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HUD Provides Clarification on Enforcement Measures if Owner Fails to Comply with 14-Day REAC Notice

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 14-day notice, the property will be given a presumptive score of zero. if an inspection can be completed in the next seven calendar days, the score of that inspection will be made final. If the inspection is not completed within the next seven calendar days, the score of zero will be considered final and the property will be subject to enforcement.

  • The memo includes instructions for HUD Account Executives and Resolution Specialists on how to update information about properties which are to be delayed from REAC inspections for reasons of (a) substantial rehab, (b) presidentially declared disasters, (c) existing approved corrective action plans which have not been completed, and (d) fire/water damage that has affected more than 30% of the units.
  • If a property fails with a score of zero for refusal to comply, all controlling participants will be issued a Tier-2 flag on their APPS record.
  • Once a property fails and HUD has issued a Notice of Default (NOD), a cure period will be establsihed (typically 60 days), HUD will place the property on a reinspection list to have another inspection completed. This will occur for projects which fail because of the results of a REAC Inspection as well as those with a zero for failure to comply.
  • It was also clarified that the 14-day notice memorandum does apply to FHA Insured Projects under the 542(b) Risk Share program which also have a project based HUD Section 8 HAP contract. All other FHA insured programs are not subject to the 14-day notice at this time.
  • The memo includes a new template for a "Notice of Default" letter. This letter provides detailed instructions on the steps required for the owner/agent to complete to clear the non-compliance. This letter includes new standards for reporting on the full survey required after a failed inspection, and new steps for projects which were constructed prior to 1978 to certify that the issues cited on the REAC are not in relation to any Lead Based Paint Issues.

Please let us know if you should have any questions about what to do in the event that a property fails a REAC Inspection, or to take proactive steps to find new ways to truly stay in physical compliance at all times.
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