A little over a year ago, HUD released a memorandum on changes to what happens to Multifamily properties that receive a score of less than 60. This notice, H 2015-02, was titled “Required Actions for Multifamily Housing Projects Receiving Failing Scores from HUD’s Real Estate Assessment Center (REAC)”. In the last year, we have seen dramatic changes in how HUD is handling failing scores, especially properties with multiple failures.
If you are not familiar with this notice, it says, in short: properties that receive a score of 30 or lower once or 31-60 on two consecutive occasions (after January 17, 2014) are subject to mandatory penalties or actions. These penalties range from loss of management to the installation of a judicial overseer, foreclosure, or civil money penalties.
Have these changes been successful?
From what we have seen over the last year, on a whole, these changes have been very successful. Many owners were reluctant to make the changes that were necessary to meet the requirements of REAC. Some owners and managers disagreed with the inspection requirements of REAC and doggedly attempted to use their disagreements as their only weapon. With these new required actions, reluctant owners and managers were convinced to accept the REAC requirements and make much-needed repairs to their property.
We have worked with dozens of owners in this last year who had a long history of failing or just barely getting through inspections, and this memo convinced them that, as one client said us, “I guess HUD really means it this time.”
What is to come next?
From what we have seen, penalties and actions for failing HUD REAC inspections are going to continue, and owners and managers who have not taken the requirement seriously will be forced to find ways to meet the requirements. We also expect stricter scrutiny on REAC inspectors to be enacted in the coming year to ensure that inspectors are all doing a thorough inspection and following the HUD REAC protocol as expected.
If you have any questions about what to do with a failing score on a REAC inspection, or if you would like to ensure that you never have to find out - call us at (603) 223-0003 at any time.
When are IRs required to be processed?
Owners must process an interim recertification if a tenant reports:
If a tenant reports a change in income that does not increase the household’s cumulative income by $200 or more a month, the owner should not process an interim recertification to increase the tenant’s rent. If a tenant reports any other change addressed above along with an increase in income that does not increase the household’s cumulative income by $200 or more a month, the owner should not include the increase in income in processing the interim recertification.
Upon receiving a tenant request for an interim recertification, owners must process a recertification of family income and composition within a reasonable time, which is only the amount of time needed to verify the information provided by the tenant. Generally, this should not exceed 4 weeks.
If the reason for interim recertification is a proposed change in family composition, the owner must screen the proposed additional person(s), including live-in aides, for drug abuse and other criminal activity, including a State lifetime sex offender registration check. The owner must also obtain the new household member’s SSN, unless the household member does not contend eligible immigration status or is an individual age 62 or older as of January 31, 2010, and does not have an SSN but was receiving HUD rental assistance at another location on January 31, 2010.
The owner may also apply additional owner established screening used for applicants to proposed new persons. In the case of live-in aides, the owner-established screening criteria may also be applied, except for the criteria to pay rent on time.
When can an IR be refused?
Owners may refuse to process an interim recertification when the tenant reports a decrease in income only if the following apply: