News

Justice Department Sues RealPage for Colluding to Raise Rents

On August 23, 2024, The U.S. Department of Justice filed an antitrust lawsuit against RealPage, a real estate software company used by many affordable housing properties, alleging that its software enabled landlords to collude in raising rents across the United States. The lawsuit, supported by eight states (North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee, and Washington), marks a significant case where an algorithm is central to price-fixing claims. RealPage s software, YieldStar, collects confidential data from landlords about rents and occupancy and is accused of generating rent suggestions exceeding market-driven prices. The Justice Department claims this has led to artificially inflated rents for millions of renters. RealPage, owned by private equity firm Thomas Bravo, advertises its software as a tool for landlords to outperform market rent rates by 3-7%. The company has previously denied any illegal activity, arguing that landlords are not required to follow its pricing suggestions and that factors such as housing undersupply are more responsible for rising rents. This lawsuit, which is being filed in the Middle District of North Carolina, is part of a broader government effort to regulate the misuse of technology in various sectors, with the Justice Department and Federal Trade Commission also investigating the role of algorithms in price-setting across different industries. The suit against RealPage comes when rent increases and housing affordability have become significant political issues, contributing to inflation and economic challenges leading up to the 2024 presidential election. In November 2023, the District of Columbia sued RealPage and 14 of the district's largest landlords, the first such lawsuit by a public agency. Arizona followed in February, accusing RealPage and nine landlords of illegally conspiring to raise rents for hundreds of thousands of renters in the Phoenix and Tucson areas. Affordable housing operators, including operators of LIHTC properties who use YieldStar, should be aware of this lawsuit and carefully monitor its progress.

A. J. Johnson Partners with Mid-Atlantic AHMA for Affordable Housing Training - September 2024

In September 2024, A. J. Johnson will join forces with the Mid-Atlantic Affordable Housing Management Association to conduct training for real estate professionals. Three sessions, tailored for those in the affordable multifamily housing field, will be delivered through live webinars. The following sessions are scheduled: September 10, Basic LIHTC Compliance- Course Overview: This training is designed primarily for site and investment asset managers responsible for site-related asset management. It is especially beneficial to those managers who are relatively inexperienced in the tax credit program. It covers all aspects of credit related to on-site management, including the applicant interview process, determining resident eligibility (income and student issues), handling recertification, setting rents - including a full review of utility allowance requirements - lease issues, and the importance of maintaining the property. The training includes problems and questions to ensure students fully comprehend the material. September 17: Dealing with Income and Assets in Affordable Multifamily Housing - Course Overview: The live webinar provides concentrated instruction on the required methodology for calculating and verifying income and determining the value of assets and income generated by those assets. The first section of the course involves a comprehensive discussion of employment income, military pay, pensions/social security, self-employment income, and child support. It concludes with workshop problems designed to test what the student has learned during the discussion phase of the training and serve to reinforce HUD-required techniques for determining income. The second component of the training focuses on a detailed discussion of requirements related to determining asset value and income. It applies to all federal housing programs, including the low-income housing tax credit, tax-exempt bonds, Section 8, Section 515, and HOME. Multiple types of assets are covered, both in terms of what constitutes an asset and how they must be verified. This section also concludes with problems designed to test the student s understanding of the basic requirements relative to assets. September 26: Intermediate LIHTC Compliance - Course Overview: Designed for more experienced managers, supervisory personnel, investment asset managers, and compliance specialists, this program expands on the information covered in the Basics of Tax Credit Site Management. A more in-depth discussion of income verification issues and minimum set-aside issues (including the Average Income Minimum Set-Aside), optional fees, HOTMA changes, and use of common areas are included. The Available Unit Rule is covered in great detail, as are the requirements for units occupied by students. Attendees will also learn the requirements for setting rents at a tax-credit property. This course contains some practice problems but is more discussion-oriented than the Basic course. A calculator is required for this course. These sessions are part of a year-long collaboration between A. J. Johnson and MidAtlantic AHMA designed to provide affordable housing professionals with the knowledge needed to effectively manage the complex requirements of the various agencies overseeing these programs. Persons interested in this training may register by visiting either www.ajjcs.net or https://www.mid-atlanticahma.org.

A. J. Johnson Releases the 2024 Edition of the Professional Property Manager's Guide to the LIHTC

The 2024 Edition of A. J. Johnson s "The Professional Property Manager s Guide to the Low-Income Housing Tax Credit" has been released, offering a vital resource for professionals managing LIHTC properties. Originally a concise 19-page overview of the LIHTC program in 1987, the guide has evolved into a comprehensive 163-page manual addressing the current complexities of LIHTC property management. Evolution of the LIHTC Program The last update in 2019 reflected a stable LIHTC program, with its effectiveness in generating affordable housing well-recognized. As of April 2024, the program remains popular and essential in the affordable housing sector, but the integrity of the program must be maintained through careful management and compliance. Since 2019, the LIHTC program has undergone several reforms to enhance its effectiveness in addressing affordable housing challenges. These changes include: Increased Allocation Authority: This adjustment stimulates more affordable housing production. Income Averaging: This policy allows for a broader range of income levels to be served by LIHTC properties. 4% Fixed Rate for Bond-Financed Projects: This reform aims to attract more private investment by stabilizing financial expectations. In response to the COVID-19 pandemic, temporary relief measures were introduced to ease compliance requirements and extend deadlines, providing essential flexibility during the crisis. Impact of Recent Regulatory Changes The 2024 Guide addresses the 2023 publication of the final Housing Opportunities Through Modernization Act (HOTMA) rule by HUD, which includes several changes impacting the LIHTC program. Additionally, HUD s implementation of the National Standards for the Physical Inspection of Real Estate (NSPIRE) has altered the inspection approach for many Housing Credit Agencies. However, the full impact on LIHTC properties is still being assessed. Compliance and Monitoring State agency compliance differences persist, but the industry has largely aligned on the necessary operational procedures to minimize credit risk. The IRS Audit Guide has clarified IRS expectations for LIHTC project operations, making compliance a more accessible target for property managers. The 1990 Amendments to Section 42 of the Internal Revenue Code mandated compliance monitoring for all properties utilizing the credit, effective from January 1, 1992. State Housing Finance Agencies are responsible for this monitoring, with specific requirements outlined in each State s Allocation Plan. Since January 1, 2001, State Housing Finance Agencies must review all new buildings and 20% of low-income units and resident files by the end of the second year after the final building in a project is placed in service. Following this initial review, HFAs continue to inspect a percentage of units and files, generally 20%, every three years. A Resource for Practitioners The 2024 Edition of the guide is designed to assist property managers and other professionals overseeing tax credit properties in navigating the LIHTC program. While it does not delve into the highly technical or legal aspects of the tax credit, it offers sufficient detail to help operators successfully manage LIHTC properties in compliance with both state and federal requirements. For specific legal or tax advice, readers are encouraged to consult with professionals in those fields. In summary, this guide is an essential tool for those managing LIHTC properties, helping them understand and meet the program's requirements while maintaining the integrity and success of the projects under their care. To purchase this invaluable resource, go to the link lihtc.guide. As always, if you have any questions about the content of The Guide, contact A. J. directly at aj.ajjcs@gmail.com

A.J. Johnson Consulting Services, Inc. Welcomes Back Lori Neff

A.J. Johnson Consulting Services, Inc., a leader in affordable housing compliance consulting, is thrilled to announce the return of Lori Neff to our team. Lori rejoined the company on July 16, 2024, bringing diverse experience and expertise. A Familiar Face with Fresh Perspectives Lori worked as a Compliance Analyst with A.J. Johnson Consulting from 2003 to 2008 before establishing her own consulting firm. In the intervening years, she has expanded her skill set by working as a financial planner, loan officer, and insurance agent. This multifaceted background enhances our ability to provide comprehensive consulting services to our clients in the affordable housing industry. Expanding Our Expertise Lori's return significantly broadens our company's capabilities. Her expertise spans: Banking and financial services Property management Loan administration Insurance sales Client relationship management Additionally, Lori holds licenses as a Life & Health Insurance Officer and a Mortgage Loan Officer. She maintains affiliations with various professional associations in the mortgage and home-building industries, keeping her at the forefront of industry developments. A Specialized Role In her new position, Lori will work within our company's "Special Projects" section, focusing on extensive or unusual property reviews. Her responsibilities will include: Conducting tax credit, HOME, Section 8, and Section 515 compliance reviews Performing asset management reviews for various investor clients Handling complex cases that require in-depth analysis and expertise A.J. Johnson, founder of A.J. Johnson Consulting Services, Inc., commented on Lori's return: "We are more than pleased to welcome Lori back to the fold. Her diverse experience and deep understanding of our industry will ensure that our clients continue to receive the most comprehensive consulting services in affordable housing." Lori's return to A.J. Johnson Consulting Services, Inc. underscores our commitment to providing top-tier expertise and service to our clients. As the affordable housing landscape continues to evolve, we are confident that Lori's contributions will help our clients easily navigate complex compliance and management challenges. We invite our clients and industry partners to join us in welcoming Lori Neff back to the A.J. Johnson Consulting Services team.

Understanding HUD Special Claims

Understanding HUD Special Claims: A Comprehensive Guide for Property Owners and Managers Financial losses due to vacancy, unpaid rent, and tenant damages in subsidized housing can significantly impact property owners. The U.S. Department of Housing and Urban Development (HUD) recognizes this challenge and offers a solution through its special claims process. This article delves into the intricacies of HUD special claims, providing essential information for property owners and managers to navigate this reimbursement system effectively. What are HUD Special Claims? HUD special claims are a reimbursement mechanism designed to compensate owners of eligible HUD projects for financial losses resulting from vacancy loss, unpaid rent, and tenant damages. While filing these claims is not mandatory, it is highly recommended. Management agents who neglect to file special claim requests fail to collect funds the property owner is entitled to and may also violate the terms of their Management Agreement. Eligibility Criteria The special claims process is available for several project types, including: Section 8 Section 202/8 Section 202 PAC Section 202 PRAC Section 811 PRAC To be eligible for a special claim related to unpaid rent, other charges, or damages, the former tenant must have been: Receiving rental assistance at the time of move-out or Had rental assistance terminated before moving out due to failure to comply with program requirements, such as: Not providing necessary information about family composition and income Failing to provide social security numbers Refusing to sign consent forms, verification forms, or HUD-50059 Not establishing citizenship or eligible immigration status Failing to move to an appropriately sized unit within 30 days of notification Special Requirements for Unpaid Rent and Other Charges To successfully claim for unpaid rent and other charges, owners/agents must meet several criteria: Proper Security Deposit Collection: The tenant must have provided the appropriate security deposit. Failure to do so may result in a reduced claim amount. Debt Collection Efforts: Owners/agents must certify they have billed tenants for unpaid rent and taken reasonable steps to collect the debt, including: Sending a certified letter detailing unpaid charges, demanding payment, and involving a collection agency if the tenant fails to pay. Compliance with State and Local Laws: The claim must adhere to state and local laws regarding security deposit deductions. Allowable Charges: "Other charges" may include fees for unreturned keys, late payments (if permitted by lease and local law), and previously billed damages that remain unpaid at move-out. Non-Allowable Charges: Legal fees, collection agency fees, unpaid utility bills, and costs for photographing unit damage are not eligible for claims. Special Requirements for Tenant Damages For damage claims, additional requirements apply: Certification of Tenant Negligence: Owners/agents must certify that the claimed damages resulted from tenant negligence or abuse. Extraordinary Repairs Only: Claims should be limited to repairs and replacements beyond normal wear and tear. No Duplication of Reimbursement: Owners cannot claim for damages already reimbursed through insurance, Reserve for Replacements, or Residual Receipts accounts. Proper Tenant Notification: Failure to provide tenants with an itemized list of damages will result in claim denial. Supporting Documentation To substantiate claims, owners/agents must provide comprehensive documentation, including: For Unpaid Rent: Signed HUD-50059 form showing required security deposit Proof of security deposit collection Copy of certified letter sent to tenant Documentation of collection agency efforts HUD approval for other charges (if applicable) For Damages: Move-in and move-out inspection reports Security deposit disposition notice Repair cost breakdown (invoices, receipts, or owner/agent certification) Claim Limitations and Timeline The total claim amount for unpaid rent and damages is capped at the monthly contract rent when the tenant vacated or had assistance terminated, minus the security deposit plus any interest earned. This limitation ensures fair compensation while preventing excessive claims. Importantly, HUD or the Contract Administrator must receive claim forms within 180 calendar days of the unit becoming available for occupancy. This timeline emphasizes the need for prompt and efficient claim processing. Conclusion The HUD special claims process offers property owners and managers a valuable opportunity to recover financial losses in subsidized housing scenarios. By understanding the eligibility criteria, documentation requirements, and claim limitations, housing professionals can effectively utilize this system to maintain financial stability and operational efficiency. While the process may seem complex, diligent record-keeping and adherence to HUD guidelines can streamline the claim submission process. As the housing landscape evolves, staying informed about such reimbursement mechanisms becomes increasingly crucial for successful property management in the affordable housing sector. For more detailed information and updates, property owners and managers are encouraged to consult the HUD Special Claims Processing Guide (HSG-06-01) and stay abreast of any policy changes or updates from HUD.

Rural Development Releases 2024 Income Limits

The Rural Development Service of the United States Department of Agriculture has released the 2024 income limits for the Rural Development Multifamily Housing (Section 515) program. The limits were effective July 12, 2024, and may be found at RD-MFHLimitMap.

A. J. Johnson Offers Live Webinar on Tenant-on-Tenant Harassment

A. J. Johnson will conduct a webinar on June 20, 2024, on Navigating the Challenges Dealing with Tenant-on-Tenant Harassment in Multifamily Housing. The Webinar will be held from 1:00 PM to 2:00 PM Eastern time. Attending a webinar on Tenant-on-Tenant Harassment is crucial for multifamily housing professionals for several reasons: Understanding Legal Responsibilities: Gain insight into federal, state, and local laws regarding tenant harassment and the responsibilities of housing providers in preventing and addressing such issues. Enhancing Tenant Safety: Learn strategies to create a safe and respectful living environment, thereby reducing the risk of harassment and ensuring the well-being of all tenants. Improving Conflict Resolution Skills: Develop skills to effectively mediate and resolve conflicts between tenants, which can prevent harassment situations from escalating. Protecting Property Reputation: Learn the impact of tenant harassment on the property's reputation and how proactive management can enhance community perception and tenant satisfaction. Minimizing Legal Risks: Learn about the potential legal ramifications of tenant-on-tenant harassment and how to mitigate these risks through proper documentation, response protocols, and preventative measures. Compliance and Best Practices: Stay updated on best practices and compliance requirements to ensure the property meets all legal standards and fosters a harassment-free environment. Enhancing Staff Training: Acquire knowledge that can be used to train staff members to recognize, prevent, and respond effectively to tenant harassment. Creating a Positive Community: Foster a positive, inclusive, and respectful community culture that can improve tenant retention and satisfaction. By attending this webinar, multifamily housing professionals can equip themselves with the necessary tools and knowledge to handle tenant-on-tenant harassment effectively, ensuring a harmonious living environment and safeguarding their property s reputation and legal standing. Those interested in participating in the Webinar may register on the A. J. Johnson Consulting Services website (www.ajjcs.net) under "Training Schedule."

HUD Proposed Changes to HOME Program are Comprehensive

On May 15, 2024, HUD published a preview of a Notice of Proposed Rulemaking proposing significant changes to the HOME Program. The proposed rule is expected to be published in the Federal Register before June, and public comments are due no later than 60 days after that publication. The proposed rule would make changes in many areas: Community Housing Development Organization (CHDO) Requirements: Major revisions to CHDO requirements are proposed to streamline processes and improve efficiency. HOME Rents Approach: A new methodology for setting HOME rents is being introduced to better align with current housing market conditions. Small-Scale Rental Projects: Requirements for small-scale rental projects will be simplified, making it easier for developers to comply. HOME Tenant-Based Rental Assistance (TBRA) Programs: The proposed changes will provide greater flexibility in TBRA programs, allowing for more effective tenant support. Community Land Trusts (CLTs): New flexibilities and simplified provisions are being proposed to encourage their use and effectiveness. Tenant Protections: The rule would significantly strengthen tenant protections by mandating a HOME tenancy addendum with a uniform set of protections to be included in leases of all HOME-assisted rental housing units. For tenants receiving TBRA, a streamlined set of protections will be required. Advanced Property Standards: HUD proposes incentives for meeting higher property standards incorporating green building practices, enhanced energy efficiency, and innovative construction techniques for new construction, reconstruction, and rehabilitation projects. Homeownership Housing Resale Requirements: Clarifications to resale requirements for homeownership housing are included to ensure transparency and consistency. Technical Amendments and Simplifications: The proposed rule will make technical amendments and simplifications to align with the changes introduced in the 2013 HOME Final Rule. These proposed changes are part of a broader effort to modernize and improve the HOME program, incorporating updates from the Housing Opportunity Through Modernization Act of 2016 (HOTMA), the Economic Growth Regulatory Relief and Consumer Protection Act, and the National Standards for the Physical Inspection of Real Estate (NSPIRE) Final Rule. Additionally, the rule updates citations to align with recent changes to the Office of Management and Budget (OMB) regulations at 2 CFR part 200. HUD plans to publish further rulemaking to ensure consistency across all regulations. The proposed changes are detailed in the Proposed Regulation, with further revisions anticipated following the implementation of the HOTMA and NSPIRE Final Rules. While all the proposed changes are important, what follows is a discussion of the proposed changes in four specific areas: (1) Small-scale housing, (2) HOME rents, (3) Tenant Protections, and (4) Advanced Property Standards. Small-scale housing. HUD proposes to add the definition of "small-scale housing," which would be defined as a rental housing project containing no more than four units or a homeownership project with no more than three rental units on the same site. HUD proposes this definition to permit these projects to follow streamlined procedures for income determinations, ongoing physical inspections, and written tenant waiting lists. The definition and the streamlined provisions would facilitate the participation of owners of small rental properties (e.g., accessory dwelling units, duplexes, triplexes, or other small rental projects) in the HOME program. For small-scale projects, HUD would provide an exception from requiring a PJ to adopt a more frequent inspection schedule for properties with health and safety deficiencies. If all health and safety deficiencies are corrected, the proposed rule permits but does not require more frequent inspection schedules. HUD plans to develop a specific list of deficiencies for small-scale rental housing that a PJ would inspect. The proposed rule would reduce burdens on landlords of small-scale housing by allowing for the reexamination of tenant income every three years rather than annually. Tenant-Based Rental Assistance: Eligible Costs and Requirements (24 CFR 92.209). The proposed rule would revise 92.209(c)(1) to eliminate the requirement that adjusted income be determined annually for families receiving TBRA. Because TBRA contracts are limited by statute to two years and must be executed every time a tenant enters into a new lease, the proposed rule would permit a PJ to provide TBRA to a family and not redetermine adjusted income during the contract s period of assistance. Tenants will be able to request interims when income goes down, but PJs will not have to conduct interims for increases in income during the contract term. Change in HOME Rent Rules: Unlike the current HOME rule, which permits HOME rents to be exceeded only for low-HOME units when there is project-based rental assistance, the proposed rule will permit HOME rents to be exceeded anytime there is project-based rental assistance. This change would apply to both Low and High-HOME units. Tenant Protections: The Department proposes significant revisions to the tenant protections and selection provisions in 92.253, consistent with the priorities in the Administration s Renters Bill of Rights. These tenant protections are based on the Department s review of existing HUD programs (e.g., the Section 8 PBV and public housing programs). To implement the tenant protections, HUD proposes requiring all tenants in HOME-assisted rental housing units or receiving TBRA to have a new HOME tenancy addendum appended to their lease. Among the proposed tenant protections: Leases will contain more than one convenient method to communicate directly with the owner or the property management staff, including in-person, by telephone, email, or through a web portal. The proposed rule will outline new tenant protections regarding the physical condition of units, including a requirement that owners provide tenants with expected timeframes for maintaining and repairing units as soon as practicable. When a life-threatening deficiency in the physical condition of the unit impacts the tenant, owners are required to relocate the tenant into safe housing, which may be either on or off-site. Families can reside with a foster child, foster adult, or live-in aide in the unit. The revised HOME Lease Addendum will include a section outlining when owners may enter a tenant s unit. Reasons include routine inspections and maintenance, repairs, and showing units to prospective tenants. At least two days' notice will be required, including the purpose for entering the unit. An exception to the notice requirement will be made for emergencies. The proposed rule would require that an owner who enters a unit when the tenant and all adult household members are absent from the unit must provide a written statement to the tenant explaining the date, time, and purpose of their entry into the unit. Properties with HOME funds will not be able to have separate amenities such as gyms, pools, spas, elevators, rooftop gardens, storage areas, and playrooms that only non-assisted tenants can use or access. Tenants can organize, create tenant associations, convene meetings, distribute literature, and post information at a project. The proposed rule would include new security deposit requirements. The security deposit amount could not exceed two months' rent, and surety bonds or security deposit insurance would be prohibited. Owners cannot terminate the tenancy of HOME tenants without good cause, and the rule outlines many examples of "good cause." Advanced Property Standards: All projects built or rehabilitated with HOME funds must comply with all state and local building codes. PJs will be required to perform physical inspections on an annual basis. Property standards and inspections will generally be done per NSPIRE standards. Carbon Monoxide detectors will be required in all HOME-assisted units. Although reconstruction is considered rehabilitation for the HOME program, the property standards for new construction will be applied to all HOME-assisted reconstruction projects. When entering a rental assistance contract, PJs must annually provide physical inspections of all HOME-assisted units. This requirement applies to tenant-based rental assistance only. The proposed rule would require the initial inspection of HOME-assisted rental housing within 12 months of project completion and once every three years thereafter. If deficiencies are observed in any of the inspectable areas, a follow-up onsite inspection to verify that deficiencies are corrected must occur within 12 months. The PJ may establish a list of non-hazardous deficiencies for which correction can be verified by third-party documentation (e.g., paid invoice for work order) rather than re-inspection. Bottom Line These changes aim to modernize and improve the HOME program, incorporating updates from recent legislative acts and ensuring consistency across all regulations. Owners should review these proposed changes thoroughly to understand their implications and provide feedback during the public comment period.