News

HUD Notice on Revised Independent Student Rules, September 21, 2016

HUD published a Notice in the September 21, 2016 Federal Register, effective immediately, revising the rules regarding eligibility of independent students for Section 8 housing.   Background   The final rule establishing eligibility of students for Section 8 assistance was published on December 30, 2005, and updated on April 10, 2006. The rule required that a student at an Institution of Higher Education meet certain requirements in order to be eligible for Section 8 rental assistance. In order to be eligible, the student had to either be independent of their parents for at least one year, or be an "independent student" as defined by the United States Department of Education (ED). An "independent student" was one who met any one of the following requirements: Age 24 or older; A veteran of the U.S. military; Married; or Have a child or children who are dependents for IRS purposes. If a student did not meet one of these requirements, he or she could still be deemed eligible if they: Are of legal contract age under state law; Established a household separate from their parents or guardians for at least one year prior to applying at the property; Were not claimed as dependents on a federal tax return by their parents; and Obtain a certification of financial assistance (even if none is provided) from their parents.   If the student could not meet either of these tests, they could still qualify if their parent(s) would qualify for Section 8 assistance in the locality where the parents lived.   The purpose of this Notice is to update the definition of an "independent student."   The Changes   In 2007, the ED amended the definition of "independent student" by adding additional provisions: It expanded orphans or wards of the court to include orphans, children in foster care, or who were wards of the court at any time from age 13 on; Added students who are or were emancipated or in legal guardianship immediately prior to turning 18; and Unaccompanied youths who are homeless or at risk of homelessness.   HUD is now conforming its definition of "independent student" with that of the ED. The revised definition of an "independent student" is an individual who: Is age 24 or older by December 31 of the award year; Is an orphan, in Foster Care, or a Ward of the Court, or was an orphan, in Foster Care, or a Ward of the Court at any time from age 13; Immediately prior to the age of majority, was an emancipated minor or in legal guardianship as determined by a court; Is a veteran of the United States military or on active duty for other than training (i.e., not Guard or Reserve); Is a graduate or professional student; Is married; Has legal dependents other than a spouse; or Was verified during the school year as either an unaccompanied youth who is homeless or at risk of homelessness and is self-supporting. This must be verified by A local educational agency s homeless liaison; The director (or designee) or a program funded under the Runaway & Homeless Youth Act; The director of a program funded under Subtitle B of Title IV of the McKinney-Vento Homeless Assistance Act; or A financial aid administrator   Requirements for verifying a student s independence from his or her parents have also been amended. Many of these youth are not connected to their parents or caregivers, so HUD is clarifying that the tax return requirement only applies to the student s tax returns.   Students who are orphans, in Foster Care, wards of the court from age 18, emancipated or under legal guardianship, homeless or at risk of homelessness are considered "vulnerable youth." In this case, they are automatically considered an "independent student."   When determining a student s independence from parents, all of the following are required: Review and verification of previous address information in order to confirm a separate household; Review of student s prior year tax returns to verify independence; and A written certification of support or nonsupport from the parent(s). If any of these three requirements are not met, proof of the parents eligibility for Section 8 assistance is required.   This Notice focuses on students under age 24 who are not residing with their parents and who are seeking individual assistance.

Fair Housing Guidance for Persons with Limited English Proficiency, September 15, 2016

On September 15, 2016, the HUD Office of General Counsel provided guidance on Fair Housing Act protections for persons with Limited English Proficiency (LEP). The guidance discusses how the Fair Housing Act (FHA) applies to housing providers when dealing with individuals with limited abilities relating reading, writing, speaking, or understanding English. The guidance addresses how the disparate treatment and discriminatory treatment provisions of the FHA will apply in these cases. Owners of properties that receive federal financial assistance have greater obligations to provide meaningful access to LEP persons under Title VI of the Civil Rights Act of 1964. This guidance does not apply to those properties.   Background   Individuals with LEP are not protected under the FHA. However, the FHA prohibits housing providers from using LEP selectively based on a protected class or as a pretext for discrimination due to a protected characteristic.   Over 25 million persons in the United States are LEP (about nine percent of the total population). The link between national origin and LEP is obvious but is also supported by statistics. In the U.S., 34% of Asians and 32% of Hispanics are LEP, yet only 6% of whites and 2% of non-Hispanic whites are LEP. 61% of persons born in Latin America and 46% of persons born in Asia are LEP. Only 2% of persons born in the U.S. are LEP. Based on this data, housing decisions based on LEP generally relate to race or national origin. "National origin" means the geographic area in which a person was born or from which his or her ancestors came.   Although language discrimination is not necessarily national origin discrimination, national origin discrimination includes discrimination because an individual has the physical, cultural, or linguistic characteristics of persons from a foreign geographic area. For this reason, courts have found a link between language requirements and national origin discrimination.   National statistics demonstrate a connection between citizenship and LEP. Although discrimination against non-citizens or those with a particular immigration status is not national origin discrimination in and of itself, a requirement involving citizenship or immigration status will violate the FHA when "it has the purpose of unjustified effect of discriminating on the basis of national origin." (Quoting Espinoza v. Farah Mfg., Co.).   Intentional Discrimination   Selectively enforcing a language-related restriction based on a person s protected class violates the FHA, as does using LEP as a pretext for intentional discrimination.   The guidance states that often, "lack of English proficiency is used as a proxy for national origin discrimination." (Aghazadeh v. Me. Med. Ctr - 1999). Courts have held that language related restrictions deserve close scrutiny and should be closely examined. Justifications for language-related restrictions in housing will be looked at closely to see if the real reason for the policy is race or national origin discrimination. Any blanket refusal to deal with LEP persons will be suspect because such persons may speak English well enough to deal with essential housing-related issues or may have a friend or household member who can provide assistance as needed. Examples of suspicious policies include: Advertisements containing blanket statements such as "all tenants must speak English," Turning away any applicant who does not speak English; or Banning residents from speaking other languages other than English on the property or disparaging residents for speaking any language other than English. Intentional discrimination may also be shown by policies or practices that discriminate against persons based on their primary language. For example, if a housing provider has a policy of not renting to persons who speak a certain language, but will rent to persons who speak other languages, this is likely intentional national origin discrimination.   Some courts have recognized as legitimate the needs of employers to require that employees speak English for effective supervision, a cohesive workforce, and customer relations. However, this need does not apply in the housing context.   Disparate Impact   A housing provider violates the FHA when the provider s policy or practice has an unjustified discriminatory effect, even when the provider has no intent to discriminate. Unless a policy is necessary to serve a substantial, legitimate, nondiscriminatory interest of a housing provider, any policy that restricts access to housing based on LEP may be considered discrimination based on national origin, race, or some other protected characteristic. Even if the policy does serve the business interests of the housing provider, it will still be considered discriminatory if another, less discriminatory practice, may serve such interest.   The determination of whether a policy or practice results in a disparate impact is always fact and case-specific. However, available data may be used to support individual cases, including census data.   It is also important to remember that a policy affecting LEP persons can have a disparate impact on persons of multiple national origins. In the Faith Action for Community Equity case, a Title VI challenge to Hawaii s decision to stop offering its driver s license test in eight non-English languages, the court stated "If a policy differently affects individuals from nations where English is the primary language and nations where it is not, then the policy has a disparate impact."       If a housing provider implements a policy against non-English speakers, the provider must be able to provide evidence that there is a substantial, legitimate, and non-discriminatory reason for the policy, keeping in mind that many of the employer justifications for such a policy will not apply in the housing context.   In summary, this guidance makes it clear that selective application of a language-related policy, or use of LEP as a pretext for unequal treatment of individuals based on race, national origin, or other protected characteristics, violates the FHA. Also, even if there is no intent to discriminate, restrictions on access to housing based on LEP are likely to have a disparate impact on certain protected classes and, if not legally justified, may violate the Act under the disparate impact theory of fair housing law.    

HUD Proposed Rule - Lead Based Paint Hazards

HUD published a proposed rule in the September 1, 2016 Federal Register titled "Requirements for Notification, Evaluation, & Reduction of Lead-Based Paint Hazards in Federally Owned Residential Property & Housing Receiving Federal Assistance; Response to Elevated Blood Levels."   The proposed rule amends HUD s lead-based paint regulations on reducing blood lead levels in children under age 6 who reside in pre-1978 federally owned or assisted housing. The rule will also establish more comprehensive testing and evaluation procedures for the housing.   HUD is formally adopting the Center for Disease Control (CDC) definition of "elevated blood lead levels (EBLL)."   Comments on the proposed rule are due by October 31, 2016.   Background   In 2014, the CDC found that "lead-based paint and lead contaminated dust are the most hazardous sources of lead for U.S. children."   There remain a considerable number of assisted housing units with lead-based paint in which children under six reside. Approximately 4.3 million units are covered by the proposed rule. About 450,000 were built prior to 1978 and approximately 57,000 still contain lead-based paint hazards.   Regulatory Approach   The following types of assistance are covered by the proposed rule: Project-based assistance provided by federal agencies other than HUD (e.g., Rural Development Service); HUD Project-Based Assistance; HUD-owned and Mortgagee-in-possession multifamily properties; Public housing programs; and Tenant-based rental assistance (e.g., Housing Choice Vouchers).   The CDC s revised guidance is that children under six should not live or spend significant time in homes with lead exposure hazards.   This rule proposes to revise the Lead Safe Housing Rule (LSHR) to adopt the CDC approach to establishing a blood lead level for which an environmental intervention will occur. This is a "trigger" level at which a housing owner will have to take specific action in response to a child s elevated blood level. The rule also proposes to revise the type of hazard control undertaken when hazards are identified. In the case of multifamily projects, any unit with children under six will have to be addressed.     Proposed Protocol   When a child under six is discovered to have an EBLL, the owner or agency will have to undertake certain actions. The primary requirements will be: Conducting an environmental investigation of the unit in which the child lived at the time the blood was last sampled, and of common areas servicing the "index" unit. An "index" unit is the unit in which the child resides. Conduct interim control of lead-based paint hazards identified in the index unit. This may include specialized cleaning, repairs, maintenance, painting, and temporary containment. It may also require temporary relocation of the family. Controlling other related sources of lead exposure (e.g., lead-contaminated debris); and Request assistance of the occupants in identifying non-housing related sources of exposure (e.g., cosmetics, pottery, folk remedies, take-home exposure from the workplace, etc.).   Procedure for Environmental Investigation   The following steps would be required when conducting the investigation: A review of the findings of any previous lead-based paint inspections and investigations; Conducting a comprehensive interview of the family of the child; Conducting a risk assessment; and Augmenting the risk assessment through consultation with the local health department managing the child s EBLL case.   This proposed rule is complex and comprehensive. Owners of pre-1978 federally assisted projects that have not been cleared of lead-based paint hazards should review the entire proposed rule and make any desired comments to HUD no later than October 31, 2016.

Valuation of LIHTC Properties

The line item for property taxes is often the most costly item in a Low-Income Housing Tax Credit (LIHTC) project's operating budget.   First, it is important to understand that there is no consistency in the valuation of LIHTC projects for assessment purposes. There are differing state laws and conflicting court decisions. Many LIHTC practitioners believe that the federal government can intercede with regard to how LIHTC properties are valued. After all, the Low-Income Housing Tax Credit Program is a federal - not a state - program. However, reviewing courts have consistently found that including the credits in valuation neither violates the Constitution s Supremacy clause nor federal case law. So, this issue of how to handle valuation for real estate tax purposes is completely a state issue. The primary case in this area is Parkside Townhomes Associates v. Board of Assessment Appeals of York County (1982).   From an assessor s standpoint, the key is whether or not the state has any guidance in the form of statutes. If not, does the state allow assessors to apply case law when deciding how to handle assessments? If a state does not have a statutory requirement for the valuation of LIHTC projects, it is up to the assessor (within the confines of any state court decisions) regarding how to assess these properties.   As for my opinion on how these properties should be assessed, I believe that first, restricted rents should be used to establish value based on the income approach - not market rents. I also believe (and this is where I differ from many in our industry), that while tax credits are intangible property, they are still a value enhancer for the properties, especially in the early years of the credit period. Most case law says that an intangible asset can add value to a tangible asset. In Roehm v. County of Orange (1948), the court stated that intangible values "that cannot be separately taxed as property may be reflected in the valuation of taxable property." A more closely related case from 1991, Meadowlands, Ltd Dividend Housing Association v. City of Holland, held that in valuing a mortgage interest subsidy for low-income housing, an assessor should take into account the mortgage interest subsidy paid by the federal government to the mortgage lender. Per the court, " although the mortgage-interest subsidy is an intangible, and not taxable in and of itself, it is a value-influencing factor."   Tangible vs. Intangible Benefit   While most state statutes consider LIHTCs to be "intangible" property, the courts have not been as taxpayer friendly. Some courts have concluded that while the credit may not be tangible property, they may still be a "value enhancing" element. This is similar to the position taken in Meadowlands, noted above.   What is an "intangible" benefit? Black s Law Dictionary defines intangible property as "any property that lacks a physical existence." The Supreme Court stated in Curry v. McCanless (1939), that intangibles are "rights which are not related to physical things relationships between persons, natural or corporate, which the law recognizes by attaching to them certain sanctions enforceable in courts. The power of government over them and the protection which it gives them cannot be exerted through control over a physical thing. They can be made effective only through control over and protection afforded to those persons whose relationships are the origin of the rights."   A central question is whether an intangible asset can add value to a tangible asset. Case law says yes - and truthfully, so does common sense. In Roehm v. County Board or Orange (1948), the court stated "Intangible values that cannot be separately taxed as property may be reflected in the valuation of taxable property." The Meadowlands case cited above is closely related. It was the holding of the court that in valuing a mortgage-interest subsidy (this is similar to the HUD Section 236 and Rural Development Section 515 subsidies) for low-income housing, an assessor should take into account the mortgage interest subsidy paid by the federal government to the mortgage lender. As stated in the decision, "although the mortgage-interest subsidy is an intangible, and not taxable in and of itself, it is a value-influencing factor." Based on a consistent line of reasoning in court cases, at least some of the value associated with the LIHTC should be included in property valuation.   Market Rents vs. Restricted Rents   A clear majority of courts have ruled that restricted rents must be taken into account when assessing the value of an LIHTC property. But, what about other subsidies - such as rental assistance? The majority of court decisions addressing whether government subsidy impacts the value of low-income properties and should be included when determining value for property tax purposes have concluded that the subsidy may be considered. The general theory of the courts has been that a low-income housing contract in an investment tool for maximizing the value of the real estate. However, rents that are restricted to levels below the market do have a negative impact on value. In 1995, the Oregon Supreme Court in Bayridge Assoc. Ltd. Partnership v. Department of Revenue ruled that rent restrictions are "governmental restrictions" and require "a reduction in valuation." In the same case, the court found that the LIHTC was an "intangible" benefit.   Relevant State Court Decisions   The key issue in virtually all state court decisions has been "tangible" vs. "intangible."   Huron Ridge, LP v. Township of Ypsilanti (2005) - The Michigan Tax Tribunal determined that tax benefits were tangible since they would be part of a purchaser s evaluation. But, what if the credits had all been used? The court ruled that if the tax benefits are transferable, they must be part of the valuation. This clearly inferred that if such benefits were not transferable (i.e., no longer existed), they would not be part of the valuation.   The most dramatic case with which I am familiar was the case of Meridian West, a LIHTC property in Miami, FL. It was originally assessed at over $15 million, but was reduced to $6.3 million after a formal appeal - a decrease of 58%.   Some state courts have ruled that credits should not be considered in valuation. These include: Missouri - ruled that credits are not a characteristic of the property, but are assets with direct monetary value. However, the value is attributable to the owner -not the property; and Arizona - here, the key element in value is the restricted income - not the credits. Other states that do not include the value of the credits include Washington, Montana, and Oregon.   On the other side of the ledger, a South Dakota court ruled in Town Square LP v. Clay County Board of Equalization that "tax credits make ownership of the subject property more desirable and enhance the value of the property in the marketplace."   In Epping Senior Housing Associates, LP v. Town of Epping, a New Hampshire court ruled that since credits are part of the bundle of rights enjoyed by the owner, they should be part of the valuation.   The Kentucky Board of Tax Appeals ruled in Brandywine Apartments, Ltd. V. Madison County Property Valuation Administrator that appraisers must consider rent and income restrictions when determining the value of a property. In this case, the Richmond, KY assessor had valued the property at $1.04 million for 2014 and 2015. The owner claimed the value was $580,000 due to income and rent restrictions, and the court agreed.   In 2013, the Supreme Court of Mississippi determined that the state law requiring ignoring the value of the credit in assessments is constitutional. Mississippi law requires that the value be determined based on net operating income.   State Statutes   To my knowledge, 22 states legislate the valuation of LIHTC projects, thus avoiding the constant court challenges. However, the law remains unclear in many of these states since few have addressed both whether the LIHTC can be valued and restricted rents should be used.   Several states require assessors to use the income approach to valuation and fully exclude the tax benefits. These include New York, California, Maryland, Nebraska, Illinois, Iowa, Georgia, Utah, Pennsylvania, Arkansas, Wisconsin, Colorado, Florida, and Indiana. All these states exclude valuation of the credit.   States that have determined the credits to have tangible value include North Carolina, Connecticut, Kansas, Tennessee, and Idaho.   Valuation Methodology   I strongly believe that if the value of the credit is considered in the valuation of a property, only the remaining value should be considered. For example, after all credit has been claimed, the price offered by a new purchaser will be substantially less. After all credit has been claimed, the value of the credit is zero and the valuation of the property should be based solely on the restricted rents based on the remainder of the extended use agreement.   After reviewing many state laws and court cases on the valuation issue, I have reached some personal conclusions:   Tax credits are intangible property; Tax credits are so clearly integral to the economic viability of a project that they must be considered in the valuation; and While part of the property value is related to the credits, as the property ages the value of the credits diminishes.   These are just my observations regarding valuation of LIHTC properties. Every owner should be familiar with the procedures in their own states and be prepared to consider those procedures during the planning and underwriting phases of a project.            

HUD Update on HOME Utility Allowance Requirements - August 2016

The 2013 HOME Final Rule established revised utility allowance requirements for the HOME Program. HUD Community Planning & Development recently provided updated guidance on the timeframe for implementation of the final rule and acceptable methodologies relative to the determination of utility allowances for HOME units.   Background   The HOME statute and 24 CFR Part 92 state that gross rent for HOME units includes both the rent and utilities or a utility allowance (UA) when there are tenant-paid utilities. Participating Jurisdictions (PJs) are required to establish the UAs and to update them annually. In establishing a UA, the PJ may use the HUD Utility Schedule Model (HUSM) or any of the methods approved for establishing an allowance under the Section 42 Low-Income Housing Tax Credit Program. This utility allowance requirement is found at 24 CFR part 92.252(d) and is applicable only to projects that received a commitment of HOME funds on or after August 23, 2013.   Guidance from HUD indicates that PJs must immediately implement the UA requirements for HOME commitments made on or after the August 23, 2013 date. This is now required for all projects that are completed and occupied. Once in place, owners must comply with the UA requirements at lease renewal or as soon as feasible.   PJs may not use the UA of the local Public Housing Agency (PHA) for these projects. However, projects for which HOME funds were committed prior to August 23, 2013, may continue to use the PHA allowance.   If PJs choose not to use the HUSM, the UA must be established using a project-specific method. Such a method must be based on actual utility usage or project-specific factors (e.g., size, orientation, building materials, HVAC systems, and local climate).   Responsibility for UA Determination   The HOME rule requires that the HOME UA be established by the PJ. However, the new HUD guidance allows PJs to require owners to complete initial utility allowances and send them to the PJ for review and approval. This essentially means that the PJs are not actually required to "establish" the allowance. Staff costs for determining the initial UA - prior to project completion - is a project eligible soft-cost.   PJs may: Determine a UA with PJ staff or qualified professionals; or Require owners to use a specific method or choose from acceptable methods; or Accept a UA approved by another funder (e.g., LIHTC Housing Finance Agency) as long as the calculation uses one of the HOME approved methods.   Acceptable Methods   A PJ may accept one or more methods or require a single method. However, only one method may be used for a project. The acceptable methods are: HUSM; Multifamily Housing Utility Allowance, as outlined in Notice H-2015-4 (if this method is used, all requirements of the Notice must be followed); Utility Company estimate; LIHTC Agency estimate; or Energy Consumption Model (Engineer Model)   Owners of projects with HOME funds awarded on or after August 23, 2013, should check with the appropriate PJ on how these UA requirements will be implemented if they have not already been put into place.

Family Self Sufficiency Program for Multifamily Housing

HUD issued Notice H-2016-08 on August 26, 2016. This Notice relates to the Family Self Sufficiency (FSS) Program in Multifamily Housing. FSS is a HUD program that provides incentives and support to families in MF assisted housing to increase their earned income and reduce dependence on public assistance. The program has long been used in the public housing and voucher programs, but is now available to owners of privately owned HUD-assisted multifamily housing, such as Section 8. The program is voluntary for both owners and the families living The program is voluntary for both owners and the families living at the properties. Owners wishing to participate in the program will work with public and private resources in the development and implementation of the program. Typical family services include childcare, transportation, education, job training, employment counseling, financial literacy, and homeownership counseling. Participating families work with a five-year plan and are required to enter into an agreement with the owner. The goals are outlined in the plan, and when a family meets its goals and completes the FSS contract, they become eligible to receive funds deposited in an escrow account. The owner will establish an interest-bearing escrow account for each family. HUD will fund the account through adjustments to rental subsidy payments to the owner. If a family s rent increases due to an increase in earned income while participating in the FSS program, the owner will credit the incremental rent due to the increase in earned income to the family s escrow account. When a family completes the program, they may access the escrow funds and use them for any purpose. Funding Congress has not yet appropriated any funds for the employment of FSS coordinators in multifamily housing. However, owners may use residual receipts to assist in paying for the position of the FSS program coordinator. HUD may approve HUD may approve release of residual receipts as an advance rather than a reimbursement, on a semiannual basis. No more than six months of expenses will be advanced at one time. Owners using residual receipts to pay for FSS coordinators are exempt from the requirement to use residual receipts to offset Section 8 payments. Owners will be required to: 1. Coordinate services with local agencies; 2. Develop an Action Plan and submit to HUD for approval; 3. Recruit and screen program participants; 4. Create and execute a contract with participating families; 5. Provide service coordination, case management, or coaching; 6. Create FSS escrow accounts and manage the funds; 7. Submit quarterly reports to HUD; and 8. Comply with fair housing requirements. Participating families will be required to: 1. Execute the contract with the owner; 2. Head of household must seek and maintain suitable employment during the term of the agreement; 3. Work with the owner to set program goals; 4. Complete required activities by established deadlines; 5. Report increases in earned income immediately; 6. Become independent from welfare assistance and remain independent for at least one year before the contract term expires (this applies to all family members); and 7. Comply with the terms of the lease. Program Development & Approval Procedures Owners will be required to have a HUD-approved Action Plan before implementing an FSS program. As part of the approval process, HUD will assess the owner s ability to run an FSS program by reviewing recent Management and Occupancy Reviews (MORs) and the Financial Assessment Subsystem (FASS) score. The most recent MOR review must be Satisfactory or higher and the owner must be current in the submission of all required financial statements. The Action Plan must be comprehensive and include information on: Family demographics; Estimate of participating families; FSS family selection procedures; Incentives plan; Outreach efforts; FSS activities and supportive services; Description of funding sources; Identification of family support needs; Owner policies regarding termination of family participation; Rights of non-participating families; and Timetable for program implementation. Clearly, development of an FSS program at a HUD multifamily property will be time-consuming and labor intensive. Owners will have to decide whether The Action Plan must be comprehensive and include information on: Family demographics; Estimate of participating families; FSS family selection procedures; Incentives plan; Outreach efforts; FSS activities and supportive services; Description of funding sources; Identification of family support needs; Owner policies regarding termination of family participation; Rights of non-participating families; and Timetable for program implementation. Clearly, development of an FSS program at a HUD multifamily property will be time-consuming and labor intensive. Owners will have to decide whether Clearly, development of an FSS program at a HUD multifamily property will be time-consuming and labor intensive. Owners will have to decide whether creation of such a program will be worth the time and effort involved. One reason for consideration of the program may be the potential for extra points under State Qualified Allocation Plans (QAPs) for Section 8 properties seeking to layer Low-Income Housing Tax Credits. If a State Agency will award additional competitive points for a program such as FSS, it may be worthwhile to develop such a plan. Interested owners should obtain a copy of the Notice and examine the requirements carefully.

HUD Issues New Guidance on Multifamily Utility Allowance Determination

HUD has provided updated information to HUD Notice H-2015-04, Methodology for Completing a Multifamily Housing Utility Allowance. The additional information relates to six areas of the original HUD Notice.   Baseline Analysis Owners/Agents (O/A) are required to submit documentation to HUD or the Contract Administrator (C/A) when requesting approval of a UA. Backup information could include: Copies of tenant data received from utility providers; or Copies of printouts indicating a summary of monthly data if the tenant was able to obtain data online from their utility provider for the previous 12-months, or ten-months as the case may be; or If the O/A obtained actual monthly utility bills from the tenant, the O/A may submit a spreadsheet summarizing an average of the monthly bills. Actual utility bills may be requested at the discretion of HUD/CA. These bills, regardless of whether they are provided to HUD/CA, must be retained by the owner for three years; At the discretion of HUD/CA, there may be cases where a combination of the information noted above will have to be provided. The new guidance also establishes a limit to the age of data used in the analysis. The utility analysis should be prepared four to six months prior to the anniversary date of the contracts, with submitted data covering the prior 12-month period. Thus, at the time of contract renewal, the data used in the analysis to support the UA should generally be no more than 18-months old. Release Forms HUD has clarified that refusal by a tenant to sign a release form for release of utility information can be considered a lease violation. According to HUD, a tenant refusal to sign a release form constitutes material noncompliance with the lease agreement, as defined in the lease agreement, and repeated violations can result in termination of tenancy. Further, for properties other than 236 and 221(d)(3), not signing the release form is a violation of the regulatory obligations of the tenant found at 24 CFR 5.659(b)(1).   To add clarity to this requirement, HUD encourages owners to include language in their rules and regulation (House Rules) advising tenants of their obligation to sign release forms and to provide any information deemed necessary to administer the program, or face possible termination.   Utility Assistance as Income   HUD also provided guidance that is applicable only in California. Some utility bills in CA include a "climate credit," and the question has been raised regarding whether or not this credit should be included in the UA calculation. HUD s response is no - the California Climate Credit should not be used by owners in calculating utility allowances and should be removed from the cost totals. This is because, while the California climate credit is delivered to California residents through their utility bills, the California Public Utilities Commission (CPUC) has held that the climate credits "should not be considered a reduction in the individual customer s electricity bill." Instead of being used to offset utility allowances, California climate credits should be considered "income" for the purposes of recertification. This guidance applies only to the California Climate Credit. Questions relating to similar state or local benefits will be reviewed by HUD on a case-by-case basis.   The Factor-Based Utility Allowance Analysis   Going forward, Utility Allowance Factors (UAF) will be effective on the same date as the OCAF, which is typically February 11 of each year. Factors for 2017 will be release at the same time as the FY 2017 OCAF.   Also, the UAF will not automatically be applied to the prior year UA. HUD systems will not automatically apply the UAF to the prior year UA, nor is it the CAs responsibility. UA regulations require the owner to "submit an analysis of the project s utility allowances" for review and approval each year. This requirement extends to the factor-based years in which an owner will show how the factor was applied and identify the resulting UA recommendation.   Utility Allowance Decreases - Phase In   O/As are required to phase-in UA decreases, but only in the initial implementation of the new methodology, and only if the decrease exceeds 15% AND is equal to or greater than $10. UA phase-in eligibility is determined at the time of the first baseline analysis after implementation of Housing Notice 2015-04 only. At this time, the total decrease should be examined to determine if the decrease is more than 15% or $10 from the last UA provided. Following is an example of how a three-year phase in would be applied: Year One Current UA: $90 Decrease in First year: 40% New Calculated UA: $54 Year one UA: $77 (with a phase-in cap of 15% each year, the new capped UA is $77 ($90 minus 15%). This is the UA that is implemented in year one.   Year Two Second year UAF (applied to uncapped new UA): +2% New Actual UA: $55 ($54 + 2%) Tenant s second year capped UA: $65 ($77 minus 15%) - (The UA that is implemented in year two is $65 even though the calculated UA is $55).   Year Three Third year UAF (applied to uncapped second year UA): +2% New actual UA: $56 ($55 + 2%) Tenant s third year UA: $56 (implement the actual calculated UA as it is less than 15% lower than the prior year s UA). In this example, the phase-in occurs over two years of the cycle (baseline year, plus first factor-adjusted year). In each of the factor-adjusted years, the factor is applied to the previous year s calculated UA, i.e., what the UA would have been if there were not a cap applied because of the requirement to phase it in. After that, there is a new baseline and phase-in requirements no longer apply. Miscellaneous   HUD has clarified that a Section 811 Project Rental Assistance (PRA) property with a Rental Assistance Contract (RAC) must separate the PRA units from the project-based units when completing the utility analysis. In other units, projects of this type will conduct a separate analysis for the PRA units and the RAC units.   Owners and Agents should review this additional information in conjunction with a review of HUD Notice H-2015-04, issued on June 22, 2015. These requirements apply to the following programs: Project-based Section 8 (including Rural Housing Section 515 projects with Section 8); Section 101 Rent Supplement; Section 202/162 PAC; Section 202 PRAC; Section 202 SPRAC; Section 811 PRAC; Project Rental Assistance (PRA); Section 236; Section 236 RAP; and Section 221(d)(3) BMIR.

Potential Impact on LIHTC Projects from The Housing Opportunity Through Modernization Act of 2016

Potential Impact on LIHTC Projects from The Housing Opportunity Through Modernization Act of 2016 Congress recently passed the Housing Opportunity Through Modernization Act of 2016. While many of the changes brought about by the Act apply only to Public Housing & Vouchers, a number apply to the HUD Multifamily Programs - the Section 8 Project-Based program in particular. Regulatory guidance for this program is found in HUD Handbook 4350.3.   Only those changes that apply under 4350.3 and that are related to the methodology used to determine tenant income may be applicable to the Low-Income Housing Tax Credit (LIHTC) program, since the LIHTC program is required to follow HUD guidance specific to the Section 8 program.   While the primary HUD regulations that apply to the LIHTC program relate to the determination of household income, some of the Act s other provisions may apply tangentially to the tax credit program. This article outlines the elements of the Act that may apply to LIHTC properties.   Possible Changes not Related to Income Determination   Many LIHTC projects house voucher residents. Under prior law, any Housing Quality Standards (HQS) violation at lease renewal could slow approval and delay payment to owners. Under the new regulations, only life-threatening issues will delay payment. If corrected within 30-days, payments can begin again and missed payments may be paid retroactively. However, any HQS violation not corrected within 60-days will result in termination of the HAP and the resident will have to move.   Annual Income Reviews   The Section 8 program will no longer require annual verification of fixed income sources (e.g., SS). Since this is a recertification issue, additional guidance from the IRS will be required. It is also possible that the IRS will not address the issue at all, in which case owners will have to rely on guidance from their Housing Finance Agencies (HFA). Since this requirement is related to the method in which income is determined for Section 8 purposes, it does seem reasonable that it would also apply to LIHTC projects, and would be within the purview of HFAs to permit it.   Calculation of Income   Owners may use income determinations from other agencies (e.g., TANF, Medicaid, SNAP). This means that HFAs will be able to permit owners to use income verifications from other agencies in lieu of obtaining their own verifications. Income will not be imputed to assets unless the total cash value of the assets exceeds $50,000. This is a major change to the income calculation requirements and HUD will adjust this amount annually. For HUD purposes, residents with total assets of $50,000 or less will be able to provide affidavits stating the value of their assets. This will eliminate the requirement to verify all assets. Since this is directly related to the income verification requirements, it should apply to LIHTC properties as well. A new excluded income will be income from the Aid and Attendance program for veterans. Another possible change is that all retirement accounts will be fully excluded as assets. Current regulation only permits such exclusion if a resident or applicant is retired and taking regular payments from the retirement account.   This new Act will make some meaningful changes to a number of HUD programs, and for that reason, the LIHTC program will also be affected. However, the Act states that the changes will not be effective until HUD publishes final regulations implementing the new law. So, until HUD publishes an update 4350.3 (change 5?), owners and managers of LIHTC properties should continue to operate as they have been.