Understanding Presented by Gwen Volk CPM NAHP-e RAM SHCM HCCP FHC CPO Who s in the Room? Training Topics Fund Basics The 2013 Final Rule Fixed versus Floating Income and Rent Limits: Low /High With Tenant-based versus Project-based Assistance Utility Allowances Rent Increases/Decreases Leasing and Inspections Record-keeping & Non-Compliance 1
Training Topics Methods for Calculating Income Who Qualifies as a Household Member? Verification Requirements Recertification Requirements Effect on fixed vs floating units Over-Income Tenants Combining LIHTC and Q & A Fund Basics HUD Program - Office of Community Planning and Development (CPD) 24 CFR Part 92 (the regulations) Created in 1990 by the Investment Partnership Act First funded in 1992 Funds can be used for multifamily (new construction or rehab), home buyer or homeowner rehab, or rental assistance Fund Basics Specific units in a project are designated units units are subject to an affordability period of 5 20 years Participating Jurisdictions (PJs) distribute and monitor funds Each property should have a Agreement 2
Guidance for Program Compliance Last revised in 2009, but still very helpful. Check against 2013 rule changes. Guidance for Program Compliance Last revised in 2005, but still very helpful. Check 4350.3 Change 4 for changes. Guidance for Program Compliance https://www.hudexchange.info/incomecalculator/ 3
2013 Final Rule What changed? Eligibility changes (Section 8 student rule) PJ s can now limit projects to certain occupational populations such as - artists, police officers, teachers, etc. Projects must be completed within 4 years of funding (12 mos. extension possible) or - PJ must repay funds to HUD 2013 Final Rule If a unit is still unoccupied by an eligible tenant after 6 months, PJ must report to HUD on marketing efforts and furnish a plan effective 8/23/13 If a unit is still unoccupied by an eligible tenant after 18 months, PJ must pay back the funds provided for that unit effective 8/23/13 Utility Allowance methodology change for properties where funds are committed on or after 1/24/15 Changes in the frequency and sample size for inspections for properties where funds are committed on or after 1/24/15 Overview of New Rule https://www.hudexchange.info/home/ 4
Fixed versus Floating units may be fixed or floating Fixed units are designated units that do not change. Only the assisted units are subject to requirements. Fixed units cannot swap status Unit 201 Non- Unit 202 Floating Units Unit status may change among units that are comparable Only the -assisted units are subject to requirements. Floating units can swap status Unit 301 Unit 302 Non- Non- Note: As of 8/23/13 the agreement is required to specify whether units are fixed or floating. Income Limits uses the HUD income limits and households must qualify based on gross income Properties with 5 or more -assisted units must have at least 20% of the units designated as Low Low (very low income) Income Limit = 50% AMI Rent Limit = Low limit High (low income) Income Limit = 80% AMI Rent Limit = High limit Note: Many PJ s limit High to tenants at or below 60% of AMI 5
How Many Units Must Be Low? LOW Non- Non- Non- Non- LOW Rent Limits rent is gross rent including utilities Tenant rent + rental assistance + UA = rent HUD publishes Low and High rent limits For Low rent, PJs can also use 30% of the actual tenant household s adjusted income But this could jeopardize the income project s stream so most use HUD s published limits Owner may set rents at or below the limits Rent Limits HUD s Low Rent is based on 30% of adjusted income of a family whose income equals 50% of AMI adjusted for bedroom size HUD s High Rent is based on the lesser of FMR s or 30% of the adjusted income of a family whose income equals 65% of AMI adjusted for bedroom size Note: Ex 3-2 in the Guidebook has special rent limits for SRO s, group homes, units with LIHTC, etc. 6
Rent Limits & Subsidy Tenant-based rental assistance in Low or High (such as Housing Choice Vouchers, and TBRA) Tenant Rent + Subsidy + UA cannot exceed rent paid by tenants without rental assistance Project-based rental assistance on a Low unit Full subsidy may be collected even if the total from tenant plus subsidy + UA exceeds the Low limit Project-based rental assistance on a High unit Once a household is no longer Low Tenant Rent + Subsidy +UA cannot exceed rent paid by tenants without rental assistance Low Rent Limits and Tenant-Based Assistance rent = Tenant rent + rental assistance + UA Example Low rent = $535 High rent = $670 Tenant Based Voucher Payment Standard = $800 Voucher Payment standard exceeds both Low rent limit and High rent limit At move-in Cecilia qualifies for Low and her rent based on her income is $250. The Owner cannot accept $550 in subsidy from the PHA as $250 + $550 exceeds the Low rent limit. Subsidy from PHA will be capped at $285 $250 + $285 = $535 High Rent Limits and Tenant or Project-Based Assistance rent = Tenant rent + rental assistance + UA Example Low rent = $535 High rent = $670 Tenant-Based Payment Standard or Project- Based Contract Rent = $800 Voucher Payment standard exceeds both Low rent limit and High rent limit The second year Cecilia s income exceeds the very low income limit and her rent is $600 based on her income. The Owner cannot accept $200 in subsidy from the PHA or HUD as $600 + $200 exceeds the High rent limit. Subsidy will be capped at $70 so rent collected does not exceed the High rent limit. $600 + $70 = $670 7
Charges in Addition to Rent PJ must approve any mandatory fee or surcharge to tenants in -assisted units This includes application fees Typically, all mandatory regularly recurring fees reduce the maximum rent that can be charged. Examples renters insurance, month-tomonth fees, pet rent PJ decides what fees are included in rent Utility Allowances Utility allowance (UA) is an estimate of the tenantpaid utility costs Typically includes electricity, gas, water, sewer, trash Does not include telephone, cable tv, etc. PJ provides the UA and they typically use PHA UA s 2013 Rule says no to PHA UA s PJs must use HUD Utility Schedule Model https://www.huduser.gov/portal/resources/utilallowance.html or determine UA based on utilities used at the project. Implementation was been delayed but is now effective (see slide 12) Rent Increases Owners must request PJ approval to increase rents for -assisted units even when the rents are under the published Low/High limits PJ can request from HUD an increase in the rent limits themselves in cases of extreme financial hardship. Existing properties only Must document all other efforts to restore financial viability Rents still cannot exceed market rate 8
Rent Decreases If rent is charged at maximum rent, owner must reduce rents if limits decrease* If the UA increases, recalculate the rent to determine if the applicable rent limit will be exceeded. If so, lower tenant rent. Example: Under Limit Low Limit = $535 Tenant Rent = $475 Current UA = $50 Total Rent = $525 Tenant Rent = $475 Example: Over Limit Low Limit = $535 Tenant Rent = $475 New UA = $75 Total Rent = $550 Tenant Rent = $460 *Note: Owners are not required to charge rents that are lower than the initial rents that the PJ approved. Application Process and Leasing Criminal checks are allowed Affirmative Marketing must be employed on -assisted units. The Regs do not require an Affirmative Fair Housing Marketing Plan (HUD Form 935.2A) for the project, but many PJs do. Race and ethnicity data must be collected Tenant selection policies are required Application Process and Leasing Initial lease term must be one year Exception if tenant and owner agree in writing Minimum term 30 days Lease must specify the initial allowable rents Owner develops a lease and PJ approves it Must have good cause to terminate tenancy 9
Other Lease Requirements Lease must include: Owner/manager has the right to adjust rents based on changes in limits or tenant income above limit Non-cooperation with recertification of income is a lease violation Owner/HUD/PJ retain right to perform periodic inspections of -assisted units Lead warning statement if built pre-1978 Prohibited Lease Requirements Lease must not include an agreement by tenant: To be sued, to admit guilt or to a judgment for lease violations That owner may seize or sell personal property without notice to tenant and without a court decision. * That owner may bring a lawsuit without notice To be evicted by Owner without a legal proceeding or before a court decision is reached. To a waiver of a jury trial To a waiver of right to appeal a court decision To pay attorney fees or other legal costs even if tenant wins in court *Owner retains right to seize or sell personal property left after vacating a unit PJ Reviews PJ s may charge reasonable fees for monitoring During PJ s on-site visit, they will: Review files and other records Inspect a reasonable sample of units The old (and current) rule, at a minimum properties with: o 1-4 units* every three years o 5-25 units* every two years o 26 or more units* every year *Total units in the project, not just units 10
Reports and Recordkeeping PJ s use HUDs centralized reporting system Integrated Disbursement and Information System (IDIS) Owners must submit rent & occupancy data annually PJ s may also require Financial information Marketing activities Maintenance logs Check the agreement for requirements Reports and Recordkeeping records must be maintained and demonstrate compliance throughout the affordability period plus five years: Administrative records Unit data Tenant data Maintenance logs Non-Compliance PJ s impose corrective actions and penalties: Requirement to correct deficiencies Repaying tenants for overcharged rents Physical property improvements Change in management Pre-approval of management plans and staff changes 11
Non-Compliance If a project does not comply with requirements for the entire affordability period: HUD may require PJ to repay funds PJ will then usually require the Owner to repay the funds Qualifying Households Households must meet the income limits. HUD publishes limits for 30%, 50%, 60% & 80% of AMI income limits The 2013 Rule allows use of the following methods to determine income: Federal income tax return definition of income is not compatible with LIHTC Section 8 method (Chapter 5 of the 4350.3) most common method PJ selects the income method to be used on each project Who Qualifies as a Household Member Use the 4350.3 REV-1 to determine members of the household for the purpose of determining the applicable income limit. However, some PJ s do not count unborn children or children being adopted. Check with your PJ to be sure. 12
Verification HUD 4350.3 permits: Documentation (check stubs, etc.) Third Party (directly to and from employer) Affidavit from tenant/applicant Valid for 120 days says: Affidavits are not considered sufficient Requires at least two months of the most recent source documentation for initial certification Valid for 180 days Recertification Annual recertification is required (PJ can set the date) 3 rd party verification is required every 6 th year of the affordability period not of the tenant s occupancy At recertification only, certifications from another program (such as a PHA) can be used in lieu of third party or documentation from tenant Other times, tenant may certify their income without any documentation. Many PJs require a full, verified annual PJ s specify the certification form to be used First Year of Affordability Period: 2000 Full Recert Name Move-in Date due: Hal Norris March 1, 2000 2005 Marty Jepson January 1,2003 Shiloh Miller September 1, 2004 2005 2005 13
Increase in Income: Over 50% / Under 80% When a Low- household s income increases above 50% AMI, but remains less than the HUD low (80%) limit: Next available comparable High- unit must be rented to a Very Low Income Household (50%) and re-designated as a Low- Unit. When replaced, the rent on the formerly Low- unit may be increased to the High- rent. If the unit is an LIHTC unit, rent must be raised to the lesser of High- rent or the max rent dictated by the tax credit program. Available non- units are not used to replace the Low unit (except on 100% LIHTC properties) The above rules apply whether fixed or floating unit Recertification: Increase in Income When a Low or High- household income exceeds the HUD low (80%) limit: Floating Fixed As soon as the lease allows, rent must be raised to 30% of adjusted income, with no cap at Market rent. If a Low- unit, the next High- unit must be rented to a Low- household. If the unit is an LIHTC unit, rent must be raised to 30% of adjusted income but may not exceed the maximum tax credit rent. As soon as lease allows, rent must be raised to lower of 30% of adjusted income or Market rent. Next available unit in the property must be rented to a eligible household to restore the original balance of Low/High- set-asides required. Once replaced, the over-income unit may be treated as non-. If the unit is LIHTC, the gross rent charged to the tenant cannot exceed maximum tax credit rent. For Over 80% AMI Households: Calculating Rent Step One: Calculated Adjusted Income: Gross Annual Income (Allowances 1 ) = Adjusted Income Step Two: Calculate Rent: Adjusted Income X 30% 12 = Monthly Rent 2 1 Allowances are the same is for the Section 8 program 2 Subject to the additional caps explained on previous slide 14
Halfway... How well you are Understanding? /LIHTC Combo Issues One-third of LIHTC projects have funds Both and LIHTC rules must be followed Both LIHTC state agencies and PJs can add rules State Agency added rules do not become Section 42 rules PJ added rules are mandatory rules /LIHTC Combo Issues does not allow use of MTSP income limits income limits are not held harmless as they are for LIHTC This means income limits can go down on a unit requires 20% of units to be rented to families at or below 50% AMI LIHTC requires either 20% at 50% or 40% at 15
/LIHTC Combo Issues Rent caps for units are different when LIHTC is present Rent is never based on 30% of adjusted income for LIHTC but for families who exceed 80% AMI in units it may be On a 100% LIHTC project with -assisted units, the PJ may agree to the rule that allows for a full recert only every sixth year of the affordability period. /LIHTC Combo Issues On a 100% LIHTC project with floating units, if a LIHTC-Low household is under the High income limit (qualifies for High ), the owner can Make a comparable LIHTC-High unit into an LIHTC-Low, then redesignate the over income unit as LIHTC-High or Make a comparable LIHTC-only unit a LIHTC-Low unit, and redesignate the over income unit as an LIHTC-only unit Both methods will preserve the unit mix without increasing the number of units /LIHTC Combo Example Misty Pines Apts. 12 units Building 1-6 units Building 2-6 units 100% LIHTC Minimum Set-aside 20% @ (2) Remainder: 5 units 5 units - agreement requires: 5 units 20% (1 unit) must be Low (50% AMI) 4 remaining units will be High (80% AMI) How will you distribute units in this project to meet LIHTC and requirements? 16
LIHTC Compliance 50% = 7 units 60% = 5 units Compliance High High I Why are the High units not at 80% AMI? Low 50% AMI High High Which units count for the 50% LIHTC units? High High 60% AMI Why doesn t the Low unit count as a 50% LIHTC unit? Low 50% AMI High High 17
Thank you for attending! Understanding Presented by Gwen Volk CPM NAHP-e RAM SHCM HCCP FHC CPO www.gwenvolk.com 903-938-2605 18