News

Multifamily Property Owners in Forbearance Required to Inform Tenants of Protections

On August 6, 2020, the Federal Housing Finance Agency (FHFA) announced that multifamily property owners with mortgages backed by Fannie Mae or Freddie Mac (the Enterprises) who enter into a new or modified forbearance agreement must inform tenants in writing about tenant protections during the project s forbearance and repayment periods. Landlords with Enterprise-backed mortgages can enter into new, or if qualified, modified forbearance if they experienced or continue to experience a financial hardship due to the COVID-19 emergency. While in forbearance, the property owners must agree not to evict tenants solely for the nonpayment of rent. FHFA previously announced additional tenant protections that apply during the repayment periods. These protections include: Giving tenants at least a 30-day notice to vacate;Not charging tenants late fees or penalties for nonpayment of rent; andAllowing tenants flexibility to repay back rent over time and not in a lump sum. Specifically, landlords must notify tenants that they cannot be evicted for nonpayment of rent due to the pandemic. However, if tenants are able to pay their rent, they should continue to do so. In addition to the tenant notification, the Enterprises are also improving their online multifamily property loan look-up tools by putting the tenant protections on the tools landing page and by making it easier for tenants to find out if the property in which they reside has an Enterprise backed mortgage. FHFA will continue to monitor the coronavirus impact on tenants, borrowers, and the mortgage market and update policies as needed. To better understand the protections and assistance the government is offering, owners and managers should visit the joint HUD, FHFA, and CFPB website at cfpb.gov/housing.

Despite Recent HUD Guidance, States Must Still Update Qualified Allocation Plans to Reflect IRS Monitoring Regulation

In February 2019, the IRS published a final regulation on how State Housing Finance Agencies (HFAs) must monitor for compliance with the requirements of the Low-Income Housing Tax Credit Program (LIHTC). On July 1, 2020, the Service released a proposed regulation, changing one of the requirements of the 2019 guidance. The proposed regulation relaxes the minimum compliance monitoring sampling requirement for purposes of physical inspections and file reviews but did not modify any of the other requirements of the February 26, 2019 regulation. Provisions of the regulation that have not been modified are: 1. The "all-buildings" rule is retained in the final regulation except for properties that undergo REAC inspections. The IRS is concerned that HFAs may not all have inspectors as well-trained as the HUD-approved REAC inspectors and is therefore requiring a physical inspection of all buildings when the property is not undergoing a REAC inspection. 2. The "reasonable notice" timeframe: The final regulations shorten the reasonable notice requirement to a 15-day notice that a project will experience an upcoming physical inspection or file review.  Also, as noted in the regulation, under the REAC protocol, HUD or HUD-certified REAC inspectors randomly select low-income units for inspection on the day of the inspection; HFAs are now required to do the same. 3. Treatment of scattered site or multiple buildings with a common owner and plan of financing. While a number of industry practioners recommended that in the case of scattered site or multiple buildings with common ownership and financing, the HFA be able to treat the project as a single project for compliance monitoring purposes - regardless of whether or not the owner made the multiple building election on the IRS Form 8609, the final regulation does not adopt this regulation. For compliance monitoring purposes, a project will be defined in accordance with Section 42 - an HFA cannot deem separate buildings to be a project if the 8609 multiple building project election has not been made. 4. All HFAs are required to amend their Qualified Allocation Plans (QAP) to include the requirements of this final regulation. On the date the QAP is amended, Revenue Procedure 2016-15 will be considered obsolete. QAPs must be amended no later than December 31, 2020. 5. Random Selection Requirements: Agencies generally may not select the same low-income units of a low-income housing project for on-site inspections and file reviews, because doing so would usually give prohibited advance notice.  The HFA must select the units for inspections or low-income certification review separately and in a random manner. 6. Meaning of Reasonable Notice: the 15-day notice period begins on the date the Agency informs the owner that an on-site inspection of a project and low-income unit file review will occur. Notice of more than 15-days, however, may be reasonable in extraordinary circumstances that are beyond an Agency s control and that prevent an Agency from carrying out within 15-days an on-site inspection for file review. Extraordinary circumstances include, but are not limited to, natural disasters and severe weather conditions. In the event of extraordinary circumstances that result in a reasonable-notice period longer than 15-days, an Agency must still select the relevant units and conduct the same-day on-site inspection or file review as soon as possible. 7. Use of the REAC Protocol: In order to use the inspection requirements relating to the REAC protocol, the inspection must satisfy the following requirements:             (i) Both vacant and occupied low-income units must be included in the population of units from which units are selected for inspection;             (ii) The inspection complies with the procedural and substantive requirements of the REAC protocol, including the requirements of the most recent REAC Uniform Physical Condition Standards (UPCS) inspection software, or software accepted by HUD;             (iii) The inspection is performed by HUD or HUD-Certified REAC inspectors; and             (iv) The inspection results are sent to HUD, the results are reviewed and scored within HUD s secure system without any involvement of the inspector who conducted the inspection, and HUD makes its inspection report available. 8. HUD Inspections that comply with the requirements of the REAC Protocol: the number of units required to be inspected under the REAC protocol satisfies the requirements of the final regulation concerning the number of low-income units the Agency must inspect. Also, the manner in which the low-income units are selected for inspection under the REAC protocol satisfies the requirements of the final regulation. 9. File Reviews for HUD Inspections that comply with the requirements of the REAC Protocol: An Agency that conducts physical inspections using the REAC protocol is not excused from following the requirements of the final regulations in selecting the files for review. 10. Circumstances under which the same files and units may be chosen for inspection: If an agency chooses to select the same units for on-site inspections and file reviews, the Agency must complete both the inspections and file reviews before the end of the day on which the units are selected.             It is important to note that the final regulation does not include a provision for desk audits of files. The regulation states that the Agency may review the low-income certifications wherever the owner maintains or stores the records (either on-site or off-site).             While HFAs may now inspect the lesser of the applicable number of units in the REAC chart or 20% of the low-income units in the project (rounded up to the next whole number), the rest of the 2019 regulation remains in place. If not done already, HFAs must amend QAPs to reflect these changes no later than December 31, 2020.

Affordable Housing Improvements May be Included in Next COVID-19 Legislation

While it is been delayed due to a Senate recess, there will be another COVID-19 relief package. Hopefully, it will be passed by Congress by mid-August and based on indications from Congressional staff, may include a number of affordable housing components. At this point, the most likely affordable housing improvements to be included in any COVID-19 relief include: Enactment of a four percent Housing Credit Rate - this rate is currently at an all-time low of 3.07 percent, which is threatening the viability of a number of pending deals. Enacting a minimum 4 percent rate is immediately needed and would provide parity to the nine percent housing credit rate, which was enacted as part of Congress s response to the 2008 economic crisis. Not only will a four percent rate provide an immediate equity infusion into developments now stalled, but it is estimated to produce 126,000 additional LIHTC apartments over the next ten years.Provide additional basis boosts to allow developments to access additional equity if needed for financial feasibility - boosts in eligible basis will supply needed equity for developments that are not currently financially feasible. The boost would apply to rural areas and Tax-Exempt Bond financed properties. Additional boosts may also be included for vulnerable populations, such as extremely low-income tenants and Native American communities.Allow developments to access four percent credits by lowering the "50% test" - Lowering the 50% threshold for bond financed deals will provide much needed flexibility for state agencies. In addition, a number of agencies have reached their bond cap, limiting the ability to access the four percent credits. Lowering the 50% test to 25% will allow the development of up to 1.4 million more LIHTC units in the next ten years.Increase the annual LIHTC allocation by at least 50 percent, phased in over two years, and adjusted for inflation, beginning in 2021 - This increase in credits will finance hundreds of thousands of affordable homes. While there is no guarantee that any of these changes will be included in the upcoming legislation, there is broad bi-partisan support for all of these, so - we re keeping our fingers crossed.

Rapid Action Needed for Owners Needing HUD COVID-19 Supplemental Payments

On July 23, 2020, HUD published Housing Notice H-2020-08, "Availability of Funds for COVID-19 Supplemental Payments (CSPs) for Properties Receiving Project-Based Rental Assistance Under the Section 8, Section 202, or Section 811 Programs." HUD is making available CARES Act funds to offset property expenditures to combat the effects of COVID-19. The notice provides a method for owners to receive payments beyond the amounts available under the terms of their current rental assistance contracts. The supplemental payments may cover the following costs: Increased frequency of cleaning and disinfecting common areas and property management offices as a preventative measure.Intensive deep cleaning and sanitization services in response to presence of COVID-19 cases at the property, which may include treatment in units being prepared for re-occupancy, in addition to common areas.Office technology and other equipment needs to facilitate social distancing.Personal protective equipment (PPE) such as face masks and goggles, gloves, hand hygiene products for use by property management staff and for residents entering leasing offices or using common areas.Facility and equipment needs related to maintaining adequate social distancing, including but not limited to cough/sneeze barriers or modifying or limiting access to communal spaces.Site control measures to enforce shelter-in-place orders, stay-at-home orders, or visitor-restriction policies within properties.Temporary staffing, contract services, and/or supply expenditures to maintain or enhance on-going service coordination in properties designated to serve the elderly or persons with disabilities (excludes grant-funded service coordinators).Temporary staffing increases to process higher-than-normal volumes of interim tenant recertifications requested by tenants due to loss of income. CSPs are not a means to receive funding for lower tenant rent payments due to income reductions, extended vacancies, or unpaid tenant charges. These financial impacts can be addressed through Special Claim Payment requests and through tenant recertifications with corresponding subsidy voucher adjustments. The notice allows owners to submit payment requests for expenses incurred between March 27, 2020 and July 31, 2020. Requests are due to HUD or the Contract Administrator by August 5, 2020. CSP funding is not being provided on a first-come, first-served basis. All requests received by HUD or the PBCA by 11:59 PM local time on August 5 will be given equal consideration. Requests received after this deadline may be evaluated at HUD s discretion only after all other eligible CSPs have been funded, and in no case will be considered if received after August 12, 2020. Property owners and management agents should contact their assigned HUD Account Executive or Contract Administrator with any questions about property eligibility for a CSP.

HUD Implements Housing Choice Voucher Mobility Demonstration Program

On July 15, 2020, HUD published in the Federal Register a Notice implementing the Housing Choice Voucher (HCV) Mobility Demonstration Program. This program was authorized by the 2019 and 2020 Appropriations Acts. Background The 2019 Appropriations Act, signed into law on February 15, 2019, made available $25 million to carry out an HCV mobility demonstration. The 2020 Appropriations Act, signed into law on December 20, 2019, made an additional $25 million available to the demonstration. Incremental voucher assistance for the HCV Mobility Demonstration Vouchers (MDVs) and mobility-related services made available under the notice may only be provided to families with children. The vouchers are designed to encourage such families to move to lower-poverty areas in order to expand their access to opportunity areas. The demonstration is effective until October 1, 2028. Program Design Recent research shows that growing up in neighborhoods with lower levels of poverty improves the academic achievement of children and their long-term chance of success. It also reduces intergenerational poverty. The HCV program offers families with vouchers the opportunity to live in a neighborhood of their choice, including low-poverty, opportunity neighborhoods. Despite this, families with HCVs often encounter barriers to using their vouchers in communities with expanded opportunities. Some barriers are financial, such not having enough money for a security deposit or maintaining a positive credit score. Other barriers may include inadequate time to find a unit, landlord unwillingness to participate in the program, or limited awareness of neighborhood amenities, such as the location of high-performing schools. Some PHAs and non-profits have implemented "housing mobility programs" to help reduce barriers for families with vouchers to live in neighborhoods of their choice. These programs often include "mobility-related services" such as pre- and post-move supports, family financial assistance (e.g., security deposits), landlord outreach, and housing search assistance. Building on recent research, and evidence from prior and existing housing mobility programs, the Seattle Housing Authority and King County Housing Authority partnered with researchers from Opportunity Insights, to implement and evaluate a housing mobility program they named "Creating Moves to Opportunity (CMTO)." Based on the initial report provided by the researchers, the provision of mobility-related services appear to have helped create strong gains in the number of families who moved to opportunity areas. Through the demonstration, HUD will implement, test, and evaluate whether housing mobility programs designed to increase family choice, actually expand access to opportunity neighborhoods. Overview This demonstration will allow participating PHAs throughout the country to implement housing mobility programs by offering mobility-related services to increase the number of voucher families with children living in opportunity areas. Again - only families with children may participate in the demonstration. To be eligible for the demonstration, PHAs must meet eligibility criteria, described in Section V of the notice. The demonstration includes four statutory categories of eligibility: Category A: PHA Partnerships;Category B: Consortia with High-Performing Family Self-Sufficiency (FSS) Program;Category C: Consortia with Small PHA; andCategory D: Single Agency HUD anticipates that most applications for the demonstration will come from multiple PHAs within a region submitting one application jointly. The demonstration is expected to be implemented by PHAs over the course of six years. Demonstration Size Using publicly available data on costs for mobility-related services, HUD estimates that there is enough available mobility-related service funding to provide services to at least 9,500 families. Preliminary calculations indicate that a minimal sample size of 1,950 families with children at each PHA site, across both treatment groups and the control group, is necessary to detect the impact of the treatments. To meet the minimum enrollment requirements, PHAs will primarily recruit and enroll existing voucher holders to participate in the demonstration. Award Description HUD expects to make approximately 5 - 10 awards for MDVs and mobility-related services together. HUD expects the minimum award amount, including both MDVs and mobility-related services funding, likely to be no less than $4 million and the maximum award likely to be no more than $10 million. HUD expects to announce the awards under this demonstration in December 2020, so interested PHAs need to move quickly. Only PHAs that already administer HCVs are eligible to apply. PHAs seeking additional information on this demonstration should contact Rebecca Primeaux, Director of the Housing Voucher Management & Operations Division at HUD. Her phone number is 202-708-1112 and her mailing address is Department of Housing & Urban Development, Seventh Street SW, Room 4214, Washington, DC 20410.

HUD Issues Final FAST Act Streamlining Rule

The Department of Housing & Urban Development (HUD) has issued its final rule implementing Fixing America s Surface Transportation (FAST) Act legislation. The rule was effective on June 8, 2020. In the final rule, HUD made official the FAST Act changes to requirements relative to asset verification, utility allowance reimbursements, and triennial income verifications. Fixed-Income Verification "Fixed income" is defined as periodic payments are reasonably predictable levels from one or more of the following sources: Social Security, Supplemental Security Income, Supplemental Disability Insurance;Federal, state, local, or private pension plans;Annuities or other retirement benefit programs;Insurance Policies;Disability or death benefits;Other similar types of periodic receipts; andAny other source of income subject to adjustment by a verifiable cost-of-living adjustment (COLA) or current rate of interest. Under this final rule, owners may streamline income recertification procedures for families with income that comes from fixed-income sources. This means that such income only has to be verified at move-in and then every three years thereafter. In the intervening years, the owner may use a previously determined or verified COLA or interest rate adjustment specific to each source of fixed-income. This significantly reduces the paperwork burden on both tenants and management. If at least 90% of a family s income comes from a fixed-income source, an owner may - but it not required to - adjust the non-fixed income using the same methodology, and verification of the non-fixed income is not required. If less than 90% of household income comes from fixed-income sources, all non-fixed income must be verified each year. This "streamlining" applies only to the verification of income. If a household has medical expenses that are deducted for purposes of determining adjusted income, the medical expenses must be verified each year. Changes to Asset Verification Procedures If a household has total assets with a cash value of $5,000 or less, the final rule requires full verification of assets only every three years, with self-certifications in the interim years. Management should be aware that anytime verified assets exceed $5,000, the assets will have to be fully verified in the following year. The ability to accept self-certifications only applies for the two years following a year in which the assets have been verified to be $5,000 or less. Utility Reimbursements When tenants pay for their own utilities, owners must reimburse tenants if the utility allowance exceeds the total tenant payment. The payments have generally been made monthly, and in the case of very small reimbursements, the administrative costs associated with processing the payments may approach the reimbursements themselves. With the final rule, owners may make utility reimbursements on a quarterly basis if the reimbursement is $15 or less per month ($45 per quarter). For example, assume a utility allowance of $100 per month and a Total Tenant Payment of $90. The utility reimbursement is $10 per month. Since it is not more than $15 per month, the owner may make the payment quarterly, so a payment of $30 may be made to the tenant on a quarterly basis, rather than $10 per month. Owners who use this option must have a policy to assist tenants for whom the quarterly reimbursement will be a financial hardship. Owners are not required to implement any of these streamlining procedures, but if they do so, a property s written policies should be amended to outline the use of the procedures.

IRS Provides Clarification on COVID-19 Issues

The IRS recently issued guidance relating to COVID-19 relief for LIHTC projects (July 1). The National Council of State Housing Agencies (NCSHA) requested clarification from the IRS on two of the provisions in the IRS Notice (Notice 2020-53): (1) suspension of the owner requirement to perform tenant income recertifications, and (2) suspending the Housing Credit allocating agency requirement to conduct compliance monitoring inspections or reviews. The IRS has provided clarification to NCSHA in these two areas and Erica Etterling, the Rental Compliance Support Manager at Virginia Housing, was kind enough to share that response with me - I am now sharing it with my subscribers. Income Recertifications According to IRS Notice 2020-53, an Owner of a LIHTC project is not required to perform tenant income recertifications that were due for the period April 1, 2020 to December 31, 2020. The owner must resume the income recertifications as due after December 31, 2020. NCSHA asked whether owners need to perform income recertifications that are skipped during this period after December 31, and if so, the timeframe the owner has for completing them. In response to this question, the IRS indicated that the income recertifications do not need to be made up because the requirement to perform them during this time period is waived. So, income recertification due between April 1, 2020 and December 31, 2020 do not need to be done. Owners should commence the 2021 recertifications when they would have been due if the 2020 recertifications had not been waived. Compliance Monitoring Based on Notice 2020-53, HFAs are not required to conduct compliance monitoring reviews or inspections during the period April 1, 2020 to December 31, 2020. The HFA must resume compliance monitoring inspections or reviews as due after December 31, 2020. NCSHA asked two questions relative to this guidance: Does the word "reviews" in this section refer to tenant file reviews, or is the relief in this section limited to physical inspections only? In response, the IRS indicated that the word "reviews" refers to tenant file reviews.Do HFAs need to conduct the inspections or reviews skipped from April 1, 2020 to December 31,2020 in 2021, and if so, what timeframe does the Agency have for completing them? The IRS indicated that the compliance monitoring inspections or reviews do not need to be made up because the requirement to perform them during this time is waived. Owners should keep in mind that HFAs may impose their own requirements in these areas and that should be expected. Three potential areas where the agencies may impose more stringent requirements are (1) the recertification requirements for first year recertifications (i.e., the first year after move-in), (2) student status and household composition recertifications, and (3) the agencies may not want to go six years between reviews of a property, which based on the waiver of reviews and inspections could theoretically occur. As always, owners and managers should coordinate closely with the appropriate HFA with regard to annual recertifications and monitoring.

Normal Wear & Tear - What is it?

A question I often get from clients with regard to the requirement to return security deposits is "What is the difference between normal wear and tear and tenant damage?" It s an important question, because the landlord/tenant laws in virtually every state prohibit the use of tenant security deposits for "normal wear and tear" in apartments. Normal wear and tear is damage that naturally occurs in an apartment due to aging and regular use. It typically results from a resident living in the property and is considered normal depreciation. It is not caused by neglect or abuse of the property. Landlords need to repair normal wear and tear at their own expense - but this is not the case for tenant damages. Normal Wear and Tear vs. Damage Normal wear and tear is different than tenant caused damage. Normal wear and tear occurs naturally over time. Damage caused by tenants is not a result of aging but is a result of negligence, carelessness or abuse. Normal wear and tear is required to be paid for by the landlord and tenant damage is not. Let s take a look at some examples of types of normal wear and tear and tenant caused damage and the differences between the two: Carpet: The average useful life of carpet is five years. Normal wear and tear of carpet would be gently worn carpets that show some worn patches but no holes or stains. Examples of tenant damage to carpet would be pet stains and ripped carpeting. Cigarette burn holes are another example of tenant damage to carpet.Hardwood Floors: The average useful life of hardwood floors is 25 years. Fading of such flooring due to sunlight exposure is normal wear and tear, as would light surface scratches. However, deeply scratched hardwood floors or pieces of the hardwood missing would be considered tenant damage.Tile: The average useful life of tile is 25 years. Dirty grout surrounding the tiles is normal wear and tear, but broken, chipped, or missing tiles is tenant damage.Windows: The average useful life of windows is 20 years. Lightly scratched glass and worn, loose hardware is normal, while broken glass, ripped screens, and broken hardware are tenant damage.Countertops: Depending on the quality of the countertop, the useful life can be 20 years or more. All countertops can be expected to have scratches and watermarks, but chips, burnt areas, and/or multiple stains should be considered tenant damage.Walls: Walls should last for the lifetime of the structure. Cracks in the walls caused by building settling would be normal wear and tear, but holes or damage from hanging pictures is tenant damage.Paint: Most paint has a useful life of three years. Fading paint from sunlight minor scuffing from daily use is normal, but paint that has been scribbled on or unauthorized paint colors should be paid for by the tenant. The two most common areas of dispute between landlords and tenants regarding normal wear and tear or damage are carpet and paint, so a deeper dive into these areas may be useful. Normal Wear & Tear vs Damaged Carpet If the carpet has been in place for five years or longer, it s the landlord s responsibility to replace it, since that is generally recognized as the useful life of apartment carpet. If the carpet has light sun damage or is showing signs of wear, that is normal wear and tear and the landlord cannot blame the tenant. It is the landlord s responsibility to keep a unit free of hazards. So, if the carpet has worn out over the years and becomes a tripping hazard, it should be immediately replaced and paid for by the landlord. But, if the carpet has been ripped or has excessive fraying, it is the tenant s fault and the replacement cost may be deducted from the tenant s security deposit. Further, if the carpet is stained either by a pet or spilling food, wine, dirt, and more, it is considered tenant-caused damage and may also be deducted from the security deposit. Also, odors from heavy smokers that require replacement of carpet in less than five years could be considered tenant caused damage, although if smoking is permitted, a court could reasonably take the position that this is normal wear and tear for a smoker s unit. State laws vary on landlord-tenant laws regarding security deposits, but generally, the landlord needs to get a repair quote from a licensed contractor and send the tenant an itemized list of the damage along with a check for the remainder of the security deposit. Normal Wear & Tear vs Damaged Paint Peeling paint, sun damage, or a small number of scuffs are considered normal wear and tear and the landlord should touch them up or re-paint between tenants. Ceiling paint usually lasts longer since no one is constantly touching the ceiling. Ceiling paint should be touched up when a leak occurs or on an as-needed basis. If the paint has holes in it, excessive scuff marks or other marks such as drawings or scribbles, it is considered damage caused by a tenant. In this case, the cost to fix the damage and paint the walls may be deducted from the tenant s security deposit. You can do this by getting a quote from a licensed contractor and sending the tenant an itemized list of damages, along with a check for the rest of the deposit. Ultimately, the difference between normal wear and tear and tenant damage must be judged case-by-case. But, damage caused by natural forces or daily use should generally be considered normal wear and tear, while damage requiring more than routine maintenance or replacement is often beyond normal wear and tear. If challenged by a tenant with regard to the return of a security deposit for damages, a landlord must be prepared to show clearly that the issue goes beyond what would be considered "normal" wear and tear.