HOTMA Final Rule – Limitation on Eligibility for Assistance Based on Assets

The Department of Housing & Urban Development (HUD) has released a Final Rule implementing the Housing Opportunity Through Modernization Act of 2016 (HOTMA). This final rule was published in the Federal Register on February 14, 2023. With the exception of changes relating to Non-Public Housing Over Income families (which take effect on March 16, 2023), this final rule takes effect on January 1, 2024.

 The Housing Opportunity Through Modernization Act (HOTMA) was signed into law on July 29, 2016, amending many aspects of Multifamily Housing programs (as well as programs administered through the Offices of Public and Indian Housing and Community Planning and Development). HOTMA was intended to streamline processes and reduce burdens on housing providers. On September 17, 2019, HUD issued a proposed rule to update its regulations according to HOTMA’s statutory mandate. The final rule, published on January 9, 2023, considers public comment received on the proposed rule and provides additional guidance for implementing Sections 102, 103, and 104 of HOTMA.

Which Programs will be Affected by the Final Rule?

 The Section 8 PBRA (including RAD), Section 202/811 PRAC, 202/8, 202/162 PAC, Senior Preservation Rental Assistance Contract (SPRAC), and Section 811 Project Rental Assistance (811 PRA) programs will see changes due to HOTMA.

This is the fifth in a series of articles I am writing on the sweeping changes that will be made to HUD affordable housing programs. This article will focus on the revised rules regarding income from assets.

HOTMA and the final rule specifically include “actual” income from assets in the definition of income. Therefore, any actual income received must be counted as family income. Imputed income on assets of a combined value of more than $50,000 must be calculated if no actual income can be computed. In a major procedural change, if the actual income can be computed for some assets, but not all assets, housing providers must compute the actual income for those assets, calculate the imputed income for all remaining assets where the actual income cannot be computed, and combine both amounts to account for assets with a combined value of more than $50,000. Notice the significant difference from the current rule where income from assets in excess of $5,000 is the greater of the total actual income or total imputed income. Actual and imputed income are never combined.

PHAs or owners may determine the net assets of a family based on a certification by the family that the net family assets do not exceed $50,000, without taking additional steps to verify the accuracy of the declaration. Note that for LIHTC purposes, HFAs may have different requirements in this area. Any such declaration must include the amount of income the family expects to receive from the assets.

Limitation on Eligibility for Assistance Based on Assets

The final rule includes a restriction on the eligibility of a family to receive assistance if the family owns real property that is suitable for occupancy by the family as a residence or has assets in excess of $100,000, as adjusted annually for inflation. An exception to the restriction against owning real property suitable for occupancy by the family as a residence is in place if the property does not meet the disability-related needs of all members of the family, including physical accessibility requirements. There are various circumstances where a property may not be suitable for occupancy for a household with a household member with disabilities. Other examples include, but are not limited to, a disability-related need for additional bedrooms, proximity to accessible transportation, etc.

Other examples of “suitable for occupancy” include (1) the property is geographically located so that the distance or commuting time between the property and the family’s place of work or educational institution would create a hardship for the family {as determined by the PHA or owner}, and (2) the property’s physical condition poses a risk to the family’s health and safety and the condition of the property cannot be easily remedied.

The real property restriction also does not apply if the family is unable to sell the property based on State and local laws of the jurisdiction where the property is located. It also does not apply if a member of the family jointly owns real property with another non-household member that does not reside with the family if the non-household member lives in the jointly owned property.

A new provision was added to the final rule that, for purposes of the asset limitation, a property that a family may not reside in under State or local law is not a property that is suitable for occupancy. Examples would be condemned property or commercial property that cannot legally be occupied as a residence, such as a convenience store. However, such property would be considered an asset to the household.

With regard to the $100,000 asset limitation, the value of retirement accounts that are recognized by the IRS will not be counted toward a family’s assets. Therefore, managers will no longer have to worry about determining whether a household has “access” to a retirement account in determining whether to treat such accounts as assets. Only the actual periodic payments from these accounts will be counted as income.

When recertifying the income of a family that is subject to the real property and $100,000 asset limitation, a PHA or owner may choose not to enforce the restrictions or may establish exceptions to the restrictions based on eligibility criteria. Such exceptions may be based on family type or other factors such as age, disability, income, the ability of the family to find suitable alternative housing, and whether supportive services are being provided.

Delay of Eviction or Termination of Assistance

A PHA or owner may delay for a period of not more than six months the initiation of eviction or assistance termination proceedings of a family based on violation of the real property or $100,000 asset rule.

LIHTC Applicability

While these provisions apply to Public Housing and Section 8 (tenant-based and project-based), only the $50,000 “imputing” provision automatically applies to LIHTC properties. This is the case since the tax credit program is required to follow HUD rules in the “determination” of income, and this new rule is related to that determination. The $100,000 limitation does not apply to the LIHTC program.