News

HUD Publishes 2015 Annual Adjustment Factors for Section 8 Rents

On February 9, 2015, HUD published a Notice in the Federal Register listing the Section 8 Housing Assistance Payments Program Annual Adjustment Factors (AAF) for fiscal year 2015. The adjustments may be made on the anniversary of assistance contracts. These adjustments are for project-based assistance only. A separate Federal Register notice will be published at a later date that will identify the inflation factors that will be used to adjust tenant-based rental assistance (e.g., vouchers).   There are three categories of Section 8 programs that use the AAFs: Category 1. Section 8 New Construction, Substantial Rehabilitation, and Moderate Rehabilitation Programs; Category 2. Section 8 Loan Management (LM) and Property Disposition (PD) programs; and Category 3. Section 8 Project-Based Certificate (PBC) program. AAFs are used to adjust contract rents for properties in these programs during the initial (i.e., pre-renewal) term of the HAP contract and for all units in the PBC program.   Because of statutory and structural distinctions among various Section 8 programs, there are separate rent adjustment procedures for the three program categories. Owners with projects in these three categories should refer to the Federal Register Notice and HUD Notices H 2002-10 (Section 8 New Construction and Substantial Rehabilitation, Loan Management, and Property Disposition) and PIH 97-57 (Moderate Rehabilitation and Project-Based Certificates) for details.   AAFs are not used for renewal rents, budget-based rents, tenant-based certificate program or the voucher program.   AAF Tables 1 and 2 are posted on the HUD User Web site at http://www.huduser.org/portal/datasets/aaf.html. There are two columns in each AAF table. The first column is used to adjust contract rent for rental units where the highest cost utility is included in the contract rent, i.e., where the owner pays for the highest cost utility. The second column is used where the highest cost utility is not included in the contract rent, i.e., where the tenant pays for the highest cost utility.   For the Category 1 projects, Table 1 is used for units occupied by a new family since the last annual contract anniversary. Table 2 is used for a unit occupied by the same family as at the time of the last annual contract anniversary.   For Category 2 projects, Table 1 is used for units occupied by a new family since the last annual contract anniversary. Table 2 is used for a unit occupied by the same family as at the time of the last annual contract anniversary.   For Category 3 projects, Table 2 is always used and is applied prior to determining rent reasonableness.   To make certain that they are using the correct AAFs, users should refer to the area definitions table of the website noted above. This table lists CPI areas in alphabetical order by state, and the associated Census region is shown next to each state name. In the six New England states, the listings are for counties or parts of counties as defined by towns or cities. The remaining counties use the CPI for the Census Region and are not separately listed in the Area Definitions Table.          

HUD Publishes Interim Rule on Administration of the Housing Trust Fund

The Housing & Economic Recovery Act of 2008 (HERA) established a Housing Trust Fund (HTF) to be administered by HUD. The purpose of the HTF is to provide grants to State governments to increase and preserve the supply of rental housing for extremely low- and very low-income families, including homeless families, and to increase homeownership for extremely low- and very low-income families. This interim rule, published on January 30, 2015, establishes the regulations that will govern the HTF. Once funding is available and grantees have gained experience administering the program, HUD will open the rule for public comment.   Under the HTF, annual formula grants will be made to states and state-designated entities. At least 80% of the grants must be used for rental housing; up to ten percent for homeownership; and up to ten percent for administrative costs. HTF funds may be used for the production or preservation of affordable housing through the acquisition, new construction, reconstruction, and/or rehabilitation of non-luxury housing with suitable amenities.   There is a good deal of opposition to the program in Congress, especially among Republicans, who now control both the House and Senate. For this reason, there is no guarantee that the program will ultimately be funded. If it is funded, State agencies administering the program will have to develop policies and systems. Clearly, no funds will be available for development purposes under the HTF in the short-term. When - and if- funding does become available, I will prepare a comprehensive description of the program regulations for clients. In the meantime, those interested in reviewing the Interim rule can find it in the January 30 Federal Register.

Poverty Guidelines Published by HHS - Income Limits to Follow

On January 22, 2015, the U.S. Department of Health & Human Services published the 2015 Poverty Guidelines in the Federal Register. These guidelines are used to determine financial eligibility for certain federal programs, including HUD Subsidized housing programs. HUD had delayed publishing the 2015 income limits (they were due on December 1, 2014), until the poverty guidelines were published. This is because the 2014 Consolidated Appropriation's Act changed the definition of an extremely low-income household for housing purposes from 30% of area median income to the greater of the poverty guidelines or 30% of AMI. Now that the guidelines are out, HUD should very shortly publish the 2015 income limits for HUD's assisted housing programs and for projects with Low-Income Housing Tax Credits and Tax-Exempt Bonds. Publication of these limits could occur as early as February 2.

E-Book on LIHTC Compliance Now Available

As you well know, the federal low-income housing tax credit program is complicated. Staying in compliance with all of the program s rules - and successfully interpreting the gray areas - is essential for all of the players involved in projects: developers; owners; property managers; syndicators; investors; lenders; attorneys; accountants; and service providers. I have collaborated with The Tax Credit Advisor and Dworbell Publishing to publish an e-book to assist LIHTC practitioners in dealing with the myriad of compliance issues relating to the program. The e-book contains a collection of some of my most important columns over the years from Tax Credit Advisor, revised and updated to reflect recent developments and federal guidance. It is intended for both newcomers to the program, as well as intermediate and seasoned program veterans. The book is currently available for sale on Amazon for just $3.99, and is being published for downloading to Kindles. If you don't have a Kindle, Amazon provides a free Kindle Reading App for smartphones, tablets and computers. If you think the book could be useful to you, check it out on the Amazon website; it titled "Low-Income Housing Tax Credits: Tips for Successful Compliance: Columns from Tax Credit Advisor Magazine." Hopefully, it'll be helpful.

HUD Memo Regarding Occupancy Protections for Residents in LIHTC Projects

HUD Memo Regarding Occupancy Protections for Residents in LIHTC Projects   On January 12, 2015, HUD sent a memorandum to HUD offices and contract administrators providing guidance on protection of tenants of HUD projects when Low-Income Housing Tax Credits (LIHTC) are added to the project.   The guidance has been provided because HUD has had reports that some owners have attempted to terminate the tenancy of current HUD-assisted tenants (usually project-based Section 8) who do not meet LIHTC eligibility guidelines. This will usually occur when the income of the resident exceeds the permitted income under the LIHTC program. HUD makes clear in the Memo that tenancy in a HUD project may only be terminated under circumstances allowed by HUD regulations, and this does not include failure to meet LIHTC eligibility requirements, including income and student eligibility issues.   The Memorandum also states that if an owner wishes to terminate occupancy based on criminal activity, such termination must be done in accordance with HUD regulations. If the new owner's practices in this area creates a change in existing house rules, owners must notify tenants who have completed their initial lease terms, 30-days prior to implementation, of the modifications to the house rules. If a tenant has not completed the initial lease term, the owner must provide 60-days notice, prior to the end of the lease term.   Owners may offer incentives to tenants who are not LIHTC eligible to encourage the tenant to vacate the property. However, the incentives may not be paid from Section 8 or FHA project funds. Owners should inform the tenants in writing that they have the option of remaining in occupancy as HUD-assisted tenants under the terms of the lease in order to ensure that tenants understand that the option of moving is fully voluntary.   This is not new guidance, and has been part of the training I provide for a number of years. It does provide a strong reminder to developers and managers of Section 8 projects to which credits are being added that involuntary displacement of Section 8 residents who do not tax credit qualify is not permitted.

Documents to Retain for LIHTC Projects

Documents to Retain for Low-Income Housing Tax Credit Projects   In September 2014, the IRS published the Audit Guide for Low-Income Housing Tax Credit Projects. This guide is intended to assist IRS agents during an examination of a Section 42 Low-Income Housing Tax Credit partnership and project. Chapter 2 of the Guide, "Precontact Analysis," outlines the documentation agents should review prior to actually contacting the taxpayer regarding the audit and information to request from the taxpayer at the beginning of the audit. Owners of LIHTC projects should be familiar with these documentary requirements and should ensure that the documents likely to be requested as part of an audit are available. For this reason, it is important that owners have a system of document retention in place to ensure the availability of all required documents. The IRS will already have certain documents relating to the project, and will review those prior to beginning the actual audit. These documents include: Form 8609; Any 8823s issued by the State HFA; Form 8609-A (Annual Statement for Low-Income Housing Credit), which is submitted to the IRS annually; Balance sheets included with tax returns; Schedule K and Schedule K-1s; Prior and subsequent year tax returns; and Returns related to the tax return under audit (e.g., if an adjustment on one return requires an adjustment on another return or if the General Partner [GP] is also the GP on other tax credit deals, etc.)   Documents likely to be requested from the taxpayer, and those for which a retention plan is required include: General information about the taxpayer Partnership Agreement; Prospectus or Offering Memorandums; Documentation pertaining to the partners capital contributions; Credit Allocation Application; Market Studies; Credit Allocation Award/Contract or Carryover Allocation; Extended Use Agreement; All Forms 8609 issued to the Taxpayer (remember, the IRS will also have copies of these, so make sure they match what was sent to the IRS); and Internal Audit Reports (e.g., corporate or third party reviews of the property). Tax Returns - while the Service will have copies of the returns, they will also want Copies of tax returns for the tax year prior to the earliest year under audit and all tax returns for years after the tax years under audit; Trial balance and any work papers used to prepare the tax return under audit; and Depreciation schedules.   Documents relating to eligible basis, including: Final cost certification submitted to the state agency with supporting documentation; e.g., purchase agreements and construction contracts, or settlement documents if existing buildings were acquired; Documentation of all financing sources; e.g., grants, loans, tax-exempt bonds, below-market federal loans, and loans payable to the developer or any partner, and all debt instruments such as mortgages and promissory notes; Financial reports, including compilations, reviews, or audited financial statements; Development contracts or agreements for the acquisition, construction or rehab of the project with related payments and/or noted; and Documentation of cost allocations between land, land improvements, and depreciable residential rental property included in eligible basis. Information on the Qualification of Low-Income Households, including: Rent rolls for each year under audit; and Documentation of internal controls in place to ensure that income qualified households occupy the low-income units (e.g., copies of written procedures) and the taxpayer s policies (e.g., employment requirements and training). Information Relative to Year 1 and 11 of the Compliance Period: Certificates of Occupancy or other documentation of when the units were first available for occupancy; A schedule showing when each low-income unit was first occupied by an income-qualified household; and Computation of the applicable fraction, including the computation for the applicable fraction for each month of the first year of the compliance period. If the project had additions to qualified basis (i.e., "2/3 units"), the following information will be requested: List of units first occupied by qualified tenants after the end of the first year of the credit period and when a qualifying household first occupied the unit; or Confirmation that all units were occupied by qualified households by the end of the first year of the credit period. Documentation Relating to Income: Description of residential rental units, including total number of units, total number of low-income units, size of units, and rents charged for each unit. Also, be able to identify units for employees or security officers. Documentation that rents were properly restricted; Sources of rental subsidies (e.g., Section 8); Utility allowances and documentation of the computation; Fees for services provided to tenants in addition to housing; e.g., providing meals or cleaning services in assisted living housing; Other income from related activities; e.g., vending machines, laundry facilities, or charges for cable/satellite television; Other income sources such as from the commercial use of a portion of the property; e.g., income from a cell phone tower installed on the roof of a building; and Documentation of funds received from other sources; e.g., federal grants or subsidies received during the year, additional capital contributions, or loan proceeds. If 8823s were issued against the property, the taxpayer will be requested to document corrective actions taken. If the property was sold, documentation regarding the sale will be requested. In particular, the Service will be interested in Sales contract & Settlement Documents; Computation of the capital gain/loss; How the gain/loss was distributed among the partners; and Whether the sale required the new owner to operate the project as a qualified low-income project for the remainder of the 15-year compliance period.   At a minimum, the documents noted above should be retained - and secured - for at least six years after the due date of the tax returns for the last year under audit. In the case of documentation for the first year of the credit period, this should be kept for at least six years after the due date of the tax return for the last year of the compliance period.  

Five Reasons to Go Smoke Free at Multifamily Properties

I have worked with a number of clients in assisting them to transition from smoking to non-smoking at their multifamily properties, and in all cases, the change has been positive - for both the owner and the residents. However, I still get questions about whether such policies are allowable, and even if they are, why they are a good idea. There are many reasons to adopt a non-smoking policy at your property, but HUD recently published guidance listing five great reasons to go "non-smoking." It is worthwhile to recap those reasons.   Non-Smoking Policies Protect the Health & Safety of Residents & Staff   There is a reason that since the early 1990 s, many localities have made public areas, workplaces, restaurants and bars smoke-free; the damaging effects of secondhand smoke are well documented and pose a serious health threat to children and adults. As of September 2014, over 500 Public Housing Agencies (PHAs) in over 30 states have developed smoke-free policies. Secondhand smoke causes cancer. This is not up for debate. This smoke contains nicotine, carbon monoxide, phenol, and sulfur dioxide. All the way back in 1992, the EPA classified secondhand smoke as a Class A carcinogen. It is especially dangerous for children, pregnant women and people with chronic illnesses. Pets and service animals can also suffer from secondhand smoke. In 2006, the U.S. Surgeon General concluded that there is no risk-free level of exposure to secondhand smoke. It causes heart disease, cancer, chronic obstructive pulmonary disease, and other lung diseases. Living with a smoker increases the risk of lung cancer by 20-30 percent - even for people who never smoke. The Surgeon General concluded that the only way to keep children and adults safe from secondhand smoke is to ban all smoking indoors. Whenever a staff person at a multifamily complex enters a building, he or she is at risk of exposure to smoke. The movement of smoke between units cannot be controlled, and no level of exposure to tobacco smoke is safe. Smoking in the home is the leading cause of residential fire deaths and injuries, with almost 1,000 people dying annually in smoking related fires; half are residents of multifamily housing and a third are children. Insurance companies are well aware of this fact and often reflect it in their rates. The Capital Insurance Group recently stated "Smoking-related fire damage claims are usually $50,000 or more, but they reach upwards of $100,000. Owners and agents with smoke-free policies should promote this as a request for discretionary credits. Discretionary credits are for good clients who take care of their properties and have fewer claims - and to an insurer, a smoke-free policy is an indicator of this."   Cost Savings   Smoking in units can lead to serious damage to a property. Even moderate levels of smoking will damage most surfaces and fixtures and the U.S. Fire Administration reports that smoking related fires result in $326 million of property damage each year. From a maintenance standpoint, the turnover cost of a smokers unit can cost two to seven times more than turning over a smoke-free unit. According to a recent study by the Centers for Disease Control and Prevention, implementing smoke free policies in subsidized housing across the Nation would save approximately $521 million per year in health care expenditures, renovation expenses, and fire losses. A study undertaken by the Breathe Easy Coalition of Maine is illustrative. The group examined data from housing authorities and assisted housing complexes in New England in 2009. The results showed the cost of turning a non-smoking unit to be $560; a light-smoking unit $1,810; and a heavy-smoking unit $3,515. The area showing the largest difference was flooring - the cost to restore flooring in a non-smoking unit averaged $50, but in a heavy-smoking unit $1,425 - a difference of 2,750%! Another area of savings is insurance costs. Insurers offer optional monetary benefits to owners for discretionary credits. These are typically provided to clients who file fewer claims. Any landlord with a non-smoking policy should discuss these credits with their insurer. Since smoke-free housing reduces the risk of fire, fire damage claims are less likely. Smoke-free policies may reduce the risk of lawsuits. Residents can file lawsuits over secondhand smoke. Claims may be based on legal precedents for nuisance, warranty of habitability, or the covenant of quiet enjoyment. Landlords, management companies, and smokers may all be found liable in such cases. Residents with pre-existing conditions, such as asthma or other respiratory illnesses, can file claims under the Fair Housing Act. Staff and maintenance workers may also file claims based on exposure to secondhand smoke. Most states have smoke-free workplace laws, and allowing smoking in buildings located in states or municipalities with smoke-free workplace laws can be illegal.   Movement of Secondhand Smoke Between Units Cannot be Controlled   The only sure way to prevent exposure to secondhand smoke in multifamily housing is to enforce a smoke-free policy. The International standard-setting body for Indoor Air Quality, the American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE), has stated that ventilation and other air filtration technologies cannot eliminate all the health risks caused by secondhand smoke exposure. Multifamily buildings share air ducts and vents, so smoke from one unit moves easily to other units. Infants and children are very susceptible to secondhand smoke exposure. Children spend more time in the home than adults and have little or no control over their environment. Low-income and minority children are more likely to have asthma, which can be triggered by secondhand smoke, and they suffer worse health outcomes from it. The elderly and disabled are especially vulnerable due to chronic health conditions and an inability to physically escape secondhand smoke.   Residents Prefer Smoke-Free Housing   About 25 percent of Americans live in multiunit housing, and most of them (80%) - including those who smoke - prohibit smoking in their own units. This is especially the case in families with children. Support for smoke-free housing has been borne out by a number of surveys and studies: The Cambridge Housing Authority in MA surveyed its residents and found that 77% approve of inside and outside smoking bans. 79% would prefer to live in smoke-free housing. 29% of smokers supported an indoor smoking ban. A survey in Columbus, OH showed that more than 50% of residents in subsidized multifamily housing support complete indoor smoking bans. A statewide survey in Oregon showed that more than 70% of renters prefer smoke-free housing. A survey in Douglas County, Nebraska found more than 70% of renters would choose smoke-free housing over housing that permits indoor smoking.   Smoke-Free Policies are Legal   Smoke-free policies are legal, do not unlawfully discriminate against residents who smoke, and do not violate residents privacy rights. To this point, no entities that have initiated smoke-free policies have faced a legal challenge, perhaps due to the fact that legal professionals would hesitate to take the case due to the lack of potential for success. Smokers are not a protected class - either federally or by any state fair housing laws. Smoking is a public health issue, and smoke-free policies are not discriminatory because they do not prevent anyone from renting a unit due to a protected characteristic. Owners considering adding smoke-free policies should be careful not to penalize smokers who apply for housing. An applicant s status as a smoker or non-smoker is irrelevant, and their status as a smoker should not be used to determine eligibility for occupancy. Applicants should be informed of their right to smoke - just not in areas of a property where smoking is prohibited. Owners of HUD assisted properties may not maintain separate waiting lists for smokers and non-smokers.   All owners should give strong consideration to making properties non-smoking; there are many reasons to do so, and virtually no good reason not to.    

HUD Proposed Regulation Regarding MOR Reviews and Vacancy Payments, January 14, 2015

HUD issued a proposed rule on January 14, 2015 titled "Streamlining Management & Occupancy Reviews for Section 8 Housing Assistance Programs and Amending Vacancy Payments for Section 8 and Section 162 Housing Assistance Programs." This proposed regulation would amend existing Section 8 Project-based regulations relating to MORs and vacancy payments for a number of HUD programs, including Section 8 HAP New Construction, State Housing Agencies and RD Section 515 with Section 8. HUD is proposing this change in order to reduce the frequency of MORs, which would minimize interruptions in property operations created by onsite reviews. The proposed rule will also reduce vacancy payments made to owners for vacant assisted units. Comments on the proposed rule are due by March 16, 2015. Management & Occupancy Reviews (MORs) Under existing regulations, the frequency of MORs across all the Section 8 programs is inconsistent. Section 8 New Construction, Substantial Rehab and State Agency programs are required to perform annual MORs. Other programs, including Section 515/8, require reviews "as necessary" to ensure compliance. Section 202/8 provide no timeframe for reviews. HUD is proposing to revise the regulations that govern MORs for Section 8 projects and allow HUD the flexibility to set a schedule that is more in-line with the needs of the programs. HUD published a separate notice in the January 14, 2015 Federal Register outlining the proposed schedule of reviews. Current regulation requires that MORs be conducted annually for virtually all HUD assisted projects. The Notice proposes the following schedule of MOR reviews: *Projects with a Below Average or Unsatisfactory score on the last MOR and a risk classification of Troubled, Potentially Troubled, or Not Troubled, must have an MOR within 12 months of the last MOR conducted at the project; *Projects with a Satisfactory score on the last MOR and a risk classification of Troubled or Potentially Troubled, must have an MOR within 24 months of the last MOR conducted at the project; *Projects with an Above Average or Superior score on the last MOR and a risk classification of Troubled, must have an MOR within 24 months of the last MOR conducted at the project; *Projects with a Satisfactory score on the last MOR and a risk classification of Not Troubled, must have an MOR within 36 months of the last MOR; *Projects with an Above Average or Superior score on the last MOR and a risk classification of Potentially Troubled or Not Troubled, must have an MOR within 36 months of the last MOR.   Vacancy Payments Under current regulations, an owner is entitled to vacancy payments in the amount of 80% of the contract rent for a period of 60-days after initial rent up or after an eligible family vacates a unit. If the vacancy persists past the 60-days, an owner may receive additional vacancy payments equal to the principal and interest payments required to amortize the debt service for the vacant unit for up to 12 additional months. HUD believes the 60-day period for vacancy payments is too long. HUD wants to incentivize owners, when appropriate, to rent vacant units more quickly. In order to do this, the proposed rule would restrict vacancy payments to 80% of the contract rent for the first 30 days of a vacancy instead of the current 60 days. The new rule would not preempt existing Section 8 contracts, but would apply to renewal contracts. Owners would still be eligible for 12 months of debt-service vacancy payments. Owners active in HUD assisted programs should obtain a copy of the HUD Federal Register Proposed Regulation and Notice. The information should be carefully reviewed and any concerns should be relayed to HUD no later than March 16, 2015 in accordance with the instructions in the published proposed regulation.