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What happens when there is a failed score on a REAC Inspection changed on May 1, 2019, when HUD Released a memorandum titled “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:

  • Properties that fail to complete a REAC inspection after the initial 14-day notice, will be given a presumptive score of zero.
  • If a REAC 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 that are to be delayed from REAC inspections. The reasons inspection can be delayed include:

  • Substantial rehab (defined as at least 15k per unit)
  • Presidentially declared disasters
  • Existing approved corrective action plans which have not been completed,
  • Fire/water damage that has affected more than 30% of the units.

Enforcement Actions on Properties with a Zero Score

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 established (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 has a project-based HUD Section 8 HAP contract. All other FHA insured programs are not subject to the 14-day notice at this time.

Updated Notice of Default Letter

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. There are also new steps for verifying Lead-Based Paint issues on pre-1978 projects. 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.

Scott Precourt is the Managing Partner and Founder of US Housing Consultants.