Compliance and Credits

The Tools, The Rules And How They Affect Your

HUD Multifamily Housing Project

November 1-2, 2007

What Kinds of Programs Are We Discussing?

• Grants To Local Government – HOME, CDBG

• Multifamily Mortgage Insurance

• Section 8 – Project-based, AAFs, FMRs, OCAFs, Budget Based, 50 Percent Incomes

• Vouchers

• HOPE VI

• Public Housing

Compliance

• Introductory Regulatory Issues In Non-Procurement Government Contracts. You Are In The Real Estate Business, But So Much More!

– You Have Extra Civil, Criminal Law Requirements

• False Statements Act

• False Claims Act

• 666 – Watch out for Faustian bargains!

Administrative Issues

• Flags

• LDP

• Suspension And Debarment — EPLS

Regulatory Requirements

• Audits, Inspections, Reviews

• Tax Credits — 8823s Follow HUD Handbook 4350.3 Plus New 8823 Guide

2530s

Previous Participation Review

• 24 CFR Part 200 Subpart H

• Plus Memos, Unpublished “Lore”

Key Concepts

• MPRC Process

– Principles

– Properties

– Officers

– GPs

– LPs

– LLCs

– Baseline

• Paper v. Electronic – APPs History Of Delay, Problems

• Substantive Changes Along With APPs – Federal Register Change

• New Law

• Quick Tips, Glossary

• “Absolution,” HUD “Absolves” You Of Your Sins – Sets the tone

• REMS And Interpreting With Flags – Leads To Field Office Confession

Key Business Agreements

• Regulatory Agreement – Key Documents In FHA Loans

• Read It All But Focus on:

– Limits – Para 2 – deposits

– Para 4 – rent schedule

– Para 6-Transfers (TPA), distribution (surplus cash, inspection)

– Para 7-Maintenance, Inspection

– Para 9-Management Contract, MOR, Audits

– Para 10-Fair Housing, but that applies in law by own force too

Regulatory Agreement

Section 8 Project Based

Project-Based Contract Renewals

• MAHRAA

– Multifamily Assisted Housing Reform Act of 1997

– Provides renewal terms of all section 8 project-based contracts

• Contract renewals administered by PHAs under PBCA contracts with HUD

• Rent Comparability Studies

Project-Based Contract Renewal Options

• Mark-Up-To-Market

• OCAF / Budget-Based Rent Increase

• Mark-To-Market

Project-Based Contract Renewal Options (cont’d)

• Exception projects

• Demonstration and Preservation projects

• Opt-Out

• Rent Adjustments After Renewal

Section 8 Income Levels

• Basic Section 8 Income Requirements: Families must be Low-Income (80% or less of AMI) or Very Low-Income (50% or less of AMI)

– Units First Available Prior to Oct. 1, 1981: at least 75% of units must be rented to Very Low-Income Families.

– Units First Available After Oct. 1, 1981: at least 85% of units must be rented to Very Low-Income Families.

– Exceptions: owner must demonstrate a need for broad range of incomes, insufficient Very Low-Income families, State requirements or to prevent displacement.

Section 8 Income Levels (cont’d)

• Additional Income Targeting Requirements

– Of Section 8 dwelling units that become available for occupancy in any fiscal year, not less than 40% shall be available for leasing only by families that are Extremely Low-Income (30% or less of AMI) at the time of admission

Section 8 Project-Based Rent Requirements

• Tenant Rent: Section 8 project-based programs, the total tenant rent is the total tenant payment minus the utility allowance

– TTP: generally 30% of family’s adjusted income.

– Utility Allowance: estimate of monthly cost of reasonable consumption of utilities by an energy conservative household of modest circumstances consistent with requirement of safe, sanitary and healthy living approved by PHA or HUD.

– Utility Reimbursement: amount, if any, by which utility allowance exceeds the TTP

• Minimum Rent: for section 8 project-based programs, the minimum rent is $25 with exceptions for financial hardship.

Section 8 Project-Based Rent Adjustments

• Need to review the specific section of your HAP Contract

• Three Basic Methods:

– AAF

– Budget-Based Rent Increase

– OCAF (for LIHPRHA)

Section 8 Project-Based Rent Adjustments (cont’d)

• Special Adjustments: For substantial general increases in real property taxes, assessments, utility rates, security costs and other similar costs beyond control of the owner.

• Rent Reasonableness: No material difference between rents charged for assisted units and those for comparable unassisted units.

Residual Receipts and Reserve for Replacements

• Residual Receipts v. Reserve for Replacement

• “Old” Regulation v. “New” Regulation

Comparison of Rentand

Income Limitations

Section 9 Operating Subsidy Payments

• Maximum of 80% of median; not <40% of new admissions to PHA & public housing program in any Fiscal Year must be extremely low income (below 30% of median)

• Maximum of 30% of resident’s income can be paid toward rent

• 40 years from the date the project receives its public housing capital funds, and terminating 10 years after the date the project receives its last operating subsidy payment

Section 9 Operating Subsidy Payments (cont’d)

• Any project receiving public housing capital funding is eligible to receive Section 9 operating subsidies. In addition, public housing replacement housing may be eligible to receive operating subsidies. Restrictions are contained in the Regulatory and Operating Agreement, Declaration of Trust, Annual Contributions Contract (ACC) and Mixed-Finance ACC Amendment.

Low Income Housing Tax Credits (Section 42)

• Minimum of 20% at 50% of median; or 40% at 60% of median (need to elect one or the other — needs to match TC application)

• 30% of 60% of Median or 30% of 50% of Median — as applicable

• For a term of not less than 15 years (most states have adopted a longer term) after placed in service; project is “placed in service”

• Restrictions are contained in an “Extended Use Agreement” which takes different forms in different jurisdictions (Declaration of Restrictive Covenants, Land Use Restriction Agreement, etc.).

HOME Program

• 20% of units must be occupied by tenants below 50% of median with “low HOME rents (30% of 50% of median or 30% of tenant’s adjusted income); remainder of units occupied by tenants below 80% of median

• Maximum is lesser of HUD Section 8 FMR or 30% of adjusted income of family with income = 65% of median (as adjusted by HUD)

• 20 years for new construction; for rehab projects: 5 years if <$15,000 of HOME funds, 10 years if $15,000 to $40,000; and 15 years if >$40,000 of HOME funds

HOME Program (cont’d)

• The “Participating Jurisdiction” administering the HOME funds must dedicate 90% of its HOME funds for rental activities to families below 60% of median, remainder must go to families with incomes up to 80% of median. May also be used for homeownership. HOME program incorporates some CDBG requirements (see note below). Restrictions contained in loan/grant documents which are generated by Participating Jurisdiction.

Community Development Block Grant Program

• Must benefit low and moderate income families.

• Determined by local jurisdiction loaning or granting funds to project.

• Determined by local jurisdiction loaning or granting funds to project.

• There are regulatory inconsistencies between the mixed-finance program and the CDBG regulations involving replacement unit requirements. Local jurisdiction requirements will be evidenced in loan/grant documents.

Federal Home Loan Bank –Affordable Housing Program• 20% of units must be occupied by and affordable for very low

income households (<50% of median); some funds may be used to assist households with incomes of up to 80% of median

• 30% of 60% of median

• Minimum of 15 years

• May also be used for homeownership. If loan made by member bank with AHP funds, will also be subject to bank’s underwriting criteria, and some banks have very specific eligibility requirements.

Section 8 – Existing

• Targeted to “very low income families” – <50% of median; also limited availability for “low income families” - 50-80% of median. Not <75% of families admitted to the housing authority’s voucher program in any Fiscal Year must be “extremely low-income” (<30% of median)

• Depends on housing authority’s payment standard in Housing Choice Voucher Program; Certificates: HUD’s published “Fair Market Rents” (FMRs) for locale, with some exceptions up to 120% of FMRs

Section 8 – Existing (cont’d)

• Term of Section 8 HAP Contract (generally one year)

• Section 8 vouchers stay with residents to whom issued, unless the housing authority project-bases vouchers under the project-based voucher program.

Use Agreements

• Vary Widely – Seen Only In Some Programs, Such As

– Flexible Subsidy Program

– Property Dispositions

– Non-Profit Prepayments

Financial Requirements

• Audits – This Is A Regulatory Agreement And Increasingly, HAP Requirement (usually)

– 4370.2

– Hot topic – Repayment of Advances

– Project v. Owner – 4381.5 – Common concept creating conflict

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Your FHA Loan is Non-recourse — Sort Of

• REACs

• MOR

• Integrity of Site Records

• Managers – Good Samaritan Can Hurt

• Use Agreements

Inspections

• Real Estate Assessment Center – REAC

– 170 points to reach 100 point scale

• Management Inspection – includes physical inspection

– Satisfactory/unsatisfactory scoring

• Curb appeal v. Credibility

ThisOldHouseHome

InspectionNightmares

(Click to See Next Slide)

What a TripPhoto: Charles A. Gabriels, InspectionsRus

This bathroom outlet is not a GFCI. Thank providence, this homeowner had the presence of mind to leave all of the tags on, advising of potential shock hazard, should one carelessly remove the tags.

CirculationPhoto: Ron Passaro, ASHI founder

Here's another brilliant idea: Keep the supply & return registers close together so the hot air can flow freely back to the furnace.

One has to wonderPhoto: Tom Brooks, Extra Mile Home Inspections

The top photo shows an unprotected light bulb in a homeowner-constructed shower in the basement of a home I inspected. As if that wasn't bad enough, the second photo shows that in that same bathroom, he located a switch INSIDE the shower stall!

Growth in the Real Estate Market Photo: Scott Scheuer, Protection Plus Home Inspections

What does the Standards of Practice say about "tree houses"?

Case Studies

• How Enforcement Center Works

• Harvey Case – Project v. Owner Expenses – Penalties May Not Be Worth The Principle!

• David Case – Pays To Avoid Controversial Programs and Acts (coinsurance and default), Or Be Prepared Ahead Of Time

• Livecchi Case – Owner Advances And Repayments – Respect Surplus Cash, Get Approvals and Keep Receipts!