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 have any point value if, and only if, the inspector records the deficiency correctly in their report software (RAPID DCD 4.0).

There are actually quite a few resident owned items that can be recorded as a deficiency, however, according to the UPCS protocol; deficiencies with these items are to be recorded in such a way that no point values are associated with them. The Compilation Bulletin (UPCS Protocol) states under Part II: UNIT pg 32 Sec A:

"All other resident-owned property will be inspected for Health and Safety deficiencies only. Health and Safety deficiencies observed on property owned by the residents must be recorded as [Health and Safety], [appropriate room location], [Hazards], [ANY OTHER – This Does Pose a Risk of Bodily Injury]. Examples of resident owned property are fire extinguishers, mirrors, picture frames, fan covers, and play equipment."

If the inspector follows protocol and correctly records the deficiency, it will be recorded, however, without points being associated. Don't let this or something similar happen to you during your next REAC inspection… be sure to have the professional Inspection Analysts from US Housing Consultants help you prepare and be there to shadow the REAC inspector at the time of your inspection. Schedule your REAC Preparation & Shadow as soon as you received notification of your next inspection.

Do you have a REAC related question, story, or topic that you would like more information on? Ask the professionals at US Housing Consultants and be sure to check out our to keep up with the latest updates and REAC information.

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 the best approach to take.

In some cases, properties have violated the local area code requirements to conform to the UPCS/REAC inspection protocol. The desire to meet REAC's standards without any rebuttal or appeal can result in conditions that are substandard or in violation of local code. The most common occurrence of this is electrical panels that were modified to meet the UPCS/REAC inspection protocol. These panels may have been modified by property staff at the direct advice of REAC inspectors (advice or guidance that should not be offered, but often is), when it is then discovered that the panels were never in violation of the local area electrical code to begin with.

Here is the best approach: Rather than attempting to make the electrical panels conform to the UPCS/REAC inspection protocol, get a recommendation from a licensed electrician. If they confirm that the panels are not creating a hazard and were installed by the local area requirements, then an appeal would be possible no matter what. If a REAC inspector still deems the electrical panel to be deficient after following the advice of your electrician, you could always appeal using a statement from the electrician confirming that the panels meet the local area code requirements.

Making any modifications on your own has become riskier than ever. REAC inspectors will be looking for any modifications made to the panel and will assume an exposed wires hazard if they see any significant DIY modifications made to the panel, such as caulking applied between breakers or around a panel to fill gaps, or sheet metal pieces attached to the panel cover to cover holes or gaps.

In short, a bad repair may result in a bigger or an automatic deduction. Make sure to take any advice regarding repairs provided by REAC inspectors with a grain of salt; instead follow the advice of licensed trade professionals who can ensure you stay in compliance with your local area code requirements. Remember that you can always file an appeal if necessary, and of course, US Housing Consultants can assist with simplifying the appeal process and ensure the best possible outcome - never hesitate to call us.

Useful Tips Regarding LIHTC Acquisition Rehabilitations

Acquisition Rehabilitations under the LIHTC program present a number of unique challenges for owners and site managers. Under an acquisition rehab, a building may be purchased with existing residents who are then qualified in-place, as of the date of acquisition/purchase. We have compiled a few answers to questions you may have throughout this process.

Q. Which income and rent limits should I use when determining if an applicant or in-place resident is eligible?

A. Income and rent limits are based on your PISD (placed in service date), which is set at the date of acquisition. For example, if the property was officially acquired on 10/1/2016, you will use income limits current as of 10/1/2016 to qualify your residents. Rent limits are set by the owner, no later than the PISD. The owner may choose to elect either the date of allocation, or the PISD as the date the gross rent floor is effective.

Q. How do I certify in-place residents?

A. Residents are certified in a manner similar to Annual Recertifications. They must be notified, questionnaires must be completed, and income (and applicable assets) must be 3rd party verified. As with recertifications, everything must be completed within 120 days of the effective date (your acquisition date). This includes the TIC, verification forms, 3rd party documentation, and resident/management signature dates. However, for acquisitions, paperwork may fall before or after the acquisition date, as long as everything has been completed within 120 days. Do not backdate any verifications or signatures. Your compliance auditor will be aware of acquisition mechanics.

Q. What is the Safe Harbor Rule?

A. When a resident is certified and income qualified as of the acquisition date, the unit is considered qualified under the safe harbor rule. This protects the resident and management in the event that the household's income goes up after an extended rehab process, before credits can be claimed. (Note: This rule only applies to income, not student status.) If credits will be claimed in the year following the initial income eligibility determination, a self-certification from the resident stating there have been no changes to income may be required, along with a new Student Status Certification.

Q. What if I don't certify a resident in time?

A. Occasionally, a resident's certification will not be completed within 120 days of the acquisition. When this happens, the resident is no longer entitled to safe harbor protection, and the Initial Certification date on the TIC will simply become the date the file was completed (rather than the acquisition date). Similarly, for new residents, the effective date will simply be the move-in date.

Q. What if I find out a resident does not qualify?

A. If in the process of certifying, you find that a resident is not LIHTC qualified, his/her unit becomes non-qualified. The unit can only begin to qualify for credits once the existing resident moves out and an eligible household moves in.

Q. When can I claim credits on a unit?

A. You may not claim full credits until rehab is complete. A rehab is considered complete once minimum expenditures have been met (20% of the adjusted basis, or $6700 per low-income unit). A unit counts as qualified when: The building has been in service for a full month, and the unit in question has been leased to a qualified household as of the last day of the month.

The above Q&A provides basic information for qualifying tenants and applicants for an acquisition rehab. Occasionally, you may be presented with a more challenging file. For questions that are more complex than what we have provided, we recommend that you consult with your investor or auditing agency or consider hiring us to do more research on your behalf

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