philosophical differences, the Dems are going to push for Trump to release his tax returns before agreeing to any reform. They will want to ensure that the reforms are not designed to enrich the President and his family. If the first four of these obstacles can be overcome, this last one may not be as important since the Senate may be able to pass tax reform through reconciliation, which will enable the Senate to pass legislation by a simple majority vote rather than requiring a filibuster proof 60 votes. However, use of reconciliation to pass tax-reform is a risky proposition because it would produce extreme and unstable tax policy. It also prevents tax legislation from being permanent if the tax reform increases deficits for more than ten years, which could result in having to revisit major tax code revisions in less than ten years. With all that is going against it, the idea that rapid tax reform is in the cards is losing favor, and we well could be looking at 2018 before we see any meaningful movement toward reform. In the meantime, all in our industry need to be alert to challenges to the LIHTC program and work hard to ensure that the successes and value of the program is shared with elected officials.

Executive Order May be a Threat to the Rural Development Service

On March 13, 2017, the President signed Executive Order 13781. This order instructs the Director of the Office of Management and Budget (OMB) to propose a plan to reorganize government functions and eliminate unnecessary agencies, components of agencies, and agency programs.   No later than September 9, 2017, the head of each federal agency must submit to the OMB director a proposed reorganization plan, if appropriate, in order to improve the efficiency, effectiveness, and accountability of that agency. The public will also be invited to make recommendations for federal government improvements.   By March 8, 2018, the OMB director will submit to the President a proposed plan of reorganization for the executive branch. The proposed plan will include: Recommendations to eliminate unnecessary agencies, components of agencies, and agency programs; and Recommendations on merging programs.   Among the factors to be considered in recommending actions will be:   Whether some or all the functions of an agency or program can be better administered by state or local governments or the private sector; Whether certain agency functions are redundant and duplicate those of another agency; Whether the cost of continuing to operate an agency are justified by the public benefit provided; and The cost of shutting down or merging agencies.   There has been discussion for at least the last 20-years regarding the possibility of merging the housing functions of the Rural Development Service (which administers the Section 515 multifamily housing program, as well as other housing related programs) into the Department of Housing & Urban Development. This Executive Order to a certain extent "formalizes" that effort and increases the possibility that at some point in the future, the housing programs of the Department of Agriculture will be placed under HUD purview.   We should get our first indication of the likelihood of such a move by this fall, and if it does become a recommended course of action, we will examine potential impact on owners and operators of RD housing.

Liability Under the Fair Housing Act

In many of my fair housing classes, the question often arises as to who is liable for a violation of fair housing law. The question is asked both my managers (who wonder if they can be held personally liable) and by owners and management company supervisors (who wonder if they can be held liable for the actions of site staff that supervisors were unaware of. The short answer is that anyone can be held liable for a fair housing violation, and in some cases knowledge of the violation is not a defense.   Generally, apartment communities are operated by management firms. In many cases, these firms act as agents of the owner. There may also be lawyers, banks, investors, and others involved in housing project operations. Each of these may have their own employees who act on behalf of their firm.   The presence of all these potential players means that the "law of agency" plays an important role in determining who may be liable for a fair housing violation.   The general rule when determining liability is that a principal is legally responsible for the acts, conduct, and statements of its agents or employees if those acts are done within the scope of the agent/employee apparent authority. One of the primary court cases in this area of law, Meyer v. Holley (2003), resulted in the court stating that while the Fair Housing Act "says nothing about vicarious liability," Congress is presumed to have intended that the statute incorporate "ordinary tort-related vicarious liability rules." These rules "ordinarily make principals or employers liable for the acts of their agents or employees in the scope of their authority or employment."   It is established law that an employer is liable for the unlawful discrimination of its employees under the doctrine of "respondeat superior." This Latin phrase, meaning "let the master answer," is a common law doctrine that makes an employer liable for the actions on an employee when the actions take place within the scope of employment. While an employee s discrimination will bind the company, supervisor personnel up the chain of command will not generally be held liable. This assumes that such personnel were unaware of the discriminatory behavior. For example, if a property manager violates the Fair Housing Act, the company he or she works for will also be liable, but the direct supervisor of the manager may not be. Courts have made clear that a company is responsible for the actions of its employees so long as the company has the power to control those actions and the employees are acting on behalf of the company.   The rule holding a principal liable for its agent s discrimination applies to all agency relationships - not just employer-employee relationships. As an example, if a real estate agent illegally discriminates against a minority home seeker, the owner that the agent represents may be held liable, along with the Agent.   Vicarious liability can result either from an "actual" agency relationship or from an "apparent" agency. "Actual" agency exists when the agent and the principal agree to have the agent act on the principal s behalf, and be subject to the control of the principal. HUD s fair housing regulations state that an agent "includes any person authorized to perform an action on behalf of another person regarding any matter related to the sale or rental of dwellings." This liability occurs even if it is reasonable for a third party to believe that the agent is acting on behalf of the principal.   A principal cannot automatically escape vicarious liability for an agent or employee s discrimination by showing that it did not explicitly authorize or approve such discrimination.   The key issue in most fair housing cases concerning whether a company or a property owner should be held vicariously liable for another person s discrimination has been whether the alleged principal actually had the authority to direct and control the agent s work. If this element of control is absent or weak, some courts have refused to attribute an agent s discrimination to other defendants. Some decisions have excused absentee property owners for the discriminatory conduct of others on the property.   The principal of vicarious liability flows "upward," not "downward." So, an employee is not generally liable for a fair housing violation of by their employer. Clearly, if an employer orders an employee to discriminate, the employer is liable. Also, if an agent (or employee) violates the Fair Housing Act on orders from the principal, the employee or agent also is liable. "Following orders" is not a defense to a housing discrimination complaint. If an employee/agent refuses to follow a discriminatory order and is fired or otherwise disciplined, he or she has a cause of action under 3617 of the Fair Housing Act against the employer.   If a principal has not directed or endorsed its agent/employee discrimination, liability of the principal does not extend to punitive damages or other relief that is ordered against intentional violators. However, punitive damages may be imposed in cases where the principal authorized or ignored the discrimination. In Davis v. Mansards, a 1984 Indiana case, the court held an apartment management company liable along with its employees for all punitive damage awards, because the company "knew or ratified discriminatory acts of their employees or agents."   A principal who is found liable solely because of its agent s discrimination may be entitled to assert a claim against the agent for actual damages and other liability the principal suffers as a result of the agent s discrimination.   This concept of "vicarious liability" makes clear the importance of regular training and supervision of agents and employees. Owners of property and of management companies cannot escape liability for discrimination based on claims of ignorance.

Problem with the 2017 MTSP Income Limits

On April 14, 2017, HUD published the 2017 income limits for HUD programs as well as for the Low-Income Housing Tax Credit and Tax-Exempt Bond programs. The limits for the LIHTC and Bond projects are published separately from the limits for HUD programs. Now that we have had a chance to review the new limits, a significant error has been discovered in the "Determination of Maximum Income Limits" section of the MTSP limits for the " on or before 12/31/08" tab.   The referenced section is showing FY 2017 as the income limit to use even if 2017 is lower than earlier years. There are also errors regarding which HERA Special Income Limit to use.   HERA 2008, Title I, Part III, 3009(a)(E)(i) states that any determination of Area Median Gross Income for any project after 2008 will not be less than the AMGI used for the project in the prior year. In other words, LIHTC projects never have to reduce income limits below the highest limit in use since the project began operating.   HUD is aware of the problem and will hopefully correct the problem shortly.    

HUD Publishes 2017 Income Limits

On April 14, 2017, HUD published the 2017 income limits for HUD programs as well as for the Low-Income Housing Tax Credit and Tax-Exempt Bond programs. The limits for the LIHTC and Bond projects are published separately from the limits for HUD programs. HUD has indicated that the U.S. median income limit is higher this year than it was in 2016. The median has increased by 3.5% and is now $68,000.   LIHTC and Bond properties use the Multifamily Tax Subsidy Project (MTSP) limits, and are held harmless from income limit (and therefore rent) reductions. These properties may use the highest income limits used for resident qualification and rent calculation purposes since the project has been in service. HUD program income limits are not held harmless.   Projects in service prior to 2009 may use the HERA Special Income Limits in areas where HUD has published such limits. Projects placed in service after 2008 may not use the HERA Special Limits.   Projects in rural areas that are not financed by tax-exempt bonds may use the higher of the MTSP limits or the National Non-Metropolitan Income Limits (NNMIL). According to HUD, the NNMIL have gone up 3.56% from 2016 to 2017.   Owners of LIHTC projects may rely on the 2016 income limits for all purposes for 45 days after the effective date of the newly issued limits. This 45-day period ends on May 29, 2017.   The limits for HUD programs may be found at www.huduser.gov/portal/datasets/il.html. The limits for LIHTC and Bond programs may be found at www.huduser.gov/portal/datasets/mtsp.html   Please feel free to contact me with any questions.   AJ

Proposed Changes to LIHTC Program

On July 14, 2016, the "Affordable Housing Credit Improvement Act of 2016" was introduced in the Senate by Senators Cantwell, Hatch, and Wyden. It would make a number of changes to the Low-Income Housing Tax Credit (LIHTC) program, including (1) increases in the amount of available credit, (2) reforms relating to tenant eligibility, (3) locking in of the 4% rate, (4) permitting relocation costs to be included in eligible basis, (5) reforms relating to Native American Assistance, and (6) changing the name of the program to the "Affordable Housing Tax Credit."   Amendments to this bill have been offered to the 115th Congress, as follows:   New provision addressing planned foreclosures: current law permits an extended use agreement for a LIHTC property to be terminated if the property is foreclosed on. A loophole in the law has allowed owners to get out of the long-term use commitments by devising an arrangement where a related party holds a note on the property, and then takes the property through foreclosure in connection with the note. The related party then converts the property to market rate, raising rents and reducing affordability. While such an action is prohibited if it is part of an arrangement to terminate the extended use agreement, since the IRS is no longer involved with the property after year-15, there is concern that enforcement in this area is lacking. >Proposed Change: 42(h)(6) would be amended to give authority to state housing finance agencies (HFAs) to make the determination that the foreclosure was an "arrangement" to terminate extended use. HFAs would have 60-days to review these transactions. New Provision Raising the Cap on Difficult to Develop Areas (DDAs): the bill introduced in July 2016 would repeal the 20 percent cap on qualified census tracts (QCTs), allowing all census tracts that meet the HUD guidelines to qualify for a 30% basis boost for projects located in those areas. HUD also maintains a similar 20% cap on DDAs, which are areas with high construction, land, and utility costs relative to area incomes. >Proposed Change: Raise the 20% cap on DDAs to 30%, allowing more affordable housing projects to be built in higher-cost, high-opportunity neighborhoods. Additional Criteria for Community Revitalization Plans: under current law, state qualified allocation plans (QAPs) must give preference to projects that contribute to a concerted community revitalization plan (CCRP). The July draft bill gives HFAs the responsibility for making this determination, but provides no definition for a CCRP. >Proposed Change: the new law would include criteria that states should consider when determining if projects contribute to a CCRP, including whether the plan is geographically specific, has a plan for implementation and goals for progress, includes a strategy for obtaining public and private commitments in other, non-housing infrastructure or other improvements beyond LIHTC developments, and demonstrates the need for revitalization. Local Approval: the draft bill from July requires the Treasury Department to issue guidance prohibiting any state QAP from including local approval or local contribution requirements. >Proposed Change: simplifies the provision by writing the prohibitions in the statute rather than requiring Treasury guidance. The law would permit HFAs to consider local contributions, but only to the extent that they contribute to an overall measure of a projects ability to leverage outside investment and are considered on a level playing field with all other funding sources. Technical Corrections: current draft bill refers to "state housing credit agencies." >Proposed Change: since some states have multiple allocating agencies, the term will be changed to "housing credit agencies." These proposals, along with other draft legislation relating to the LIHTC program may or may not be part of any final tax reform. We will have a better idea once proposed tax reform legislation comes out of the House Ways & Means Committee, which could occur this summer. Any final tax reform legislation is not likely before late summer or early fall, if at all.

National Origin - Still a Protected Class

Despite all the hyperbolic language regarding Muslim bans swamping the airways and newspapers, individuals are still protected from housing discrimination on the basis of their national origin. Recent efforts by the new administration to control entry into the United States by certain groups has led some property owners and managers to change screening requirements at properties. Owners and managers should be reminded that they cannot create screening procedures that discriminate on the basis of national origin.   Leasing decisions should be based solely on legitimate screening criteria, relating to one of four areas: Is the applicant eligible? Will they pay their rent? Will they take care of the property? Will they respect their neighbors?   Owners should make sure they do not require a different level of documentation for some prospects than for others based on where they come from. For example, applicants from the Middle East should not be held to a higher standard than other applicants.   In response to the President s attempts to bar citizens of some Muslim-majority countries from entering the United States, some owners may believe that people from Middle Eastern countries can be treated differently; this is not the case. Regardless of an applicant s religion or national origin, they must be treated exactly the same way as any other applicant.   Owners and managers should remember that discrimination does not come only from management staff - it can come from other residents. Some owners have asked residents to report suspicious activity by other residents, but this does not excuse discrimination against certain religions or individuals from certain countries. Any complaint by one resident against another must be based on legitimate issues and not for discriminatory reasons. Tenant-on-tenant harassment is illegal and if management is aware of such harassment and fails to take action, the owner may be held liable.   The bottom line is that you should not let highly publicized fear mongering or prejudice lead to a fair housing violation. All applicants and residents must be treated equally and managers have to overcome their own fears and prejudices when determining the housing privileges to be provided.