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Defining "Principal Residence" for Affordable Housing Purposes

Defining "Principal Residence" for Affordable Housing Purposes   Virtually all affordable housing programs, including Section 8 and the Low-Income Housing Tax Credit (LIHTC), require that the lessees of the unit use apartments being rented under the applicable program as a "principal residence". Agencies have not provided a lot of guidance regarding how to define a "principal residence." A common definition of "principal residence" is the home that a person physically occupies and personally uses the most. The tax code provides no specific definition. With regard to tax law, whether or not a taxpayer uses a property as his principal residence depends on all the facts and circumstances in each case, including the good faith of the taxpayer. Clearly, if someone lives in the same home for years and considers it to be their only home, it is clearly a principal residence. At the same time, taking a couple of weeks vacation from the home each year does not create a situation where the home is no longer a principal residence. But what about longer absences? The IRS has provided the following example: "Professor Paul Beard, who is single, bought and moved into a house on August 28, 2001. He lived in it as his main home continuously until January 5, 2003, when he went abroad for a one-year sabbatical leave. During part of the period of leave, the house was unoccupied, and during the rest of the period, he rented it. On January 6, 2004, he sold the house at a gain. Because his leave was not a short, temporary absence, he cannot include the period of leave to meet the two-year use test." The IRS does concede that ownership and use requirements do not have to be continuous, but clearly they intend that it be the main place of residence. A recent court case in Massachusetts has provided some additional guidance on what constitutes a "principal residence." In Boston Redevelopment Authority v. Pham (2015), the Massachusetts Court of Appeals affirmed a Superior Court decision that the owner of an affordable housing condominium unit did not violate the deed, affordable housing covenant, and other documents' restrictions on the use of the unit as the owner's principal residence by using the unit as the home base for extensive business travel and by taking roommates to share housing costs. While this case involved a condo purchase and not a rental apartment, the definitional issues considered by the court are instructional for rental housing. The condominium covenant required Pham to occupy the unit as his principal residence. The determination of whether he occupied the unit as his principal residence is a mixed question of law and fact. As the phrase "occupy as principal residence" was not defined in the covenant or other documents (and it is not usually defined in rental leases), the trial court reasonably considered factors such as: (1) Pham neither leased nor owned property elsewhere; (2) he used the unit as his home base despite his extensive work-related travel; (3) Pham kept a room in the unit and was physically present there for one to two weeks per month; (4) he maintained his valuable personal possessions there; (5) he identified the unit as his tax address and address for other official purposes; and (6) he kept the utilities in his name and paid those bills. Leases generally do not prevent residents of affordable housing from taking jobs demanding frequent travel, assuming they maintain the affordable housing unit as their home. Such restrictions would conflict with the goals of aiding persons of moderate and middle income. The court found that Pham was an owner/occupier of the unit for residential purposes, and had not leased the entire unit for business, speculative, or investment purposes. When determining whether an affordable unit is the principal residence, the issues noted above should be considered. Basically, it will boil down to a "facts and circumstance" test, but if it is clear that the apartment is the primary home of the resident - even if they are gone for extended periods of time - it should be considered the principal residence.

HUD Publishes Major Rule Changes for Public Housing, Housing Choice Voucher and Multifamily Housing Programs

On March 3, 2016, HUD published in the Federal Register a new rule on Streamlining Administrative Regulations for Public Housing (PH), Housing Choice Voucher (HCV), Multifamily Housing (MFH) and Community Planning & Development (CPD) Programs.   The Department of Housing & Urban Development Appropriations Act, 2014, made several changes to the United States Housing Act of 1937. HUD published notices implementing these changes on May 19, 2014, and June 25, 2014. A HUD proposed rule on January 6, 2015, codified the changes in regulation. This final rule makes changes to the January 2015 proposed rule, and will be effective on April 3, 2016.   Background   The 2014 Appropriations Act made changes to the 1937 Act, such as allowing for biennial physical inspections of certain assisted properties and permitting alternative inspection methods; codifying the definition of extremely low-income (ELI); capping utility allowances at the lesser of unit size on the voucher or the size of the unit leased by the family.   The rule affects the public housing program, the Housing Choice Voucher Program, some CPD programs and the following MFH programs: Project-based Section 8; Section 8 Moderate-Rehabilitation; Rent Supplement; Section 202 (both PAC & PRAC); Section 811 (both PRA & PRAC); Section 236; Rental Assistance Program (RAP); and Section 221(d)(3) and (d)(5).   Major Changes Made by the Final Rule Affecting Multifamily Housing Programs Definition of Extremely Low-Income (ELI): The 2014 Appropriations Act changed the definition of ELI to mean a very low-income family whose income does not exceed the higher of 30% of Area Median Income (AMI) or the poverty level. This final rule adds the term "very low-income" to the definition of who is eligible under the ELI definition. This means that households with income between 30% and 50% of AMI will be eligible as ELI. [No action is required by owners since HUD will reflect this in the published program income limits]. Use of Actual Past Income: the proposed rule would have required owners to use one definition of annual income (either actual past income or projected income) for all families in a program. Comments to the proposed rule objected to the use of past income due the difficulty in determining proper rent based on past income and correlating current expenses such as child care and medical expenses to past income. Given the concerns to the proposed rule, HUD has decided not to adopt the use of actual past income in the final rule. This means that owners and PHAs will continue to project income using guidance currently in place. Streamlined Annual Reexamination for Fixed Incomes: The proposed rule permitted PHAs and owners to conduct streamlined income redeterminations for fixed-income households (once every three years). The final rule revises this provision to provide PHAs and owners with the option of conducting a streamlined income redetermination for any fixed-income source, regardless of whether a family or individual also has a non-fixed source of income. This means that the regulation no longer requires a family to have 100% of its income from fixed sources. The final rule also adopts an expanded list of fixed income sources. In addition to pensions and retirement, income from annuities or other retirement benefit programs, insurance policies, disability or death benefits or other similar types of periodic receipts will all be considered fixed income. If a family member receives an income from any of these sources and the income consists solely of periodic payments at reasonably predictable levels, the income source may be considered "fixed." The regulation still requires verification of medical expenses and other deductions from gross income for fixed-income families. Procedures currently in place may be used for such verifications. HUD will not adopt the use of self-certification of medical expenses and other deductions due to the risk of improper payment of subsidy. The final rule makes clear that a full examination of income must be conducted upon admission to a program. PHAs and owners that choose to adopt the streamlined income redetermination, a full reexamination of family income must be performed at least every three years. Owners should also remember that non-fixed income, such as employment, will still require annual verification. Family Declaration of Assets Under $5,000: The final rule will permit the Public Housing and Housing Choice Voucher programs to accept family affidavits when assets are $5,000 or less. At admission, all assets of a family will be verified as is the current practice. The final rule also requires a PHA to obtain third party verification of all assets every three years. While this rule currently applies only to public housing and HCV programs, the Office of Multifamily Housing Programs, which operates various rental assistance programs (including Section 8), will issue an interim final rule to expand this provision to multifamily programs. In addition to the changes outlined above that impact the MFH programs, a number of changes are specific to public housing and the Housing Choice Voucher Program. A brief description of those changes follows: Utility Reimbursements: PHAs will have the option of making utility reimbursement payments "quarterly," rather than monthly for reimbursements of $45 or less per quarter. If the PHA opts to make the payments on a quarterly basis, the PHA must institute a hardship policy. This change is optional and PHAs may continue to make UA reimbursements monthly. Alternative reimbursement methods such as debit cards may be used, but no fees may be required of a tenant as a result of the alternative method. PHAs may also continue to make payment directly to the utility company. It should be noted that HUD is exploring the possibility of expanding this option to MFH programs. Public Housing Rents for Mixed-Income Families: the final rule permits PHAs to accept a tenant s self-certification of compliance with community service requirements. HUD is requiring PHAs to review a sample of self-certifications and validate their accuracy with using third party verification procedures. Biennial Inspections and Use of Alternative Inspection Methods: PHAs may conduct HQS inspections on a biennial rather than an annual basis. Alternative inspections (e.g., LIHTC or HOME inspections) may also be relied on if HCV units are included in the population of units forming the basis of the sample. HUD approval for any alternative method is required. Housing Quality Standards (HQS) Reinspection Fees: The final rule states that a reinspection fee may be charged only if an owner stated that a deficiency had been fixed and the deficiency is found during reinspection to still exist or if a reinspection conducted after the expiration of the timeframe for repairs reveals that the correction has not occurred. Exception Payment Standards for Providing Reasonable Accommodations: the final rule allows a PHA to approve a HCV payment standard of not more than 120% of the FMR without HUD approval if required as a reasonable accommodation. Family Income & Composition: the final rule eliminates the requirement that s voucher agency conduct a reexamination of income whenever a new family member is added. This rule already exists for Public Housing. Note: MFH programs must continue to conduct interim recertifications when there is a change in household composition. Earned Income Disregard {EID} (applies to public housing, HCV ([not project-based vouchers], Section 811 Supportive Housing Program, HOME, and HOPWA): The final rule will provide tenants with the ability to start and stop employment and still retain the benefits of the EID. However, these residents may only receive the benefit for up to 24 consecutive months from the date of initial increase in annual income. If an individual becomes eligible to receive the EID, the 24-month period will not stop if the circumstances that triggered the EID cease; however, if the individual experiences an event that would again provide an EID benefit during the 24-month period, the individual will be provided the rent incentive. This change is retroactive to families that began the 24-month period prior to the final regulation.   These are fairly extensive changes to current regulations, especially for public housing agencies administering the HCV and public housing programs. HUD will be updating applicable Handbooks to incorporate these changes into the various programs, but in the meantime, program participants should review the final rule and begin establishing procedures implementing the required changes. Changes are minimal for the MFH programs (such as project-based Section 8) and virtually non-existent for the Low-Income Housing Tax Credit Program (which follows the guidance provided by HUD Multifamily Housing).  

National Housing Trust Fund Money Now Available

National Housing Trust Fund   The National Housing Trust Fund (NHTF) was established as part of HERA 2008, and will provide communities with funds to build, preserve and rehabilitate rental homes that are affordable for extremely low and very low-income households. Program funds have now been released to the states.   The NHTF is a permanent program, with a dedicated source of funding not subject to the annual Congressional appropriations process. Funding comes from the operations of Fannie Mae and Freddie Mac, and there is no requirement that states provide matching funds.   It is targeted toward rental housing. At least 90% of the funds must be used for the production, preservation, rehabilitation, or operation of rental housing. Up to 10% of the funding may be used for homeownership for first-time homebuyers.   The program is targeted to extremely low-income households. At least 75% of the funds for rental housing must benefit extremely low-income households (30% of AMGI or 30% of the poverty level, whichever is higher) and up to 75% can benefit very low-income households 50% of AMGI).   How is the money distributed and administered?   The money is distributed as block grants to states by a formula developed by HUD. 75% of the formula has been given to two factors that reflect the shortage of rental housing that is affordable and available to extremely low-income households, and that reflect the extent to which extremely low-income renter households are paying more than half of their income for rent and utilities.   The funds will be administered by state agencies. To date, nearly 40 states have named the administering agencies.   Each state must prepare an annual allocation plan showing how it will distribute NHTF resources based on prioritized housing needs. The allocation plan must give priority for funding based on the following factors:   >Geographic diversity as reflected in the state's Consolidated Plan;   >The extent to which rents will be affordable, especially for ELI households;   >The length of time rents will remain affordable; >The merits of an applicant's proposed activity (e.g., housing accessible to transit or employment centers; housing that includes greenbuilding and sustainable elements; and housing that serves people with special needs); >The use of other funding sources; and   >The applicant's ability to obligate the NHTF dollars and undertake the funded activities in a timely manner.   States must commit funds within two years. Uncommitted funds will be recaptured by HUD and distributed to other states. All funds must be spent within five years.   HUD's interim NHTF regulations establish maximum rents for NHTF units at no more than 30% of the greater of either 30% of the federal poverty line or 30% of the AMGI.   The interim rule requires units to be affordable for at least 30 years.   The statute considers the NHTF to be "federal financial assistance" for the purposes of federal civil rights laws, meaning that properties will be subject to Section 504 of the Rehabilitation Act of 1973, the Age Discrimination Act of 1973, and the Uniform Relocation Act. However, use of NHTF funds will apparently not trigger Davis-Bacon prevailing wage rates.   Developers interested in potential participation in the program should contact the Agency in their state that will be administering the program.    

Airbnb and Affordable Housing

Airbnb: A Potential Challenge for Affordable Housing Properties   Airbnb is a website for people to list, find, and rent lodging. It has over 1.5 million listings in 190 countries. Users of the system must register and create an online profile before using the site. Every property is associated with a host whose profile includes recommendations by other users, reviews by previous guests, as well as a response rating and private messaging system.   Users have full control over who books their home. When a potential guest puts in a reservation request, the host has at least 24 hours to accept or decline the request. After the user accepts the reservation, they can coordinate meeting times and contact information with guests.   Implications for LIHTC properties   Transient use: if a low-income housing tax credit resident subleases a LIHTC unit using the service, the unit will be used on a "transient" basis - a use prohibited by 42 rules. Discovery by the state could result in a loss of credits for the unit.   2.Continuous Residency Requirement: In order to qualify as a low-income unit when under tenancy, a unit must be 'continuously occupied.' This does not mean that the resident may never leave the unit, but it does mean that the unit must be in the possession of the resident at all times. Once the unit is subleased under the Airbnb program, the question of 'continuous use' could be raised by the HFA.   Lease Violations: If the LIHTC lease has been properly prepared, the Airbnb use would constitute lease violations based on unauthorized occupants and subletting - both should be lease violations for a 42 lease.   Fair Housing Implications: if a tenant violates fair housing law in the process of subleasing the apartment, it is possible that the owner of the property could be deemed liable for the violation, especially if they knew - or should have known - that the practice was occurring.   Incidents & Renters Security: There have been cases where Airbnb guests stole from the host home. In most of these cases, Airbnb was not responsive to the claims of the lessor. There is also the possibility that the unit could be rented for illegal purposes. In 2012, two prostitutes rented an apartment in Sweden that the police raided. In July 2014 in California, a guest refused to leave the apartment of an Airbnb host after paying a month's rent. Under CA law, once someone rents an apartment for up to a month, that person is considered a tenant on a month-to-month lease. The host had to hire a lawyer and initiate a legal eviction process.   Financial, tax, and legal liabilities: A 2011 New York State law prohibits renting residential units for less than 29 days, with certain exceptions. Airbnb has asked the state legislature for legalization in return for the collection of hotel taxes. Airbnb style rentals create legal issues in many cities, including Airbnb's home city, San Francisco until a recent change in the law permitted the use.   While there have been no widespread reports of LIHTC residents renting out their apartments under the Airbnb program, it is just a matter of time before it happens. Owners and managers of LIHTC properties should be proactive in the prevention of this practice. Steps that can be taken include:   Review the lease terms. Make sure the lease includes prohibitions on subletting and a requirement that notification of all new occupants - including any overnight guests staying multiple nights (e.g., three nights or more) - be required.   Send letter to all current residents reminding them of the residency rules and specifically note that subletting of any type and for any length of time is a lease violation and will result in lease termination.   The holidays are the most popular time for Airbnb users, so be particularly aware of strangers at the property during these periods.   Owners in areas where Airbnbs are a common form of short-term rental (e.g., resorts, urban areas, etc.) may consider being even more proactive by establishing an Airbnb account and scanning the site occasionally to see if any of the property s units are being offered for rent.   While this is certainly not a major issue for LIHTC (and other affordable housing properties) at this time, it is just one more thing for owners and managers to be aware of and take steps to prevent.

IRS Issues Final and Temporary Regulations Regarding Utility Allowances

Utility Allowance Final and Temporary Regulations   The IRS published Final and Temporary Regulations relating to Utility Allowances for Low-Income Housing (LIHTC) properties in the March 3, 2016 Federal Register.   The final regulations clarify the circumstances in which utility costs paid by a tenant based on actual consumption in a submetered rent-restricted unit are treated as paid by the tenant directly to the utility company. The regulation extends the principles of the Submetering rules to situations in which a building owner sells to tenants energy that is produced from a renewable source and that is not delivered by a local utility company.   Background   On August 7, 2012, the IRS published a Federal Register notice of proposed rulemaking that provided that utility costs paid by a tenant based on actual consumption in a submetered rent-restricted unit are treated as paid by the tenant directly to the utility company and thus do not count against the maximum rent that the building owner can charge. In these cases, the owner could establish a utility allowance in accordance with the IRS utility allowance regulation 1.42-10 for submetered utilities.   This final regulation adopts the 2012 proposed regulation and extends those rules to the provision of energy that the building owner acquires directly from renewable sources and then provides to low-income tenants (e.g., solar energy sources).   Submetering   Actual-Consumption Submetering Arrangements and Ratio Utility Billing Systems (RUBS) The 2012 proposed regulations defined an actual-consumption Submetering arrangement for utility allowance purposes as not including a ratio utility billing system (RUBS). The regulations precluded an arrangement such as RUBS from qualifying as an actual consumption Submetering arrangement. However, the regulation did not prohibit the use of RUBS for low-income housing credit projects. However, any amount paid by a tenant for utilities using RUBS must be included in gross rent. The final regulations follow this approach and continue to define an actual-consumption metering arrangement as not including RUBS. Administrative Cost of Submetering The final regulations do not include a requirement to determine actual monthly cost of administering the Submetering program, and they generally permit owners to charge tenants an administrative fee in accordance with a state or local law that specifically prescribes a dollar amount for the administrative fee. The regulation authorizes the Department of Treasury and the IRS to provide for administrative fees in excess of five dollars per month even in the absence of state or local law doing so and to put an upper limit on administrative fees even if state or local law allows higher fees. The proposed regulation limited the fee charged per unit to the lesser of (A) five dollars per month; or (B) the owner s actual monthly cost paid or incurred for administering the arrangement. If a building owner or its agent charges a unit s tenants a fee for administering an actual-consumption Submetering arrangement, the gross rent includes any amount by which the aggregate amount of monthly fees for all of the unit s utilities under one or more actual-consumption Submetering arrangements exceeds the greater of (i) five dollars per month; (ii) an amount (if any) designated by publication in the Internal Revenue Bulletin; or (iii) the lesser of a dollar amount (if any) specifically prescribed under a State or local law or a maximum amount (if any) designated by publication in the Internal Revenue Bulletin. [This essentially permits owners to charge more for administrative fees than permitted under this regulation, but any charges in excess of those permitted must be included in gross rent]. Energy Acquired Directly From a Renewable Source The proposed regulation appeared to preclude applying Submetering principles to electricity generated from renewable sources by the building owner or by some other person from whom the building owner purchases it directly. This regulation contains temporary regulations that apply those principles to energy that the building owner provides to tenants after having acquired it directly from renewable sources. However, in such cases, charges to the tenants for this energy must be comparable to local utility rates. Charges by the building owner must not exceed the rates that the local utility company would have charged the tenants if they had instead acquired the energy from that company. [E.g., if an owner charges residents for electricity generated by solar power, the amount charged may not exceed the amount the residents would pay for electricity provided by the local utility company].   Issues Relating to Utility Allowances Generally   Role of Agencies Regarding the Utility Allowance Methods A significant change with regard to the state agency role in the final regulations is that Agency approval will only be required for qualified professionals that are not properly licensed engineers [the current requirement is that the agencies approve both qualified professionals and licensed engineers]. An agency continues to have the option to review, and take appropriate action regarding, utility estimates based on the energy consumption model or the other optional methods. The regulation continues to allow an Agency to approve or disapprove a method or to require certain information before permitting use of an energy consumption model. Also, an Agency should have the ability to review the energy consumption model even when a properly licensed engineer, who is not subject to Agency approval, uses the model. The final regulations specifically authorize an Agency to approve or disapprove use of the energy consumption model or require information about the model before permitting its use, regardless of the type of professional that calculates the utility estimates. Use of Consumption Data for the Energy Consumption Model The final regulations remove the requirement that an energy consumption model use the building s consumption data for a particular 12-month period. Instead, the final regulations revise the specific factors used in determining estimates under the energy consumption model to include available historical data. This is due to the fact that the most recent 12 months of utility data (required under the current regulation) may not be representative of actual consumption. Areas With No Public Housing Authorities The existing regulations provide that if a building is neither an RHS-assisted building nor a HUD-regulated building and no tenant in the building receives RHS tenant assistance, then the appropriate utility allowance for the units in the building is the applicable PHA utility allowance. This creates problems in areas where there is no local PHA. The IRS is requesting comments on how the rules might best address situations in which no PHA exists. Changes in Public Housing Authority Utility Allowances The final regulation retains the requirement that if a PHA utility allowance changes, the building owner must use the new utility allowance to compute gross rents of the units due 90-days after the change. In other words, the 90-day period ends 90-days after the effective date of the revised PHA allowance. In the regulation, the IRS states that "A building owner that checks the PHA utility allowance every 60 days would have at least 30 days in which to adjust rents." HUD-Regulated Building Existing regulations defined a HUD-regulated building as one for which HUD reviews the rents and utility allowances on an annual basis. Since HUD does not review rents and utility allowances on an annual basis for all programs, the final regulations define a HUD-regulated building to mean one in which the rents and utility allowances of the building are regulated by HUD (with no requirement for an "annual" review).   Effective Dates Owners, beginning on or after March 3, 2016 may use the revised regulations. A building owner may apply the regulations to taxable years beginning prior to March 3, 2016, but are not required to do so. They may continue to use the regulations contained in IRS Regulation 1.42-10 for taxable years beginning prior to March 3, 2016. In effect, if an owner s taxable year began January 1, 2016, they may use the IRS utility allowance regulation published on March 3, 2016 or the regulations in effect prior to March 3, 2016.   Summary of Major Changes: Owners may submeter units for utilities that owners obtain directly from renewable sources instead of from utility providers. The maximum administrative fee that may be charged for submetering is changed from the lesser of (1) $5.00 per month, or (2) the owner's actual monthly costs paid or incurred for administering the arrangement, to the greater of (1) $5.00 per month; (2) an amount designated by the IRS; or (3) the lesser of a dollar amount specifically prescribed under State or local law or a maximum amount designated by the IRS. If a fee in excess of the permitted amount is charged, it must be included in gross rent. Owners are no longer required to have HFA approval when using a Licensed Engineer in the preparation of a utility allowance (HFA approval for other qualified professionals is still required). Agencies still have the ability to review and take appropriate actions relative to utility allowance estimates prepared by licensed engineers. Removes the requirement when using a consumption model to use data from a particular 12-month period, and instead requires use of available historical data. Eliminates the requirement that HUD-regulated buildings be those for which HUD reviews the rents and utility allowances on an annual basis. The requirement now is only that the building be HUD-regulated.    

HUD Funding Demonstration Program for Housing for the Elderly

The Department of Housing & Urban Development (HUD) recently announced the availability of funding of approximately $15 million under the Department's Supportive Services Demonstration for Elderly Households in HUD-Assisted Multifamily Housing. Funds obtained under this Notice must be used to fund supportive services in eligible existing HUD-assisted multifamily developments for the elderly. Supportive services eligible for support under this program include:   >Aging in place; >Transitions to institutional care; and >Housing stability, well-being, health outcomes, and health care utilization (e.g., hospitalizations, emergency room visits) associated with nursing home placement and high health care costs.   The funds are available for up to 80 grants for a three-year demonstration program and can cover the costs of full-time service coordinators, a part-time wellness nurse, and some start-up costs. There is no cost sharing or cost-matching requirement.   Applicants must submit a complete application by April 18, 2016.   AGENCY Contact: HUD staff will be available to provide clarification on the content of this NOFA. Please note that HUD staff cannot assist applicants in preparing their applications. For technical assistance in downloading an application package from Grants.gov, contact the Grants.gov help desk at 1-800-518-Grants or send an email to support@grants.gov. For programmatic information, or questions regarding specific program requirements send email to MFSC@hud.gov.

IRS Amends State LIHTC Monitoring Requirements

Amendments to LIHTC Monitoring Regulation, Revenue Procedure 2016-15   On February 25, 2016, the IRS published a proposed rule in the Federal Register that would amend the compliance monitoring duties of a state or local housing credit agency relative to the Low-Income Housing Tax Credit (LIHTC) Program. The Regulation will revise and clarify certain rules relating to the requirements to conduct physical inspections and review low-income certifications and other documentation.   Comments on the proposed regulation are due by May 25, 2016.   Simultaneously with publication of the proposed rule, the IRS issued Revenue Procedure 2016-15.   Rev. Proc 2016-15   This revenue procedure stipulates the maximum number of low-income units in a low-income housing project for which an HFA must conduct physical inspections and low-income certification reviews. The procedure also permits the physical inspection protocol established by HUD for REAC inspections to be accepted by HFAs for purposes of the Section 42 physical inspection requirements.   Background   In order to quality under the LIHTC program, a unit must be (1) rent-restricted; (2) occupied [or last occupied] by a qualified low-income household; (3) suitable for occupancy; and (4) used other than on a transient basis. The suitability of occupancy is determined by taking into consideration local health, safety, and building codes. Failure of one or more units to qualify as low-income units may result in a low-income housing project s ineligibility for the LIHTC, reduction in the amount of credit, and/or recapture of previously allowed credits.   IRS Regulation 1.42-5 requires an agency to conduct on-site inspections and perform low-income certification reviews (including documentation supporting the low-income certifications and the rent records for the tenants) for each low-income housing project.   The regulation requires an agency to conduct on site inspections of all buildings in a low-income housing project and review low-income certifications by the end of the second calendar year following the year the last building in the project is placed in service, and at least once every three years thereafter.   The regulation stipulates that the IRS may provide alternative means of meeting the review and inspection requirements and may provide exceptions to the requirements. However, the HFA must inspect no fewer than the minimum number of low-income units required by the IRS regulation.         The current regulation requires the HFA to select the low-income units for inspection in a random manner. The manner used for selection must not give advance notice that a low-income unit or low-income certifications for a particular year will or will not be inspected or reviewed. The HFA may give an owner reasonable notice that an inspection and review will occur so that the owner may notify tenants of the inspection or assemble certifications for review.   A major change in the regulation is that the IRS no longer requires that an agency select the same low-income units for on-site inspections and certification reviews. If the HFA chooses different low-income units for physical inspections and certification reviews, the units must be selected separately and in a random manner. An HFA may choose a different number of units for physical inspection and certification review, as long as at least the minimum number of low-income units is chosen in each case.   Regardless of whether there is overlap or non-overlap of selected units, except for reasonable notice, there should be no advance notification of the units to be inspected. The IRS position is that advance notice generally means no more than 30 days. Therefore, if an HFA chooses to select the same units for both physical and file inspections, the physical and file reviews may be done at the same time or separately, as long as both are done within the reasonable notice period. The period begins on the date the HFA informs the owners of the identity of the units for which the physical and file review will occur.                                                           Number of Low-Income Units for Inspection & Low-Income Certification Review   The minimum number of low-income units for which an agency must conduct physical inspections and file reviews is the lesser of: (1) 20% of the low-income units in the project rounded up to the nearest whole number of units; or (2) the minimum unit sample size set forth in the following chart:             # of Low-Income Units in Project # of Low-Income Units or Files to be Reviewed 1 1 2 2 3 3 4 4 5-6 5 7 6 8-9 7 10-11 8 12-13 9 14-16 10 17-18 11 19-21 12 22-25 13 26-29 14 30-34 15 35-40 16 41-47 17 48-56 18 57-67 19 68-81 20 82-101 21 102-130 22 131-175 23 176-257 24 258-449 25 450-1,461 26 1,462-9,999 27                   Inspection Standard   The REAC protocol is among the inspection protocols that satisfy all Section 42 physical inspection requirements. To be acceptable, the inspection must satisfy all of the following requirements: Both vacant and occupied low-income units in a low-income project must be included in the population of units from which units are selected for inspection; The inspection must comply with all requirements of the HUD REAC, including use of the most recent HUD UPCS inspection software; The inspection must be performed by HUD REAC approved inspectors; and The inspection results are sent to HUD, the results are reviewed and scored within HUD s secure system without any involvement of the inspector who conducted the inspection, and HUD makes its inspection report available. If the REAC inspection is used, the requirement that all buildings be inspected is removed, and the number of units inspected based on the REAC protocol will be acceptable (i.e., does not have to match the 1.42-5 sampling size requirements). Also, the manner in which the units are selected for inspection under the REAC protocol will be accepted.   The Agency will still have to conduct the review of tenant certifications.   Effective Date   The revenue procedure is effective on February 25, 2016. Agencies using the REAC protocol as part of the Physical Inspections Pilot Program may rely on these provisions for on-site inspections and low-income certification review occurring between January 1, 2015 and February 25, 2016.

Verifying the Need for a Live-in Aide in Low-Income Housing Tax Credit Properties

Verifying the Need for a Live-in Aide in Low-Income Housing Tax Credit Properties   Most housing managers are aware that due to the requirements of fair housing law, properties must at times allow someone to live with a disabled resident in order to provide necessary services to that resident. The may be the case even when the person providing the supportive services would not normally be qualified to live at the property (e.g., a 25-year old living in a senior property). In the industry, such as person is often referred to as a "live-in aide," or "live-n caregiver."   Both federal and state law governs the process of reviewing and approving reasonable accommodation requests. The request to have a live-in aide is a reasonable accommodation request. It is important to note that when verifying the need for an accommodation, managers may not require an applicant or residents medical records. A simple statement of need by a medical professional is what may be requested; the medical professional should not provide any information relative to the medical condition of the resident.   Fair housing law also states that the need for a reasonable accommodation cannot be required if the person s disability is obvious or otherwise known to the housing provider. So, how far can an owner of a housing complex go in determining and verifying the need for a live-in aide?   One type of disability discrimination prohibited by the Fair Housing Act (FHA) is the refusal to make reasonable accommodations in rules, policies, practices, or services when such accommodations may be necessary to afford a person with a disability the equal opportunity to use and enjoy a dwelling. This requirement is outlined in 42 U.S.C. 3604(f)(3)(B).   The FHA defines a person with a disability to include (1) individuals with a physical or mental impairment that substantially limits one or more major life activities; (2) individuals who are regarded as having such an impairment; and (3) individuals with a record of such an impairment.   The term "physical or mental impairment" includes, but is not limited to, such diseases and conditions as orthopedic, visual, speech and hearing impairments, cerebral palsy, autism, epilepsy, muscular dystrophy, multiple sclerosis, cancer, heart disease, diabetes, HIV, mental retardation, emotional illness, drug addition (other than addiction caused by current, illegal use of a controlled substance) and alcoholism.   The term "substantially limits" suggests that the limitation is "significant" or "to a large degree."   The term "major life activity" means those activities that are of central importance to daily life, such as seeing, hearing, walking, breathing, performing manual tasks, caring for one s self, learning and speaking. [The Supreme Court has questioned but has not yet ruled on whether "working" is considered to be a major life activity. If it is a major life activity, the Court noted that a claimant would be required to show an inability to work in a "broad range of jobs" rather than a specific job].   For purposes of the FHA, a "reasonable accommodation" is a change, exception, or adjustment to a rule, policy, practice, or service that may be necessary for a person with a disability to have an equal opportunity to use and enjoy a dwelling, including public and common use spaces. Since rules, policies, practices, and services may have a different effect on persons with disabilities than on other persons, treating persons with disabilities exactly the same as others will sometimes deny them an equal opportunity to use and enjoy a dwelling.   In the case of the issue of Live-in Aides, the affected rule or policy is the HUD rule (which governs income eligibility for Low-Income Housing Tax Credit [LIHTC] projects,) that requires the counting of all members of a household for purposes of income when determining the eligibility of a household. Since a live-in aide is not considered a household member for eligibility purposes under the LIHTC program, their ability to reside in a unit is dependent on the granting of a reasonable accommodation to a disabled resident. I will cover the specific HUD requirements relative to documentation of a live-in aide below.   A housing provider may deny a request for a reasonable accommodation if the request is not made by or on behalf of a person with a disability or if there is no disability-related need for the accommodation. A request for a reasonable accommodation may also be denied if providing the accommodation is not reasonable - i.e., it would impose an undue financial and administrative burden on the housing provider or it would fundamentally alter the nature of the provider s operations.   When may a housing provider require verification of the need for an accommodation? A housing provider is entitled to obtain information that is necessary to evaluate if a requested reasonable accommodation may be necessary because of a disability. If a person s disability is obvious, or otherwise known to the provider, and if the need for the requested accommodation is also readily apparent or known, then the provider may not request any additional information about the requester s disability or the disability-related need for the accommodation.   If the requester s disability is known or readily apparent to the provider, but the need for the accommodation is not readily apparent or known, the provider may request only information that is necessary to evaluate the disability-related need for the accommodation. An example was provided in the "Joint Statement of the Department of Housing & Urban Development and the Department of Justice - Reasonable Accommodations Under the Fair Housing Act." The example states, "A rental applicant who uses a wheelchair advises a housing provider that he wishes to keep an assistance dog in the unit even though the housing provider has a "no pets" policy. The applicant s disability is readily apparent but the need for an assistance animal is not obvious to the provider. The housing provider may ask the applicant to provide information about the disability-related need for the dog." This is a relevant example with regard to the need for a live-in aide, since while a resident may be clearly disabled, housing providers are rarely qualified to determine whether a live-in aide is needed in order for the resident to have full use and enjoyment of the premises. The HUD and DOJ position regarding the information a housing provider may request in support of a requested accommodation is that while a housing provider may not ordinarily inquire as to the nature and severity of an individual s disability, the provider may request reliable disability-related information that (1) is necessary to verify that the person meets the Act s definition of disability, (2) describes the needed accommodation, and (3) shows the relationship between the person s disability and the need for the requested accommodation. Depending on the individual s circumstances, information verifying that the person meets the Act s definition of disability can usually be provided by the individual himself or herself (e.g., proof that an individual under 65 years of age receives SSI or Social Security Disability Insurance benefits or a credible statement by the individual). A doctor or other medical professional, a peer support group, a non-medical service agency, or a reliable third party who is in a position to know about the individual s disability may also provide verification of a disability. In most cases, an individual s medical records or detailed information about the nature of a disability is not necessary for the inquiry.   Once a housing provider has established that a person meets the Act s definition of a disability, the provider s request for documentation should seek only the information that is necessary to evaluate if the reasonable accommodation is needed because of a disability. Such information must be kept confidential and must not be shared with other persons unless they need the information to make or assess a decision to grant or deny a reasonable accommodation request or unless disclosure is required by law.   HUD Handbook 4350.3, Chg. 4, 3-6.E.3.a outlines the HUD definition of and requirements for the approval of a live-in aide. Based on HUD regulation, (which must be followed when determining who to count for income eligibility purposes for LIHTC properties), a live-in aide is a person who resides with one or more elderly persons, near-elderly persons, or persons with disabilities, and who: (1) is determined to be essential to the care and well-being of the person(s); (2) is not obligated for the support of the persons(s); and (3) would not be living in the unit except to provide the necessary supportive services.   To qualify as a live-in aide, the owner must verify the need for the live-in aide. Verification that the live-in aide is needed to provide the necessary supportive services essential to the care and well being of the person must be obtained from the person's physician, psychiatrist or other medical practitioner or health care provider. The owner must approve a live-in aide if needed as a reasonable accommodation in accordance with 24 CFR Part 8 to make the housing accessible to and usable by the family member with a disability. The owner may verify whether the live-in aide is necessary only to the extent necessary to document that applicants or tenants who have requested a live-in aide have a disability-related need for the requested accommodation. The owner may not require applicants or tenants to provide access to confidential medical records or to submit to a physical examination.   A live-in aide qualifies for occupancy only as long as the individual needing supportive services requires the aide's services and remains a tenant. The live-in aide may not qualify for continued occupancy as a remaining family member.   Income of a live-in aide is excluded from annual income.   As noted above, HUD regulations require that verification of the need for a live-in aide be obtained from a medical professional in order to not count the aide as a household member for eligibility purposes. Since this is an issue that impacts the income eligibility of a household, and LIHTC properties are required to determine income in accordance with HUD requirements, owners should obtain verification of the need for a live-in aide. Some owners may take the position that if it is clear that the applicant/resident needs a live-in aide, verification by a medical professional cannot be required. This is correct, but care should be taken in this area. The primary weakness with this position is that few housing managers are qualified to provide an opinion of need relative to a live-in aide. A person who appears to have very a debilitating disability may well be able to care for themselves, while a person with no apparent disability may need a live-in aide. For this reason, I recommend that except in very unusual cases, a medical professional s verification of the need for a live-in aide be obtained for LIHTC properties.