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Handling 401(k) Accounts on Tax Credit Programs

401(k) Accounts in HUD Sec 8 and LIHTC programs Do you know the answers to these questions? If a 401(k) account is only accessible if a hardship is proven, should the asset be considered when determining eligibility for a HUD or LIHTC household? Does investment income based on market fluctuations need to be reflected as income on the asset? Are withdrawals from a 401(k) account considered income? This article will assist in answering some of the common 401(k) questions as it relates to the affordable housing industry, specifically HUD Section 8 and Low Income Housing Tax Credits. What is a 401(k) account? A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before any deductions. Taxes aren't paid until the money is withdrawn from the account. How are 401(k) accounts verified? A 401(k) must be verified directly with the employer or plan administrator. In the affordable housing world, the cash value of assets needs to be reflected on the certification. Therefore, verification of the market value along with verification of costs to convert the asset into cash (taxes/penalties) is necessary. It is also necessary to verify interest/dividends and whether the applicant/tenant is receiving periodic payments. Is the 401(k) account income or an asset? If an applicant/te...
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Tax Credit UPCS Inspection Updates

IRS to Update the LIHTC Inspection Requirements The Internal Revenue Service (IRS) will post in the Feb. 25 Federal Register a change to regulations that govern the Low-Income Housing Tax Credit Compliance Monitoring. This rule is final as of February 25, 2016, and will be set to expire on February 22, 2019. These changes revise and clarify the requirement to conduct physical inspections, specifically the number of units selected. The IRS will concurrently issue Revenue Procedure 2016-15 (https://www.us-hc.com/images/pdfs/rev-proc_16-15.pdf) to provide that the minimum number of low-income units in an LIHTC development that must undergo physical inspection is the lesser of 20 percent of the low-income units in the property, rounded up to the nearest whole number, or the sampling scale that is currently used by REAC, which set the maximum sample at 27 units (https://www.us-hc.com/the-score/issue-71.html#reac-sample). This same rule applies to determine the minimum number of units that must undergo low-income certification review (file audit). It is important to note that state agencies remain able to conduct larger samples if they choose to set a policy to inspect larger amounts of units. The other important part of this change is that the "same unit" rule is being eliminated as part of this update to the regulations. The same un...
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What Paperwork Is Required on REAC Documents

Having the appropriate documentation available at the start of your REAC Inspection may expedite the process Fire Alarms inspection reports within the last 12 months. Sprinkler inspection reports within the last 12 months If the property was built prior to 1979 – The inspector will pull 5 tenants files at random and look for the lead paint disclosure form that every tenant had to sign when they signed their lease, as well as the lead base paint inspection report. If you have a backup generator – Maintenance/test log dating back 12 months without any dates missing. Copy of your rent roll (NOT Alphabetical – Must be Numerical and separated by building) Boiler certificates Elevator certificates If you have a call for aid pull cord system, is it monitored offsite? (If yes, then have an inspection report from within the last 12 months. If no, then don't worry about it – they will have to be tested.) Make sure that your elevator room door is locked and labeled "Elevator Room". All keys to every room in the building, for all buildings (including any breaker panels that may be locked), will be needed. A site map would be helpful but not required Resident notification letter of inspection. Site square footage measurements are broken down into two separate numbers: Parking lot/Driveways/Roadways Walkways/ Steps (If you don't have the exac...
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REAC Inspection Bed Bug Update

Important REAC Update Effective February 1, 2016, properties undergoing a UPCS/REAC Inspection will no longer be allowed to omit units reported to have bed bugs from their sample unit list. Inspector Notice No. 2016-01 states, "Researchers through HUD's Office of Lead Hazard Control and Healthy Homes have concluded after conducting thousands of inspections that the likelihood of bed bug transfer to an inspector from an infested unit is remote." The notice goes on to report that "REAC is issuing this notice amending the inspection protocol to require the inspection of all units in the sample, including those reported to have bed bugs." What this means for property representatives You are still required to report the known presence of bed bugs to the REAC Inspector when you meet before the inspection. If you indicate that there are units included within the sample that are known to have bed bugs the Inspector will call and report the information to the REAC Technical Assistance Center and proceed with normal inspection protocol, including those units. Unlike other infestations, the presence of bed bugs will not be scored as a deficiency on your REAC Inspection report. Our recommendation Do not refuse entry into units known to have a bed bug infestation. If you refuse entry to a unit based on the presence of bed bugs your inspectio...
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Student Restrictions: HUD vs. LIHTC vs. HOME

  US Housing Consultants receives numerous inquiries regarding student status and proper documentation of applicant/tenant files to ensure compliance. This article applies to properties with HUD Section 8, Low-Income Housing Tax Credit (LIHTC) and/or HOME funding. Confirming student status requirements are met is a critical piece in determining eligibility. Applying student rules based on funding can be challenging, especially when properties have multiple funding sources in which an applicant/tenant may need to meet separate student-related rules in order to qualify. Here are some guidelines that we hope will be helpful when determining eligibility for a household with a student(s). Why are there student restrictions in affordable housing? For LIHTC… The LIHTC student restrictions were primarily implemented to prevent dormitory and/or transient housing. For HUD… The HUD student restrictions were primarily implemented for two reasons: To address incidents of children of wealthy parents receiving federal housing assistance; and To address incidents of college students obtaining federal housing assistance without their educational financial assistance counted as income for purposes of income eligibility for federal housing assistance. For HOME… In 2013, HUD revised regulations governing the HOME program and decided that HOME ...
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Documenting Applicant Real Estate & Tips for REAC Preparation

In the affordable housing industry, asking the right questions and obtaining proper documentation are imperative when ensuring real estate owned by an applicant/tenant is handled in accordance with HUD and LIHTC requirements. This article focuses on the intricacies involved with properly documenting applicant/tenant files in an effort to accurately calculate the cash value or net income on real estate. (For Low-Income Housing Tax Credit owners/managers, please refer to your state monitoring agency for specific guidance.) Terminology you should be aware of Market Value - Market value is an estimate of the value of real estate based on what a knowledgeable/willing buyer would likely pay for it. There are a number of factors that would affect the market value of real estate, including location and condition of the real estate. Documentation that may be utilized to verify the market value of real estate includes: Appraisal Statement from real estate agent Current tax valuation or assessed value from the Assessor's office only if 100% valuation is used. On-line resources (such as Zillow and/or Trulia) Costs to Convert - In order to determine the cash value of real estate, it is necessary to verify how much it will cost to convert the asset into cash, e.g., settlement costs, real estate commissions, etc. This needs to be done regardle...
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Social Security Income Guidance for HUD & LIHTC

Social Security Income Guidance for Applicants at HUD & LIHTC Properties Has any of you been challenged with the verification and calculation of Social Security (SS) or Supplemental Security Income (SSI) when working with an applicant or tenant who collects or might be entitled to collect these benefits? You would think that this type of income would be easy to verify and calculate, but some of you may be surprised with this month's article that there are challenges when dealing with this type of income for HUD, LIHTC or a combination of both. Verification of SSA Benefits Years ago, the Social Security Administration (SSA) announced it would stop providing Property Managers third party verifications. As a result, Property Managers have to rely on documentation provided by applicants to verify SS and SSI income to determine income eligibility and/or tenant rent. Annual award letters provided by an applicant can be utilized to verify gross Social Security benefits for the applicable year. For example, the award letter recipients received in 2014 stating 2015 benefits can be utilized for certifications effective in 2015. SSA letters are good for the full year because they are not dated and they are provided after a COLA or no COLA has been announced. If an SSA letter is dated, it is likely due to a change in benefits. SSI verif...
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Employment Guidance for HUD and LIHTC Properties

Have you ever noticed that 3rd party Verification of Employment (VOE) forms and paycheck stubs don't always match? What if your applicants don't have 4-6 recent paycheck stubs? It is difficult to determine the best reasonable approach for calculating anticipated income when the information provided to you is insufficient. HUD Section 8 LIHTC HUD Section 8 layered with LIHTC We will provide guidance on what to look for when determining initial (move-in) eligibility based on verifications of employment (VOEs) and paycheck stubs. Ultimately, your files need to be well documented to support your income calculations, ensuring proper rent calculation for HUD as well as income eligibility for both the HUD and LIHTC programs. Remember, owners/agents (O/A) need to use the best reasonable approach to calculating anticipated income. Obtaining the best documentation will assist you with this task. For HUD Section 8 properties, paycheck stubs and Verification of Employment forms received directly from the employer are acceptable as third-party verification if the following criteria are met: The document is dated within 120 days of receipt by owner/agent; An unaltered original is provided; The documentation was complete; and The document is current (for example, documentation of public assistance may be inaccurate if it is not recent and does...
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Working with Self-Employment Income

Of the all the income sources that need to be verified for affordable housing programs, self-employment income has to be one of the most challenging. There are so many factors to consider when determining income for those who are self-employed: Is the person self-employed? Is this new business or existing business? Did they file a tax return? Forms certifying to self-employment can be confusing for the applicant/tenant. It is important for management to have a thorough understanding of the forms they are required to use and the supporting documentation being requested. Required documentation to support self-employment income varies widely and while the following are general guidelines, a review of your state specific requirements is recommended. Types of Self-Employment The first step is to determine just what sort of "self-employed" the household member is. Generally, self-employment household members are either: Owners of businesses Sub-Contractors who are paid by an employer with a 1099 There are times when the individual is not sure if they are considered self-employed. Processing third party verification and additional clarification will assist in understanding if the applicant/tenant is self-employed or an independent contractor. Household Employees vs Self-Employment According to the IRS, applicants/tenants are considered...
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Commonly Overlooked REAC Deficiencies: Building Exterior Wall Stains

Commonly Overlooked REAC Inspection Deficiencies This summer we are starting a four-part series about some of the REAC deficiencies that clients are saying they have "never heard of before". With the recent addition of newly trained REAC inspectors, many of whom have a greater attention to detail, many deficiencies that had been overlooked for years are now becoming part of the everyday REAC inspection. In the next few issues of The Score, we will detail what these issues are and how you can best prepare for your inspection. Stains on the Outside of Building Exterior Walls One of the most frequent issues that we have heard that clients are surprised by are stains on the outside buildings. Just as with the rest of the issues in this series, this deficiency has been part of the UPCS Inspection code since its origin in 1999. The deficiency is recorded by the percentage of any one side of a building, what we commonly refer to as a "face" or "side" of a building. In any one side of the building, if less than 50% of the wall is affected by stains, it is a Level 1 (Minor) deficiency, and if it is more than 50% of the wall, it is a Level 2 (Major) deficiency. Stains can include moss, dirt, water stains, or any other discoloration on the walls or siding. This same deficiency also applies to peeling and deteriorated paint on exterior wall...
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Handling Issues with EIV Discrepancies

How to Handle the Complex World of EIV Discrepancies... In 2001, the President's Management Agenda was released and established the reduction of erroneous payments as a key government-wide priority and required government agencies to measure improper payments annually, develop improvement targets and corrective actions and track results. Based on a HUD study, it was estimated that 3.2 billion dollars (yes, billion!!) of improper payments were being paid out on an annual basis. As a result of this and the President's Management Agenda, HUD established a Rental Housing Integrity Improvement Project, otherwise known as the RHIIP initiative. The goal of the initiative was to address the causes of errors and improper payments and to ensure "the right benefits go to the right persons." To assist in meeting RHIIP's goals, HUD developed and began implementation of the UIV (Upfront Income Verification) which is now known as the Enterprise Income Verification (EIV) system. In the first four years of EIV's implementation, there was a 60% reduction in gross improper payments. Bottom line: EIV is an effective tool and the system has eliminated a huge amount of improper payments. A critical piece of EIV that assists with reducing improper payments is the EIV Income Discrepancy Report. Knowing how to resolve and properly document the tenant fi...
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HUD HOME Program Updates

Important HUD HOME Program Changes It's finally spring in the Northeast, and with the change in temperatures, inevitably you'll take some time to do some spring-cleaning. With that in mind, this month we'll discuss getting your HOME in order – HOME-assisted units that is. There are a number of recent changes to the HOME Program and it's important to review your practices. Recent Changes and Updates to Compliance with the HOME Program It's finally spring in the Northeast, and with the change in temperatures, inevitably you'll take some time to do some spring-cleaning. With that in mind, this month we'll discuss getting your HOME in order – HOME-assisted units that is. Q&A About HOME Where can I find HOME regulations? In July 2013 HUD published the HOME final rule with a number of changes for both existing and newly funded HOME projects. The Final Rule and charts indicating applicability can be found here: https://www.hudexchange.info/home/home-final-rule/ Who monitors compliance of my HOME-assisted units? Your Participating Jurisdiction (PJ) is responsible for overseeing compliance. This is frequently the HFA, but may be another government entity. Do HOME regulations apply to all of my units? HOME requirements apply to HOME-assisted units only. How do I know which units are HOME-assisted? Every assisted project will have a HO...
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REAC Inspection Required Documentation

What Documents Are Required on REAC Inspection The initial part of the REAC inspection is a review of documentation with the REAC Inspector. All of this documentation, with the exception of the generator run-up records, does not impact your overall score and is recorded mostly as a survey and direction for the REAC Inspector. It is a great way to start your day to ensure that you have all of this documentation neatly organized and ready for the REAC Inspector. Systems and Safety Certificates A good portion of the required documentation consists of information about the property's systems and safety documentation, this will include copies of recent inspection certificates, including: Fire alarm inspection reports from within the last 12 months Sprinkler inspection reports within the last 12 months For backup generators, you should provide a maintenance/test log dating back 12 months without any dates missing Boiler Inspection Certificates Elevator inspection Certificates Copy of Inspection Report for Call For Aide System if it is monitored by a third party Information About Your Property After the review of your recent inspection and certificate documentation, there are a number of items about your property that the inspector will need to review. Some of these items can be maintained from one inspection to the next, as the inform...
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Leaking Diverter Valves Issues

One of the most common issues that we have been asked about recently is inspectors who are citing "leaking diverter valves" on shower bathtub faucet assemblies. This refers to a condition where the lower faucet in a shower continues to drip or leak water once the switch (diverter) for the shower-head has been engaged. When you turn on your shower-head, the lower faucet should not run any water at all; if it is does, it will be considered "leaking". This is a Level 3 deficiency, as it represents hardware that has failed and is no longer operating as intended. In many cases, this can carry a significant point loss, and if this is present in a large number of units, it can have a significant effect on your score. What if all my diverter valves leak "a little"? Many shower assemblies are considered to be working "as designed" if they are allowing a small stream or slow drip of water once the shower-head has been engaged. If you have these sort of showerheads in your units, you can tell the inspector that this is the case and that he/she will see the same condition in all of the units that they will inspect. Many inspectors will not cite you for a deficiency if you are able to show them that the condition is normal by evidence of the condition being present in all units. If the inspector does not accept this, you will be able to crea...
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How to Handle Willful False Statements on Tenant Certifications

Section 1001 of Title 18 of the US Code makes it a criminal offense to make willful false statements or misrepresentations to any Department or Agency of the United States as to any matter within its jurisdiction. Did that get your attention? The determination of "willful" is often a gray area. Was a long-forgotten Christmas Club account not disclosed? Did an applicant make an innocent mistake? Was a long-forgotten Christmas Club account not disclosed? Or was there a deliberate intention to misrepresent circumstances? Did a management representative try and "help" an employer by completing a Verification of Employment, requesting only a signature? Or was an employer signature obtained on a blank form and a manager completed with information that would qualify the household? It happens. Fortunately there are some protections offered if management discovers reports and corrects incidences of fraud. The 8823 Guide states, "The Low-Income Housing Program will not consider there to have been reportable noncompliance if tenant fraud is discovered and addressed by the owner prior to a state agency review or an IRS audit, and the owner satisfies the state agency that: The tenant provided false information; The owner did everything a prudent person would do to avoid fraudulent tenants (due diligence) and has implemented any needed change...
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New HUD Rules for REAC Scores Less Than 60

  New HUD Rules for REAC Scores Less Than 60 HUD released Notice H2015-02 on February 24, 2015; this memorandum discusses new rules and procedures for properties that receive a score of less than 60 on a REAC Inspection. This memo codifies many of the practices of Multifamily Housing Field Offices that have been underway for the past few years, and also establishes very specific rules and procedures about enforcement on "second consecutive REAC fails". The memorandum is very extensive and covers all of the rules, procedures, and steps for what should and should not occur once a property scores below 60, as well as when there are consecutive scores less than 60. While failing a REAC Inspection is never something owners/agents plan for, and it is certainly not enjoyable in any way - these new rules do create a defined path for getting out of noncompliance and back in good standing with HUD. If you should find yourself with a failing score, there are very specific and relatively easy steps to take after you receive your failing score. Major points of the HUD Notice H2015 memo: Second Consecutive Failed REAC Inspections –One of the most significant changes in H2012-02 is the specifically established "first fail date", which is January 17, 2014 . The rules outlined in the memo state that enforcement actions will take place on pr...
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Conflicts of Interest on REAC

  REAC Inspectors and Conflicts of Interest Lately we have been receiving calls from clients who have run into the worst sort of problems with REAC Inspectors, and unfortunately, there aren't many good resolutions to these problems. The problems have all been related to REAC Inspectors who have decided to become "consultants", and are trying to coerce properties that they have been assigned to by REAC into hiring them as consultants. Sometimes this attempt has been aggressive, rude, and on several occasions, have resulted in false scores. REAC Inspectors are not allowed to solicit any property that they have been assigned to, and are banned from doing any work for that property or any affiliated company, for a year after that inspection. Any attempt to solicit your business during a REAC Inspection is strictly prohibited, and any change to your inspection, either positive or negative, could result in the REAC Inspector losing their active certification. If any inspector either implicitly or subtlety tries to suggest that "if you had hired me as your consultant, you would be doing much better now", or "if you don't want to fail next time, you should call me" - you should politely tell the inspector that they are not allowed to discuss their other services and that you would appreciate it if they did not attempt it again. If ...
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UPCS "Other Hazards" Deficiencies

Hazardous Conditions Not Defined Elsewhere We have received many questions this year from clients about various issues that fit into a category known as "Other Hazards". This is a category that is defined as a "Hazardous Condition not defined Elsewhere". These issues are items that are observed during an inspection but do not specifically fit the UPCS Inspection code. In other words, the condition observed is "hazardous" but it does not involve exposed high voltage wires, sharp edges, tripping, or other defined conditions. This entire category of "Other Hazards" are all non-scoring, but will be recorded as "Health and Safety". Here are some examples of questions that we received this month: Aluminum Foil on Oven/Stove elements, this is not specifically a violation, but if the inspector feels that it is a fire hazard or presents another risk, it can be recorded as "Other". Damaged Playground (Private). - If any unit has a playground in the yard that is "enclosed", e.g. not in the common yard, but in a confined area only belonging to that unit - then issues with the playground would be recorded if they present a hazardous condition and would be recorded as "Other". These playgrounds would not be recorded under "Site" as they are in an enclosed private yard. Roots in a Yard - If a tree has exposed roots growing out of the ground, t...
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Bad Techniques for Monitoring REAC Inspectors

  Videotaping REAC Inspectors and Other Bad Ideas We have received a number of questions lately about the recommendations of other REAC Consulting firms to "follow REAC Inspectors with a video camera". This is apparently recommended in the desire to have a better result during an inspection, but in our opinion, managers could do nothing worse than following an inspector with a video camera. The act of videotaping an inspector is an aggressive act, and the moment the video camera is revealed, the manager is essentially saying "You are my enemy and I don't trust you." The inspector won't trust you either, and you will have created an atmosphere of animosity and aggression that will not provide you with any positive effect. If you want to improve you score, work with your inspector; offer to provide assistance getting into bedrooms and other rooms, and help the inspector as much as possible. We advise our clients to make the inspector as comfortable as possible; engage in positive conversation, assist with getting through the inspection, ensure tenants don't place inspectors in uncomfortable situations and have keys ready for every door. We are not advocating being entirely submissive to inspectors, especially if they are rude or aggressive, but you could do many, many better actions than following inspectors with video camera...
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Updated HOME Rules on UPCS

§92.251 Property Standards The changes to §92.251 reorganize the presentation of the property standards requirements and clarify and update the standards. The reorganization is intended to minimize confusion about the applicability of the codes and standards across different housing activities. It creates separate requirements for projects involving: New construction [§92.251(a)] Rehabilitation [§92.251(b)] Acquisition of standard housing [§92.251(c)] Housing occupied by tenants receiving HOME tenant-based rental assistance [§92.251(d)] Manufactured housing [§92.251(e)] Ongoing property standards for rental projects [§92.251(f)] Inspection procedures [§92.251(g)] Revisions to the property standards also address the codes cited in the pre-2013 HOME Rule that has been superseded and/or updated. The 2013 Rule provides additional specificity to the rehabilitation standards requirements in order to ensure that adequate improvements are made to support the long-term viability of HOME-funded rehabilitation projects. For new construction and rehabilitation, the 2013 Rule requires a higher degree of oversight by the PJ. It imposes requirements for the PJ to review and approve construction-related documents prior to construction, and to monitor construction progress. New Construction Projects §92.251(a)(1) requires new construction projec...
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Latest Blogs

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...
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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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HUD Published a notice in the Federal Register on May 23, 2019 entitled "Notice of Emergency Approval of Information Collection for Physical Inspection of Real Estate (NSPIRE).: This notice includes information about developing a new standardized ele...
17 May 2019
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On May 1, 2019, HUD Released a memorandum entitled "What to do when a Project Receives a Zero as a Result of an Owner Refusing to Allow HUD to Inspect." The notice clarifies a few areas:If a property fails to complete an inspection after the initial...

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