News

Recognizing Drug Operations in Apartment Communities

Train Management Staff to Recognize Drug Operations   The manufacture of methamphetamines in apartment communities if becoming more common each year. Makeshift meth labs are discovered with increasing frequency in apartment communities, and the residual effects on the property can be devastating.   In some cases, apartments that are used as drug labs become so toxic that demolition is required.   Management should take specific steps to train staff in the recognition of potential drug labs. These steps include:   Focus on training the maintenance staff. It is maintenance personnel who are most likely to enter apartments for work or inspections and they need to know how to recognize potential drug manufacturing or sale. Staff should be told to look for warning signs, but not to search for evidence. Searching a resident's apartment could be an invasion of privacy and should be left to law enforcement with appropriate warrants.   Staff should look for signs of drug activity that are in "plain view." There should be no opening drawers, closets, or looking under beds. An example of "plain view" would be a scale or bags filled with a white powdery substance on a kitchen counter.   Distribute a list of warning signs of drug sales and manufacturing. Such a list should include: >Blacked-out windows: People committing crimes in their homes often put up material such as tin foil or black trash bags on their windows to prevent others from seeing in; >Grow lights: If a unit is filled with special high-intensity lights, known as "grow lights," this can be a sign that the person living there is growing marijuana; >Odors: Almost all drug manufacturing produces an odor. Sometimes the odor can be extremely foul smelling, and even dangerous. The growth of marijuana plants inside a unit gives off a strong, sweet-smelling odor. The manufacture of methamphetamine creates a very strong, pungent odor, described as similar to urine, ether, or ammonia. The heating of crack cocaine often produces a smell similar to the smell of burning electrical wires; >"Chemistry" setups: Meth and other drugs produced in crystal form are usually produced with what may resemble an old chemistry set. Look for items like glass beakers, hot plates, glass cookware, funnels, coffee filters, and plastic tubing. These items will often be set up on bathroom or kitchen countertops, near water sources and drains; >Large amount of chemicals: These chemicals could include antifreeze, camp stove fuel, gasoline, or ether; >Many packages of cold pills: These pills contain ephedrine, and are used to manufacture meth. A few packs of cold pills are nothing to be concerned about, but if staff sees tens or hundreds of packs lying around, drug manufacturing is highly likely; >Baby food jars with milky liquid inside: People who produce crack cocaine often cook and store the drug in baby food jars; >Large quantities of baking soda: This is used to make crack cocaine and small, empty bags of junk food are often used to hide drugs; >Weight scales and packaging materials: A common sign of drug selling is the presence of a weight scale and large amounts of small plastic bags for packaging of the drugs; >Plumbing alterations: Drug manufacturers will sometimes remove the fixtures in a sink or even remove a toilet completely to use the water pipes. Exposed pipes in a kitchen or bathroom may be a sign of drug manufacturing; >Deadbolt locks or hasps or doors: This may be a sign of illegal drug activity; and >Stained walls, windows, or carpets: The manufacture of drugs -especially meth - can leave mustard-colored stains on walls and ceilings and dark brown or orange stains on carpets. It can also leave burgundy colored stains on aluminum windows.   Tell staff what to do if drug activity is suspected. It should be immediately reported to upper management, who should then seek legal advice on how to proceed. Although the presence of these signs may indicate drug activity, they could also be legitimate - especially if just one of the indicators is present.   In short, staff should be aware of the signs of illegal drug activity. This higher level of awareness can assist in preventing illegal activity at your property and protect the value of the property for the owner.

FY 2018 Presidential Budget Proposals for HUD

FY 2018 Presidential Budget Proposals for HUD   The new President has presented his preliminary budget numbers to Congress and if accepted as final numbers, many HUD programs will be devastated as the result of a $6 billion cut. Following are highlights of the proposed HUD budget: The only bright spot is that funding for project-based rental assistance programs may survive the massive cuts and maintain current levels. This will hopefully maintain the basic viability of project-based assistance projects (such as Section 8); $1.3 billion reduction from the public housing operating fund. The current backlog in capital needs for public housing is $43 billion and growing at $3.4 billion annually. This 68% funding reduction will almost ensure a continued and rapid decline in the condition of public housing; $600 million cut in the public housing operating fund; Elimination of the Community Development Block Grant (CDBG) program ($3 billion); Elimination of the HOME Program (a program that provides significant soft financing for Low-Income Housing Tax Credit Projects); $300 million reduction in voucher funding (including Veterans vouchers), resulting in a loss of up to 200,000 vouchers; $42 million cut in the Section 202 program for the elderly (10%); $29 million reduction in the Section 811 program for the disabled (20%); $150 million reduction in Native American Housing funding (20%); and A cut of 5% in HUD salaries and administrative costs. As noted, this is a preliminary budget, and must work its way thorough both houses of Congress. However, this is a clear indicator that the new administration will not be friendly to domestic programs in the years ahead. We should know by summers end the true extent by which the HUD programs will be cut.

GAO Report - The Role of Syndicators in the LIHTC Program - February 16, 2017

GAO Report - The Role of Syndicators in the LIHTC Program - February 16, 2017   The Government Accountability Office (GAO) has issued its third and final report on the Low-Income Housing Tax Credit Program (LIHTC). The two prior GAO reports detailed how the IRS and State Housing Finance Agencies (HFAs) administer and oversee the program. These reports were issued on July 15, 2015 and May 11, 2016, respectively. Neither of these reports was complimentary to the IRS or the allocating agencies, and both offered recommendations for program approval.   This final report is basically an informational report on what syndicators in the LIHTC program do and how they do it. It also provides basic statistical information on the activity of syndicators for the period 2005 to 2014.   All three reports were prepared at the request of Senator Chuck Grassley (R-IA), a member of the Senate Finance Committee.   Syndicators act as intermediaries between developers and investors, and manage funds that invest in LIHTC projects. Along with the developers and State HFAs, they are one of the major players in the LIHTC program. Syndicators include specialty firms and large financial institutions.   Overall Results of the Study   19 for-profit and 13 nonprofit syndicators were studied. All the syndicators operate in multiple states and average more than 20 years of LIHTC experience.   Syndicators play several roles in the market place. They bring together developers and investors; and They oversee the development and management of the projects.   Syndicators are compensated through an acquisition fee (generally 2-5% of gross equity raised) and an annual asset management fee.   Why do Investors Use Syndicators?   There are a number of advantages to the use of syndicators by investors:   The investor may not have the capacity or expertise to directly acquire and manage a LIHTC investment; Syndicators may have exceptional knowledge of local or regional markets. This plays a role in the ability of banks to benefit from Community Reinvestment Act (CRA) requirements. Investment in LIHTC projects may help a bank receive positive consideration.   Background   Once a project is awarded tax credits from an HFA, the developer will often attempt to obtain funding from investors who will contribute equity in return for the tax credits.   The developers sell an interest in the project - either directly to investors or to a syndicator managed fund. Most investors are corporations.   Direct Investment   Investors own a "Limited" partner interest in the partnership that owns the property, with the developer normally being the "general" partner.   Only a few larger institutional investors have the capacity to fund and manage the acquisition, underwriting, and management of these complex projects. In these cases, the investors may invest directly in the project, without going into a syndicator sponsored "fund."   Syndicated Approach   Use of syndicators enables investors to invest in a fund organized and managed by a syndicator. The funds are Limited Partnerships (LPs) in which investors own the LP interest in the fund and the fund owns the LP interest in various property partnerships. Syndicators manage two types of funds:   Proprietary Funds: typically a single investor who has great control over the location of the properties; and Multi-investor funds: these funds allow an investor to diversify risk because there are several investors in the fund and the risk is shared among the investors. They also share the rewards based on the proportion of investment.   In both cases, the syndicator originates the investments, performs underwriting, and presents the investment to investors.   Most syndicators are for-profit firms that operate in multiple states. Since 1986, syndicators have closed more than $100 billion in LIHTC equity. 71% of this was raised between 2005 and 2014. About 51% of equity raised during this period was in multi-investor funds, but the majority of the funds were proprietary. Properties funded by for-profit syndicators tend to be larger than the nonprofit funded projects, and the GAO estimates that about 75% of projects placed in service from 2005 to 2014 had equity raised by syndicators.   Foreclosures   The foreclosure rate for LIHTC projects is very low (there have been no LIHTC foreclosures for funds created by regional nonprofit syndicators).   Role of Syndicators in Developing and Monitoring LIHTC Projects   Syndicators play a major role in the success of the LIHTC program, including: Connecting investors to projects; Evaluation of deals and acquisition of properties; Monitoring of projects during construction; Ongoing asset management (inspection, monitoring, and reporting on properties); Syndicators report regularly, usually through quarterly and annual financial statements, and prepare tax forms for investors. Work with underperforming projects; This includes replacement of poor-performing general partners and management agents. Some syndicators use their own funds to resolve issues, rather than allow the investors to incur losses. Dispose of interest in properties at the end of the 15-year compliance period.   Why do investors use syndicators?   Need for expertise - most investors are not experts in the LIHTC program; Lack of staff resources or interest in ongoing asset management - only a few investors have this expertise in-house; CRA considerations - banks have very limited expertise and investments in LIHTC projects may help a bank receive positive consideration toward its regulatory rating; and Size of investment - large investors use syndicators to efficiently invest large amounts of money; smaller investors may lack the capital to invest in a LIHTC project independently and will instead invest through a multi-investor fund.           How are syndicators selected?   Previous experience with the syndicator - this is a factor for both developers and investors; Tax-credit pricing; Strength of syndicator s business and quality of the portfolio; Geographic presence and expertise; Diversification of risk; and Mission - e.g., non-profit syndicators may focus on particular population groups.   The report outlined syndicator participation by state. The number of syndicators operating in each state ranges from 8 to 24. Indiana and Michigan have the most operating syndicators (24) and Hawaii the fewest (8).   For-profit syndicators raise the majority of money through proprietary funds and nonprofit syndicators raise most of their proceeds through multi-investor funds.   As noted earlier, this report was informational only. The GAO made no recommendations relative to syndicator operations or the raising of equity for LIHTC projects. The two prior GAO reports are more likely to impact upcoming comprehensive tax reform as it related to the LIHTC program.    

Small Area Fair Market Rents (SAFMRs)

Small Area Fair Market Rents (SAFMRs)   HUD publishes fair market rents for all areas of the nation. Public Housing Agencies (PHAs) use fair market rents as a guideline when determining payment standards for the Housing Choice Voucher (HCV) program. Usually, the payment standard must fall within a range of 90% to 110% of FMR. Any rents outside this range require HUD approval.   Fair Market Rents have historically been developed for three types of areas: Metropolitan Statistical Areas (MSAs): These are large metropolitan areas made up of one or more counties; HUD Metropolitan Fair Market Rent Areas (HMFAs): These are MSAs that have been divided into smaller areas by HUD; and Non-Metropolitan Counties.   On November 16, 2016, HUD published a final rule implementing small area fair market rents (SAFMRs). This new category of fair market rents is designed to improve housing access for voucher residents. The new rule will give voucher residents access to high opportunity areas with lower poverty rates.   The SAFMR is developed on a ZIP-code basis and PHAs in these areas are required to use the SAFMR when determining the HCV payment standard. HUD has specific selection criteria that must be used when determining the areas that are required to use the SAFMR:   Number of HCV s under lease; Vacancy rate of an area; Number of units in a ZIP code where the SAFMR is more than 110% of the area-wide FMR; and Percentage of voucher holders living in concentrated low-income areas relative to all renters within these areas over the entire MSA.   Beginning in fiscal year 2018, 24 areas will be required to implement the SAFMR:   Atlanta-Sandy Springs-Marietta, GA HUD Metro FMR Area; Bergen-Passaic, NJ HUD Metro FMR Area; Charlotte-Gastonia-Rock Hill, NC-SC HUD Metro FMR Area; Chicago-Joliet-Naperville, IL HUD Metro FMR Area; Colorado Springs, CO HUD Metro FMR Area; Dallas-Plano-Irving, TX Metro Division; Lauderdale-Pompano Beach-Deerfield Beach, FL Metro Division; Worth-Arlington, TX HUD Metro FMR Area; Gary, IN HUD Metro FMR Area; Hartford-West Hartford-East Hartford, CT HUD Metro FMR Area; Jackson, MS HUD Metro FMR Area; Jacksonville, FL HUD Metro FMR Area; Monmouth-Ocean, NJ HUD Metro FMR Area; North Port-Bradenton-Sarasota, FL MSA; Palm Bay-Melbourne-Titusville, FL MSA; Philadelphia-Camden-Wilmington, PA-NJ-DE-MD MSA; Pittsburgh, PA HUD Metro FMR Area; Sacramento-Arden-Arcade-Roseville, CA HUD Metro FMR Area; San Antonio-New Braunfels, TX HUD Metro FMR Area; San Diego-Carlsbad-San Marcos, CA MSA; Tampa-St. Petersburg-Clearwater, FL MSA; Urban Honolulu, HI MSA; Washington-Arlington-Alexandria, DC-VA-MD HUD Metro FMR Area; and West Palm Beach-Boca Raton-Delray Beach, FL Metro Division   These 24 areas (representing 18 states) contain 368,000 HCVs, which is 18% of all HCVs in the United States. Increased rent levels in these SAFMRs will allow vouchers to pay a higher payment standard, increasing opportunities for voucher holders.   Since the SAFMR will better match the rent in each ZIP-code, HCV rents in some ZIP-codes will go down. This is because the FMRs in certain ZIP-codes were raised by the overall rents in the MSA. As a result, some voucher holders will see a decrease in the payment standard. There is some relief provided by the rule however. If the SAFMR decreases, the PHA does not have to lower the payment standard until the second regular recertification following the effective date of the decrease in the payment standard. Also, the decrease is limited to no more than 10% of the prior year amount.   Examples of areas affected by this change include: San Diego - the downtown area and northern coastal areas of San Diego will have increases in payment standards, but the majority of the inland areas will have decreases; Atlanta - Northern Atlanta will have increases in payment standards but the southern urban areas will go down; and Washington/Northern VA - except for the east side of DC, most of Washington will see increases in the payment standard. Southeast DC will suffer significant decreases and the VA suburbs will also see decreases in payment standards.     Project-Based Vouchers (PBVs)   PBV projects are exempt from the SAFMR requirements. However, PHAs that use SAFMR can use SAFMR for new PBV projects and for existing PBV projects if the owner and PHA mutually agree. Once a PBV project elects to use SAFMR, it cannot revert back to area-wide FMRs.   Impact on LIHTC Properties   LIHTC properties are allowed to collect the full HCV payment standard, even if the payment standard exceeds the maximum allowable LIHTC rent. This could be a significant benefit in the SAFMR areas since the allowable rents for HCV residents could go up. However, as noted earlier, in some ZIP-codes, the payment standards will decrease, and when that happens, the amount collected by LIHTC projects may also go down.   If the payment standard goes below the allowable LIHTC rent, owners will have some decisions to make. The HCV regulations permit residents to pay up to 40% of income when they move in if the rent on the unit is greater than the payment standard. However, if this 40% of income payment still does not come up to the allowable LIHTC rent, owners will have to decide whether to take a lower rent than permitted by the tax credit regulations or decline the voucher resident. While LIHTC properties may not refuse to accept voucher residents simply on the basis of the resident having a voucher, the properties are not required to accept rents lower than the amount collected from non-voucher residents.    

Occupancy Rights of Domestic Violence Victims Who Are Not the Eligible Voucher Holder

Reminder to PHAs: Domestic Violence Victims May Have Occupancy Rights Even if They are not the Eligible Tenant Under the Voucher Program   A recent court case (A. S. v. Been, January 2017) serves as a reminder to PHAs that victims of domestic violence have VAWA protection even if the perpetrator of the violence is the eligible tenant.   In this case, a Section 8 voucher resident claimed that her husband attempted to rape her. She obtained an Order of Protection and submitted a HUD-91066 form to the PHA to initiate a lease bifurcation action in accordance with VAWA.   The husband was the holder of the voucher and the victim sought to have the voucher transferred to her name.   After a number of hearings and procedures, the PHA terminated the husband s voucher with no mention of a process to appeal the decision. The wife filed suit to force the PHA to transfer the voucher and the PHA asked the court to dismiss the case. The PHA s reasoning was that since the voucher was not in the wife s name, she had no protected property interest. The wife argued that VAWA establishes that she had a protected property interest.   A New York district court denied the PHA request and ordered a trial. The court s reasoning was: The PHA is subject to VAWA; VAWA allows a victim the opportunity to seek eligibility to receive the voucher if the PHA terminates the husband s voucher; VAWA expressly provides for a bifurcation procedure to protect victims of domestic violence; VAWA s bifurcation procedure allows PHAs to terminate assistance to any individual who engages in domestic violence without "penalizing a victim of such criminal activity who is also a tenant or lawful occupant of the housing." The statute also states that if the individual who is removed due to the perpetration of domestic violence is the "sole tenant eligible to receive assistance under a covered housing program," the PHA "shall provide any remaining tenant an opportunity to establish eligibility for the covered housing program;" and The court indicated that the law gives occupants of a unit who are not the voucher holders themselves some interest in the voucher.   The conclusion here is that lawful occupants of a unit assisted through the voucher program are protected by VAWA, including the lease bifurcation provisions.

Owner Verification Procedures When Noncitizens Claim VAWA Protection

Verification Procedures When Noncitizens Claim VAWA Protection   On December 15, 2016, HUD issued a General Counsel Memo. This memo relates to noncitizen "self-petitioner" procedures under the Violence Against Women Act (VAWA), and applies to public housing, Housing Choice Vouchers (including project-based vouchers), Section 8 Project-based assistance, Section 236 rental assistance, Rent Supplement, Flexible Subsidy and Section 221(d)(3) BMIR programs. VAWA self-petitioners are those who claim to be victims of "battery or extreme cruelty." Battery or extreme cruelty includes domestic violence, dating violence, sexual assault, and stalking. VAWA allows these noncitizens to self-petition for Lawful Permanent Resident (LPR) status without the cooperation of knowledge of their abusive relative. Section 214 of the Housing & Community Development Act of 1980 states that HUD may not allow financial assistance to ineligible noncitizens. However, assistance cannot be denied while immigration status is being verified. Self-petitioners can indicate that they are in "satisfactory immigration status" when applying for assistance or continued assistance from Section 214-covered housing providers. This is basically a self-certification of legal immigration status. Owners will make a final determination of immigration status through the Systematic Alien Verification for Entitlements (SAVE) System. Not every noncitizen victim who has been subjected to domestic violence will qualify under these procedures. In order to qualify, the noncitizen victim must have been battered or subjected to extreme cruelty by a spouse or parent, who is a U.S. citizen or lawful permanent resident (LPR). In other words, if the perpetrator is not a U.S. citizen or LPR, the victim may not claim VAWA protection. Once an owner receives a self-petition (INS Form I-360 or I-130), or INS Form 797, the owner must obtain the following information in order to complete the verification: Initiate verification in the SAVE system by Entering self-petitioners name; Enter alien ID number; and Date of birth. The system will provide one of the following responses: If there is a match, no further action is necessary; or "No match," in which case the owner must go to step 2.   Push button "Institute Additional Verification." Then type, "verify VAWA self-petition. If the applicant provided a Form I-130, type, "verify I-130." Upload one of the following documents for the applicant: I-360 VAWA Self-Petitioner; I-130 Family Based Visa Petition; I-797 Notice of Action; or Steps Undertaken by DHS: Receipt of I-130 or I-360, prima facie determination, or approval of self-petition. The SAVE system will show one of two confirmations: VAWA self-petition is verified, in which case the applicant is immediately eligible for housing and no evidence of domestic violence may be requested or collected; or The I-130 is verified, in which case the petitioner must provide to the owner evidence of "battery or extreme cruelty."   Until a final determination of LPR status is made, housing assistance and full VAWA protection must be granted to the self-petitioner. If the final determination is to deny the VAWA self-petition or LPR petition, the owner must notify the petitioner and take action to terminate voucher assistance or evict the petitioner from public housing.   It is expected that both the HUD Office of Public and Indian Housing and the Office of Housing will publish notices in the near future outlining details on how to comply with the general counsel guidance.

Determining the Income of Independent Contractors

Determining the Income of Independent Contractors   It is becoming more and more common for managers of affordable housing to have to verify the income of "gig" workers. Sometimes called "giggers," these are people who work out flexible work arrangements to provide services for one or more employers for a specified amount of time at an agreed upon rate. Examples of such contractors include Uber, Lyft, and TaskRabbit. This is a website that matches people with specific needs (e.g., running errands, assembling furniture, packing boxes) with people willing to do the work.   These contractors can make varying amounts of money from week-to-week and month-to-month. These non-traditional jobs can present verification challenges to managers.   While "temporary, nonrecurring, and sporadic" income should not generally be counted, income from ridesharing or freelance jobs is different. If these jobs are expected to continue, the income is considered "cyclical" as opposed to temporary, sporadic, and nonrecurring, and should be counted.   Documentation of Self-Employment Income   Gig drivers (e.g., Uber and Lyft) should be treated as self-employed. Self-employed individuals are required to keep track of all income and expenses - net income should be counted for housing purposes. For ridesharing drivers, allowable expenses include tolls, parking fees, maintenance, gas, and loan interest on the purchase of the vehicle. Managers should request driving logs and other documents to support vehicle expenses. This is especially important if the vehicle is used for both business and personal reasons.   A primary source of verification of self-employment is tax returns, including the Schedule C. Managers should be aware that if a self-employed individual makes $400 or more per year, the filing of a federal tax return is required.   For rideshare drivers, managers may also request a summary of payments from the rideshare company. All such companies can provide these summaries. Managers may use this summary, along with the household members Affidavit of Self-Employment, to develop an estimate of income.   For HUD projects, when no financial information is available, a notarized statement of net income may be accepted. In these cases, I recommend the self-employed individual be told that his or her income will be re-examined in 60 to 90 days and that at that time they must present legitimate income and expense documents. HUD managers may then conduct an interim recertification if there has been an increase in the income noted on the self-affidavit of $200 or more per month. It should be noted that if the income has decreased by $40 or more per month, the resident may request an interim.   Managers should not deduct accelerated depreciation of assets - only straight line depreciation may be deducted for housing purposes. If accelerated depreciation is used, an accountant s determination of the straight-line amount should be obtained.   Projecting Income When "Current Circumstances" is not the Best Indicator of Probable Income   When it is clear that a person s current circumstances are not the best estimate of likely income, HUD guidance says "to make a reasonable judgment as to the most reliable approach to estimating what the household member will receive during the year." This gives managers discretion as to the best approach to use. A review of historical earnings is often a good method. Also, if there is a legitimate reason for a reduction in income, don t automatically discount it.   On HUD projects, plan for interims. People with irregular employment are likely to experience unexpected and drastic income changes.   Ultimately, managers will have to use discretion in how the income of these gig workers will be determined, but remember - this is a type of income that must be counted.  

VAWA Deadline Reminders

VAWA Deadline Reminders   As I noted in a prior client memo, HUD has released four Model forms for use on HUD properties to ensure compliance with requirements of the Violence Against Women Act (VAWA). These model forms are Appendix A: Notice of Occupancy Rights Under the Violence Against Women Act (HUD Form-5380); Appendix B: Model Emergency Transfer Plan (HUD Form-5381) Appendix C: Certification of Domestic Violence, Dating Violence, Sexual Assault, or Stalking and Alternate Documentation (HUD Form-5382); and Appendix D: Emergency Transfer Request Form (HUD Form-5383).   Any of these forms may be modified but must retain the same information and language. I recommend using the forms as published, without alteration, for HUD properties that are subject to the HUD final rule.   There are some important deadlines associated with the use of these forms. Notice and Certification form (HUD Form-5380 and 5382). Between now and December 15, 2017, each household must be given these forms. The forms should be provided to every household that moves in, as well as households at lease renewal or annual recertification. If there will not be an annual recertification or lease renewal between now and December 15, 2017, owners/agents should make sure that a copy of each form is given to the households. I recommend hand delivery of the forms to the residents at their apartments, and ask that they sign an acknowledgement of receipt. Beginning December 16, 2017, these two forms must be provided at move-in or when assistance is denied. I do not recommend waiting until this date to begin providing the forms to move-ins and those denied assistance. I recommend beginning this process now. Providing the forms to persons on the waiting list is not Emergency Transfer Plans must be fully implemented by June 14, 2017; so, owners/agents have four months to get these plans in place. If you are going to require tenants to provide a written request for an emergency transfer, all tenants should be given a copy of the Emergency Transfer Request Form (HUD Form-5383).   HUD is planning to update the Form HUD-91066 for multifamily programs, but until they do, owners/agents of properties under HUD s Office of Multifamily Housing should use the HUD Form-5382.