In early May, 2017, the President signed a new HUD appropriations bill providing funding for HUD programs. While appropriation bills normally relate only to funding and do not change program regulations, Section 223 of the Bill outlined some programmatic changes relating to REAC inspections.
The most significant change has to do with when HUD action will occur following a failed inspection. Under prior law, HUD enforcement action did not commence until after failure of two consecutive inspections. Now, when a property receives a REAC score under 60, HUD will notify the owner/agent (O/A) within 15-days that they are in default of the regulatory agreement (the prior requirement was a notice within 30-days).
Under the new regulation, when HUD notifies the owner of default, the owner must be provided with a timeframe during which a 100% of the units must be inspected and all repairs made. This has typically been a 60-day period but HUD now is permitted to require a specific timetable, making it possible to impose both shorter and longer correction periods.
Prior regulations also provided for options for enforcement on failed REAC inspections: (1)Require immediate replacement of the management agent; (2) imposition of civil monetary penalties; and (3) Seek judicial appointment of a receiver of the property who would both manage the property and correct non-compliance.
The new regulation provides additional alternatives: (1) Abatement of the Section 8 contract; (2) transfer of the project to a new owner; (3) transfer of the Section 8 contract to another project; (4) pursuit of exclusionary sanctions, including suspension and debarment from federal programs; (5) create a work-out plan with the current owner (or other party) to stabilize the property; or (6) take any other action that is deemed necessary and appropriate.
These changes in the law are indicative of the importance that Congress places on the REAC inspection process and emphasizes the importance that owners should place on this process.