Excess Subsidy Repayment Agreements

When households receiving federal rental assistance – such as Section 8 – receive more assistance than they are entitled to based on their income, the residents are required to repay the excess amount. In order to ensure that these repayments are made, HUD encourages owners to work with residents by entering into repayment agreements.

As noted, residents are obligated to reimburse the owner for any excess assistance received due to underreporting of income. Residents must repay the difference between the rent that should have been paid and the amount actually charged. However, residents are not required to reimburse the owner for undercharged rent caused by the owner’s failure to follow HUD rules relating to the calculation of rent. In these cases, the owner must repay the excess subsidy.

Notification of the Resident

After a determination is made that a tenant provided false or incomplete information leading to the payment of excess rental subsidy, the owner must notify the resident in writing of the error and identify the information believed to be incorrect. The written notice must:

  • Provide an explanation of the error;
  • Identify what information is believed to be incorrect;
  • Notify the resident that he or she has an opportunity to meet with the owner to discuss the allegations within ten days from the date of the letter; and
  • Inform the resident that failure to meet with the owner to discuss the situation may result in the resident’s termination of tenancy.

Meeting with the Resident

When the owner meets with the resident, the result of the investigation must be discussed. A designated representative for the owner who has not been involved in any manner with the review of the information must chair the meeting.

Once the meeting is held, within ten days the owner must provide a written final decision to the tenant based solely on the facts presented and discussed at the meeting. The decision must state the basis for the determination.

Determining the Amount Owed

If it is determined that the unreported (or underreported) income was unintentional, the owner must go back to the time the misreported income started and calculate the difference between the amount of rent the resident should have paid and the amount of rent the resident actually paid. The time period may not exceed the five-year limitation during which the resident was receiving assistance. (Note: if the underreporting of income was intentional {1.e., fraud}, the proper course of action is termination of tenancy).

The owner must notify the resident of any amount owed and his or her obligation to reimburse the owner. A record of this calculation must be provided to the resident and be kept in the resident’s file.

The owner must also correct certifications and/or retroactively process certifications that should have been processed if the resident had reported accurate information at the proper time. If the owner discovers prior certifications that involve incorrect income, correction of those certifications must be created to show the accurate income for the prior certification period. Income for this time period must be verified before creating corrections and/or retroactive certifications. The information contained within the third party verification must apply to the appropriate certification time period.

When processing a correction to a certification, the original certification must be in the resident file as well as the corrected certification. The corrected certification must be signed and dated by both the resident and the owner/agent along with supporting documentation.

Repayment Options

Residents may repay amounts due in a lump-sum (i.e., one-time) payment, periodic payments, or a combination of the two.

Residents have the right to consult with HUD’s Housing Counseling Agency in their area to assist them in working with the owner to reach agreeable terms for the repayment agreement.

If the resident has agreed to a monthly repayment, the payment must be what the resident can afford based on the family’s income. The monthly payment plus the amount of the resident’s total tenant payment (TTP) at the time the repayment agreement is executed should not exceed 40 percent of the family’s monthly adjusted income. The monthly payment may exceed 40 percent of the monthly adjusted income if the family agrees to the amount stated in the repayment agreement, but they cannot be forced to do so. If the family’s income increases or decreased by $200 or more per month during the term of the agreement, the agreement should be renegotiated.

There are no regulations that authorize owners to limit the amount of time the resident has to pay off the debt.

Repayment Agreement

Information that is required to be in the repayment agreement is found in HUD Handbook 4350.3, Paragraph 8-23(B):

  • The total retroactive rent amount owed, the amount of lump sum paid at time of execution of the agreement (if any), and the monthly payment amount;
  • A reference to the paragraphs in the lease with which the resident is in noncompliance and whereby the resident may be subject to termination of the lease;
  • A clause stating that the terms of the agreement will be renegotiated if there is a decrease or increase in the family’s income of $200 or more per month;
  • A statement that the monthly retroactive rent repayment amount is in addition to the family’s regular monthly rent payment and is payable to the owner;
  • A statement that late and missed payments constitute default of the repayment agreement and may result in termination of assistance and/or tenancy; and
  • Dated signatures of the resident and the owner. It is recommended that the head of household and, if applicable, the family member who had the unreported or underreported income sign the repayment agreement.

How Much of the Repayment May Owners Retain?

Owners may retain a portion of the repayments collected from the residents who have improperly reported income at the time of certification or recertification to help defray the cost of pursuing these cases. Owners may only retain an amount necessary to cover actual costs, which is considered the lesser of:

  • Actual costs; or
  • 20% of the amount received from the resident.

Amounts retained by the owner/agent (O/A) must be deposited into the site’s operating account.