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The Capital Concerns of 202 PRAC Program

In the mid-nineties to mid-2000s the affordable housing industry saw an explosion in the number of properties approved and built under the Section 202 PRAC program. This was a terrific program that which was restricted to non-profit sponsors providing housing for the elderly, and the operating subsidy was guaranteed for forty-years – securing housing for the elderly for many years. However, the problem with a 40-year compliance period is that periodically the property requires revitalization, and the only way that 202 PRAC properties can afford to pay for major repairs is through the reserve for replacement (R4R) account – and budget-based rent increases. Over the last few years we have seen more and more 202 PRACs enter into their 20th year or beyond, and many of the major and minor components are aging and starting to fail – and unfortunately – what is being deposited into their reserves has not been updated to reflect the new realities. Coupling this with very few or infrequent rent increases, and restrictions on the program -- restricting owners from funding revitalization with additional debt. This has forced properties to pick and choose what systems to replace or upgrade, deferring maintenance and putting the initial investment at risk. Due to this concern, HUD has now taken a keener interest in these properties and worki...
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HUD Looks to a New Future for REAC Inspections

​ On October 24, 2018 HUD's Office of Public Relations released a statement which discusses the future of physical inspections performed through the HUD Real Estate Assessment Center (REAC). In this statement, HUD expresses the interest in an update to the REAC Inspection System, specifically in the scoring model. The memo states that " it has become clear that REAC's 20 year old scoring system needs to be changed to better reflect the conditions of the properties where more than two million families call home ." The memo indicates a desire to design a better inspection system that finds a way to evaluate properties in a manner that aims to evaluate how properties are complying with an overall obligation to provide decent, safe, sanitary housing instead of just passing minimal requirements of the REAC Inspection process. HUD promises both a long-term review as well as immediate changes that better focus on conditions inside the housing units, with a greater emphasis placed on lead-based paint hazards and mold infestation. It is unclear at this time what the reforms to HUD's REAC Inspection system will look like; the statement from HUD promises a new simplified inspection system and an integration with the HUD Initiative "Protect our Kids!", which applies a specific focus on environmental issues such as lead-based paint and mold....
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HUD Suspends e-Tool Requirement for PRAC Properties

HUD's Office of Multifamily Housing released a Memorandum on August 3, 2018 which suspended the use of the HUD CNA e-tool for Section 202 or 811 properties with PRAC assistance. Originally the HUD Notice 2016-18 was issued to guide the process and timeline for implementation of the CNA e-tool across the Office of Multifamily Housing. This was initially required to be put into effect by November 1, 2017, and final implementation was delayed until February 1, 2018, and required the use for (a) ten-year updates on insured properties, (b) partial payment of claims, and (c) 202 and 811 PRACs. The requirement still remains in place for 10 year updates on insured properties and partial payment of claims. In the Memorandum released this August, HUD states that they do not have the technological capacity for needs assessors to submit CNAs on behalf of PRAC projects, and despite attempts at a workaround, the process for PRACs to submit CNAs using the CNA e-tool has been inefficient and cumbersome. The CNA e-tool may be reinstated for PRAC properties at some point in the future, but for the time being, budget based rent increases will no longer require an e-tool submission. Account Executives at HUD can use traditional Capital Needs Assessments for budget based rent increases and restructuring of reserve for replacement accounts.  

New Mold and Mildew Requirement for REAC Inspections

HUD REAC has instituted some new changes to how it will be testing for Mold and Mildew in apartments and common areas. On a select number of REAC Inspections , an additional process using infrared technology will be utilized. In this undated memorandum , HUD REAC discusses the dangers to health and safety that mold and mildew can pose to residents and staff working on a property. HUD is looking for ways to reduce the number of occurrences and the overall risk to residents by trying to detect issues with moisture and mold before it becomes a health hazard. Every room will be viewed by infrared and tested with a moisture reader if any moisture is observed by the inspector, generally meaning that they see darkened areas or water damaged surfaces. The infrared device is managed by a second inspector who will accompany the primary inspector for the sole purpose of using the infrared device. The good news is that any results which are observed through the infrared technology will not affect your score, at least not directly. Just as with any other inspection, having a second inspector present during the process inevitably slows the inspection down and frequently affects the score as there are two people reviewing the property. From the view of one of our Inspection Consultants, they found the process to be awkward and slowed the pace ...
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HUD REAC & Non-Industry Standards: Spray Foam

Of the many REAC Compliance questions that come to us at US Housing Consultants, the one that has been presented to us most frequently recently has been about if the use of "spray foam" is appropriate under the REAC "non-industry standards" requirements. Essentially the question is: is there ever a moment when you can use spray-foam-in-a-can (such as "Great Stuff") to seal penetration and holes. There is not a single clear answer, but instead, it is slightly more nuanced. We are going to attempt to explore the concept here. Not all Spray Foam Is Equal: this is part of the issue for many in the industry - not understanding that use of products such as Great Stuff can be used if the materials are properly rated. For example, if you are looking to enclose a penetration, such as around a pipe going through a wall or a cabinet, you need to use a spray foam that is rated to have been tested by ASTM E84 and ASTM E814. This spray foam will be bright orange to differentiate it from other standard spray foam, as this orange foam is intended for fire-blocking purposes. If you use this properly rated spray foam to fill in penetration, it should not be cited as an issue, as the non-industry standard rule states that so long as the appropriate material is used and applied properly, then it shouldn't be an issue. Repairs Need to Be Done Profes...
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HUD REAC Releases New REAC Compilation Bulletin (4.0 V3)

HUD REAC Releases New Compilation Bulletin - 4.0 Version 3, Effective October 2, 2017 Are you ready for some changes to REAC? More changes are on the way from HUD REAC! The much anticipated new version of the REAC/UPCS Compilation Bulletin (HUD REAC Compilation Bulletin, 4.0 V3) is about to be released by the HUD Real Estate Assessment Center. The official, updated protocol is scheduled to be released from HUD and go into effect on October 2, 2017 and US Housing Consultants was able to get a firsthand look at the impending updates and changes in the new version. This new version of the REAC Compilation Bulletin is a daunting ninety-five pages of densely worded clarifications and new changes, guidelines and specific updates for all REAC inspections. Many of the changes and updates appear to be a consolidation of the recent HUD Inspector Notices as well as the UPCS Guidance and Protocol Clarification Guide and Lead-Based Paint updates that were issued within the last few years. HUD has compiled those changes as well as adding some new guidelines and clarifications in this new version. The majority of the updates, guidelines and examples appear to be related directly to the recent Industry Standard Repairs Requirements that were added last year. HUD has added more specific explanations and more detailed guidelines along with genera...
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HUD REAC Presentation Recap March 9, 2017

HUD has released a new PowerPoint presentation as of March 9, 2017, as part of their Dine & Learn series. Many of these clarifications are reiterations of existing rules. Many of the rules that need clarification and reinforcement are a little surprising, as the issues are not new and the clarifications are really reinforcing basic rules. It appears that these clarifications are the result of some observations made through reviews of photographs from REAC Inspections as well as observations made by Quality Assurance REAC Inspectors. Recording Same Issue Twice : For example, if a bedroom door was missing the hardware, some inspectors were recording both Level 2 for inoperable hardware and Level 3 for surface damage because there was a hole greater than 1". They are to record one of the two deficiencies, and they must choose the higher-level deficiency, in this example: The Level 3 hole. Two Issues on Exterior Walls in Same Vicinity: Much like the doors, building exterior walls were another discussion in the webinar with REAC. When there are both cracks and gaps, and missing pieces/holes/spalling in one area of an exterior wall, the inspectors are to only record one of the two deficiencies and choose the highest severity level; the only time in which two to record two is if there is an associated Health and Safety deficiency. ...
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HUD REAC Failed Inspection Changes

There have been changes that deal with the laws that govern what happens when a property fails its REAC Inspection, added to a recent appropriations bill. This appropriations bill included Section 223 that details changes to the required provisions for properties that score 59 or lower on an Inspection. The most notable changes are that enforcement actions begin after the first failed REAC, not the second consecutive inspection, as was previously stated, and that the options for enforcement action have expanded from four options to nine. The highlights of the new law are: On REAC scores 59 or less, the HUD Office must notify the owner/agent within 15 days that they are in default of their regulatory agreement for their failure to maintain the property in a decent, safe, and sanitary condition; previously this was 30 days. When notifying the owner of the default of the regulatory agreement, the HUD office is required to provide a time span for the owner to conduct a 100% survey inspection and repair all of any and all issues; this is typically a 60 day period, but now that section has been replaced with "a specific timetable", which leaves open the possibility of both shorter and greater periods to correct issues. Previous rules and regulations set out four options for enforcement on failed REAC Inspections, this has now been exp...
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Recent Changes to UPCS Inspection Services Purchase Order Terms and Conditions

The Impact of Recent Changes to UPCS Inspection Services Purchase Order Terms and Conditions On April 15, 2017, HUD REAC released " Uniform Physical Condition Standards (UPCS) Inspection Services Purchase Order Terms and Conditions ," which is essentially a set of business rules for HUD REAC Inspectors. Much of this document deals with intricate details known to REAC Inspectors about what processes must occur when conducting inspections. The majority of the information in this document has little or no impact on the Multifamily Housing management industry, but some of it does. For the convenience of our readers, we have highlighted the document linked above, and will summarize the changes here as well: In section 5, there are new changes that relate to scheduling and confirmation requirements for REAC Inspections. Among that is a welcome new requirement that inspectors must provide notification if the REAC inspector assigned to a property is being changed, as well as new, much more precise requirements on the steps and required documentation for giving owner and agents notice of the physical inspection. In the document, there are very specific outlines for cancellation, substitution of REAC Inspectors, cancellation due to conditions outside of owner's control (fire, weather, etc.). The most notable new requirement in this sectio...
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REAC Hazard Scoring & Tips for LIHTC Acquisition Rehabs

Did the REAC Inspector record that deficiency correctly? The UPCS Compilation Bulletin is full of valuable and useful information for REAC inspections, but the information in the protocol is only useful if the REAC inspector knows how to interpret and comprehend the UPCS guidelines. Our clients often share some of the horror stories from their recent REAC inspections and the inspectors they've encountered. Many of these stories didn't need to occur if only the inspector had a better understanding of the protocol! Take for instance this one that comes to us from a recent REAC inspection in Chicago. During the inspection, the REAC inspector observed a broken plastic child's toy chair with sharp edges in a bedroom that clearly belonged to the resident. The inspector recorded the deficiency as a [Health and Safety], [Unit, Bedroom], [Hazards], [Sharp Edges – This Does Pose a Risk of Bodily Injury], by the inspector selecting and recording this deficiency in the report, it assigns this deficiency as a Level 3 Exigent Health and Safety item that can carry significant point loss. The deficiency of a broken child's toy with sharp edges is, indeed, a health and safety item that is recordable per the UPCS protocol. However, should the property be deducted points for the 'clearly resident owned property?' No, this deficiency should not hav...
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HUD Releases “UPCS Guidance & Protocol Clarification”

​ This week HUD released a document titled "UPCS Guidance & Protocol Clarification" ...which will be effective as of May 23, 2016. This document addresses inquiries submitted by REAC Inspectors. The document, while helpful in some respects, contains a few changes that represent significant alterations to the UPCS Inspection Protocol, as well as clarifying questions about the process of performing REAC and UPCS Inspection to reiterate long-held practices. Overgrown/Penetrating Vegetation. The very first item addressed states that "There is some vegetation touching a fence but it is not causing any damage. Is this a defect?" HUD REAC answers, "No defect." This answer is simple and would be satisfactory if it were not for page 47738, Appendix 2 of the Federal Register stating "Vegetation contacts or penetrates an unintended surface, such as buildings, gutters, fences/walls, roofs, HVAC units, etc., but you see no visible damage" as a Level 2 deficiency. Fundamental changes to inspection protocols, such as removing a deficiency needs to be done through the Federal Register, so this change appears to be limited only to "Fences". We spoke with a HUD REAC staff person, and it appears that this change is limited to overgrown vegetation making contact with fences or in land areas that are not in active use. All that being said, this ...
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New HUD protections for victims of harassment and survivors of domestic violence

  HUD announces new protections for victims of harassment and survivors of domestic violence to go into effect on October 14, 2016. Many municipalities have adopted local nuisance ordinances for the purpose of allowing landlords to evict domestic violence survivors and others who seek police or emergency assistance. Private and public housing providers should make sure that should they choose to evict based on local nuisance ordinances that they are not in violation of the Fair Housing Act. HUD is taking this issue seriously. "On the 22nd anniversary of the Violence Against Women Act, HUD makes it clear that no one should have to choose between calling 9-1-1 and being evicted," said HUD Secretary Julian Castro. "A home should be a sanctuary where everyone can live without the threat of violence or harassment. The actions we take today will work together to protect the housing rights of victims of harassment and survivors of domestic violence." We want to make you aware of HUD's final Harassment Rule titled Quid Pro Quo and Hostile Environment Harassment and Liability for Discriminatory Housing Practices under the Fair Housing Act . The final rule specifies how HUD will evaluate claims of "hostile environment" and "quid pro quo" harassment in both private and publicly-assisted housing. "Hostile environment" sexual harassment...
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HUD Releases Notice Regarding Lead-Based Paint

  On October 3, 2016, HUD Multifamily released Notice H 2016-10 ...which deals with Lead-Based Paint disclosures and inspection documentation reviewed during REAC Inspections. In this notice, HUD reminds us all of the dangers of lead poisoning, especially to young children. Lead poisoning has been linked to neurological and mental development issues, and possibly the most tragic part of lead poisoning is that is entirely preventable. As part of the effort to reduce exposure to Lead Based Paint, HUD REAC has reviewed documentation as part of their inspections to determine the existence of lead-based paint inspection reports and lead-based paint disclosures. The rules for when this is applicable have been refined as part of this Memorandum. For properties constructed prior to 1978 (Major rehab date does not negate this, the original construction date is the only date used for this determination), if the REAC inspector is not provided lead risk assessment reports, Lead Risk Assessment, or inspection records and lead-based paint disclosures, then the Owner/Agent will have to provide copies of these inspections to the HUD Field Office after the REAC Inspection. It has also been clarified that there are properties that are exempt from the Lead Safe Housing Rule (LSHR). These properties include: Any property constructed after 1978...
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HUD Notice 2016-03 Clarifications & Student Tips for Compliance

Over the last month we have received many questions about the new HUD notice regarding additional scrutiny on the quality of repairs. While many of the questions also expressed a lot of dismay at the stark change of direction, we were able to clarify a number of concerns. Has this changed all of the deficiency standards? No, nothing really has changed here in terms of what makes something a deficiency. Everything you learned about REAC before is true. What has changed is an evaluation of how things are repaired. Essentially the previous standard of (for example) "Is that wall cracked" has been replaced by, "Has this wall been properly repaired". Every Inspector is different - How can I possibly prepare? Don't personalize your inspections. Your inspection is according to a single set of standards - not Bob or Larry or Susan's standards. If you properly identify issues and repair them professionally, you will be fine. Preparing professionally basically means: don't use spray foam to fit a pothole, or cold patch asphalt to fix a stone retaining wall - don't take the easiest approach. As far as inspectors being different, this is true and always has been. We look at it as there being the industry standards approach, and then the not so by the book approach. So, long story short: if you properly prepare for an inspection, the variabl...
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Household Composition on HUD and LIHTC

As compliance consultants who review thousands of HUD and LIHTC files, we have put together some frequently asked questions regarding household composition. We are hoping that the following FAQs will provide you with guidance concerning household composition. Household Composition Q. A married couple qualified at the time they moved into their LIHTC unit. They got divorced a year later, and one spouse moved out of the unit. The remaining spouse has a new roommate, and the roommate's income was verified. Their combined income now exceeds the LIHTC income limit but is still below the 140% level. Do they still qualify for the unit? A. Yes. The household was initially qualified, and the change in household composition does not constitute a new household since an original household member is still residing in the unit. We recommend that you re-qualify the entire household at the time of the roommate addition. One reason for doing this is to determine if the roommate would be income eligible if living in the unit by themselves. If the original occupant moves from the unit leaving just the roommate, you could end up with an over income household. If the roommate would not qualify by themselves, you must take additional action. You can still allow the person to move in, but it is critical that your lease agreement clearly states that th...
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REAC Industry Standard Repair Clarifications

HUD REAC Provides Clarification on Industry Standards Repair Requirements On August 9, 2016, HUD REAC provides clarifiations to the industry on the requirements in HUD Notice 2016-03 Regarding Requirements for Repairs to be Completed within Industry standards. In this email to some in the industry, HUD provided a copy of a PowerPoint presentation that was used to train active REAC Inspectors on the new requirements. We have posted the PowerPoint presentation here to view: Industry standards inspection guidance and application Some of the highlights on this presentation include the following clarifications: Caulking that is approved for exterior use is allowed for the repair of brickwork, such as ASTM approved caulking Repairs to refrigerator gaskets with tape that are less than one inch ARE permitted PVC is allowed on gutters, so long as the PVC is painted to patch Plywood on drywall IS permitted, so long as the plywood on the wall is an access point to electrical or plumbing (we would recommend painting such plywood access panels to match the surrounding areas). There are new specific details on what is expected on water heater or boiler flue and chimney installation and repair A General Requirement on Workmanlike Repairs While these examples provide some needed insight into specific requirement clarifications, it is very impor...
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Industry Standard Repair Rule Change to REAC

HUD REAC released a notice on their website this week (July 5, 2016) entitled " Industry Standard Repair ", which indicates a new standard that details that all repairs made to properties must be "made in a good and workmanlike manner with materials that are suitable for the purpose and free from defects". This new standard outlines a series of specific items and deficiencies that will be determined to be "good and workmanlike". Before we detail these new changes, it should be noted that this is a significant departure from previous interpretations of the UPCS (Uniform Physical Condition Standards), which typically focused on the existence of a qualifying condition instead of evaluating for the manner of repair or design. This new standard outlines the following standards to all items in the inspection item list: (a) Ensure that all components, as repaired, perform its intended purpose and function; and (b) That all repairs are finished in manner reasonably compatible in design and quality with the original and adjoining decorative materials "Each repair shall be made in accordance with the industry standard for that particular inspectable item (e.g. hole in the drywall be repaired using the same or equivalent materials, have the same texture, and shall have minimal deviation from and/or have an indistinguishable difference from...
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Interim Recertifications & New Overtime Rules

What are the processing guidelines when changes are reported? When a tenant requests an interim recertification or when a tenant reports changes in income or other circumstances as required, the owner must take the following steps when processing an interim recertification. Interview the tenant to obtain information on the reported change. The owner must also review and ask if there have been other changes to family composition, income, assets, or allowances since the most recent certification. Obtain third-party verification of the income or other facts reported as changed since the last recertification and maintain documentation in the tenant file The EIV system must be used at the time a tenant reports a change in employment or income to determine if any information has been provided by the employer or if the tenant had unreported income. However, because of the delay in reporting requirements by state agencies, EIV may not contain data that can be used to verify employment or income for use in processing interim recertifications in instances where tenants report a change in employment or income. In these cases, the owner will need to use another method of verification. Input any changes to the tenant's income or other characteristics in the owner's software program and print the HUD-50059 Document the resulting changes in th...
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How you can create a Database Adjustment to handle Local Code Issues

  Don't Violate Local Code to Pass Your REAC Inspection How you can create a Database Adjustment to handle Local Code Issues Understanding how to utilize the REAC inspection appeal process is the only way to ensure that you are getting the full benefits of the protocol applied to your property. An appeal can be viewed as the final step of the inspection process and is the only way that certain conditions can be considered or applied. Just like filing your taxes where you can easily overlook certain deductions that may be applicable without the help of an expert, you can also find many instances where exceptions may apply to your REAC inspection. There may be various points that can be returned for issues resulting from inspector error, conditions beyond your control, or a local area code variance. For example , did you know that the local area code requirements supersede the Federal code? You may be in compliance with the local area, but not conforming to the Uniform Physical Conditions Standards (UPCS) protocol used by REAC. The best way to appropriately deal with that scenario is to consult a licensed trade professional for advice; if they determine you are in compliance with local area code requirements, then filing a Database Adjustment appeal of the REAC inspection, either before or following the REAC inspection, is th...
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REAC Inspector Business Rules and Code of Conduct

On February 5, 2016, a notice was issued that created new business rules for active REAC Inspectors. This new set of REAC Inspector business rules is an update to the existing inspector business rules dated January 20, 2006. This memorandum sets forth basic rules of behavior, a Code of Conduct, and instructions to REAC inspectors on how to handle situations that may arise. In this article, we are going to discuss the parts of the notice that affect Owners/Managers of HUD-insured/assisted housing. If you are interested in reviewing the sections regarding administrative actions on REAC Inspectors, you can review a copy of the HUD REAC Physical Inspection/Inspector Administration Business Rules - Inspector Performance Monitoring. The major changes to the REAC Inspector Business Rules that will affect owners/managers relate to updates to the Code of Conduct. Here is the section of the notice that relates to what REAC Inspectors can and cannot do: Inspectors must: Display the REAC-issued photo identification card throughout the entire inspection; Respect resident privacy. For example, inspectors must not attempt to open a closed door in a residence; they defer to the property representative; Comply with reasonable requests from residents and project representatives during the inspection; Defer all questions from residents regarding t...
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Latest Blogs

24 August 2019
REAC Inspections
On August 21, 2019, HUD published a set of proposed rules in the Federal Register "Notice of Demonstration To Assess the National Standards for the Physical Inspection of Real Estate and Associated Protocols" 24 CFR Parts 5 and 200; [Docket No. FR–6...
21 August 2019
REAC Inspections
On August 20, 2019, HUD released the first of the new NSPIRE protocols which will be expected to become active once the pilot/demonstration program has concluded. This is a first look at what deficiencies will look like under NSPIRE, the inspection ...
16 July 2019
REAC Inspections
July 8, 2019 HUD's Office of Multifamily Housing Asset Management and Oversight released a memorandum reiterating the rules surrounding notice prior to entering resident's units, availability of documentation for residents to review, and clarificati...
09 July 2019
REAC Inspections
The House Financial Services Committee passed a bill - the Safe Housing for Families Act of 2019 (H.R. 1690), and it will likely move forward to a full vote in the near future. The bill provides $300 million over three years to fund the installation...
05 June 2019
REAC Inspections
Enter your text here ...HUD REAC Released a PowerPoint document (Click here) in an email to REAC Inspectors. This presentation is intended to provide clarify to sometimes subjective interpretations of what is considered to be "Non-Industry Standard"...

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