News

Rural Housing Service Issues Final Regs on Continuous Section 538 Guarantee

On January 3, 2011, the Rural Housing Service issued final regulations for the Section 538 guaranteed multifamily housing loan program that provide for a single, continuous guarantee for construction and permanent financing. The regulation went into effect on February 2, 2011. The RHS currently offers two separate guarantees - one for the permanent loan and one for construction advances; these two types of guarantees will continue to be offered. The new continuous guarantee option will be offered only to projects with a low loan-to- cost ratio, to be specified by the RHS in a Federal Register Notice. The program will require a construction contingency reserve of 2% of the construction contract, and the RHS may also require a lease-up reserve. Developers interested in this new option should review the January 3 Federal Register notice carefully for full details on requirements. Of course, all this is contingent on there actually being money for the 538 Program (see below.)

Reminder Regarding DUNS Number

Last month, I reviewed the HUD requirement that all owners of HUD assisted properties obtain a Dun and Bradstreet Number no later than March 5, 2011. Failure to do so could result in a loss of subsidy. If you are affected by this requirement and have not yet obtained the DUNS Number, you need to get on it as soon as possible. The number can be obtained through a relatively simple two-step process, which I will outline here: 1. You may request the number online at http://fedgov.dnb.com/webform. For live assistance, you can call 866-705-5711 and choose option 4 (grantee). 2. You will have to provide very specific information to obtain the number, including the following: -Legal company name; -Headquarters company name and address; -Trade-style or DBA company name; -Employer/taxpayer Identification number used on your tax returns; -Physical address; -Mailing address; -Telephone number; -Contact name and title; and -Number of employees at the company's physical location. You should receive the number in 10-15 minutes if you request it by phone; online requests will take a couple of days.

HUD Establishes Rules for Conversion of Efficiencies to One-Bedroom Units

HUD Notice H-2011-03, issued on February 1, 2011, outlines procedures for converting efficiency units to one-bedroom units in assisted projects when the demand for efficiencies is weak and the conversion will not increase subsidy costs. While the Notice addresses only conversions for efficiency units, HUD will consider requests for other types of unit conversions on a case-by-case basis. The Notice applies to Section 202, 811, 236, 221(d)(3) BMIR, RAP, rent supplement projects, properties with Section 8 project-based assistance and properties subject to HUD use agreements or deed restrictions. A conversion must be needed due to local demand issues and owners must show that they have attempted to market the existing units. Either the average vacancy rate for the efficiency units must have been at least 25% for at least 24 months or the owner must prove that the units proposed for conversion are functionally obsolete. HUD has no authority to increase a projects budget authority for conversions, so no additional subsidy will be available.

HUD Issues Notice on Handling the Death of a Sole Household Member

Notice PIH 2010-50 (HA), issued January 1, 2011, clarifies the procedures PHAs must follow to avoid housing subsidy overpayments when the sole household member dies, including the treatment of units with live-in-aides. If the only remaining household member is a live-in-aide, the aide is not eligible for rental assistance or occupancy in a subsidized unit and cannot be designated as the new head of household. Subsidy payments terminate the month after the death of the sole household member. However, HUD now no longer requires that a PHA notify the aide that they must vacate the unit at the end of the month. HUD now says that local landlord/tenant laws relative to gaining possession should be followed if the aide does not leave. A related notice, PIH 2010-51, makes clear that a PHA may only approve one additional bedroom for a live-in aide. While the PHA may allow family members of the aide to live with the aide in the assisted unit, no additional bedrooms will be provided for those family members. This notice only applies to the following programs: Public Housing, Section 8 Moderate Rehabilitation, Project-Based Voucher, Project-Based Certificate; and Housing Choice Voucher programs. Other programs should continue to follow HUD guidance specific to that program.

Use Project Binder to Organize for HUD MOR

When HUD or Contract Administrators conduct Management & Occupancy Reviews ("MOR"), they will ask for a slew of documents. Failure to have the documents will result in MOR findings that will lower the property s score. It is a good idea to have a Project Binder where all documents can be kept and easily located. The following documents should be kept up-to-date and in the binder: Housing Assistance Payments (HAP) Contract or other subsidy contracts; Regulatory or PRAC Agreement; Most recent approved rent schedule; Current Affirmative Fair Housing Marketing Plan; Management Certification & Management Entity Profile; Most recent Management Review; Most recent REAC or Physical Property Inspection; Most recent audit; Tenant Selection Plan (TSP); 504 Self-Evaluation Plan & Procedures; Application Packet; Applicant Screening Criteria; Lease & Addendums/Amendments; House Rules, Pet Rules, Parking Agreement, Drug Free Housing, etc; Transfer Policy; Rent collection policy; Waiting list procedures; Insurance Summary Sheets; Emergency Procedures; Preventive Maintenance Plan; Capital Improvements Plan; Asset Inventory for on-site items; Vendor list; Site map with unit plans; List of employees with phone numbers; File organization sheet; Job descriptions; and Rent roll An excellent website to assist in preparing for HUD inspections is http://www.hud.gov/offices/reac.

Major Cuts – Some Increases in Administration’s 2012 Budget Proposal for HUD

The fiscal year 2012 HUD budget proposal released by the Obama Administration increases funding for Section 8 and homeless assistance, but cuts funding for CDBG, HOME, Section 202, and Section 811 housing. HUD is also proposing some key operational changes that would affect the voucher program, project-based rental assistance, and public housing. Among these changes would be a more expansive definition of extremely low-income households and a change to the medical expense deductions. The operational changes will broaden the targeting requirement for extremely low- income (ELI) households by applying it to families up to the higher of 30 percent of area median income (AMI) or the federal poverty level. This will increase the number of households that will qualify under the ELI targeting requirements. In determining adjusted income, the standard deduction for elderly and disabled households would be increased from $400 to $675, but the threshold for deducting medical expenses would be increased from 3 percent to 10 percent of gross income. In another proposed change, fixed-income families receiving at least 90 percent of income from Social Security, SSI, or similar sources would be recertified every three years instead of annually. Keep in mind - these are proposed changes - you should not change how you are currently operating in these areas.

Avoid Lease Addendums Regarding Second Hand Smoke

In Upper East Lease Assoc, LLC v. Cannon, January 2011, an owner sued a resident for unpaid rent. The resident claimed that the owner had violated the warranty of habitability by allowing secondhand smoke to infiltrate from a downstairs neighbor. The lease between the landlord and tenant had an addendum that stated, "Tenant acknowledges and agrees that the prevention by tenant, its invitees and guests, of the infiltration of secondhand smoke into the common areas of the building and/or into other apartments of the building is of the essence to this lease..." The owner attempted to resolve the secondhand smoke problem by caulking and sealing around vents, but the measures were ineffective and when the resident asked for a month of free rent along with a unit transfer, talks between the landlord and tenant broke down and the tenant stopped paying rent. The case went to trial and a New York district court said the resident was excused from paying rent after being constructively evicted, ruling that the secondhand smoke made the unit uninhabitable, thus effectively evicting the resident. The key to this ruling was that by having an addendum stating that secondhand smoke was a lease issue and related to habitability, the landlord accepted responsibility for dealing with secondhand smoke. Recommendation: Do not have a secondhand smoke lease addendum. If you want to prevent secondhand smoke, ban smoking at your property altogether.

Fair Housing v. Security; Be Careful When Deciding Whether to Show an Apartment

It is a good management practice to avoid showing apartments when a manager feels threatened in any way. I always advise managers not to show units when they fear being alone with a prospect. However, fair housing law requires the consistent application of policies, so it is critical to train managers to avoid refusal to show units due to certain characteristics of a prospect that may be protected under Fair Housing law, such as race or national origin. If your management policy permits managers to refuse to show an apartment, you should develop clear procedures on reporting and documenting such events. Any time a leasing consultant refuses to show an apartment, they should be required to write a report with a detailed explanation of the reasons for their decision and the actions they took. In all circumstances, the leasing consultant should ask the prospect to reschedule the visit for a more convenient time. Refusal to show a unit should be a rare event, so if it is happening often, this can serve as a red flag with regard to the particular leasing consultant. For example, if all the refusals involve members of one race, a discussion with the leasing consultant regarding possible bias may be warranted.