iped hud multifamily housing compliance arlington, virginia may 10 – 11, 2007 michael h. reardon,...
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IPEDHUD Multifamily Housing Compliance
Arlington, VirginiaMay 10 – 11, 2007
Michael H. Reardon, Esq.Nixon Peabody LLP
401 9th Street, NW, Suite 900Washington, DC 20004
(202) [email protected]
Section 8 Income and Rents
Section 8 Income Levels
Basic Section 8 Income Requirements: Families must be Low-Income (80% or less of AMI) or Very Low-Income (50% or less of AMI)– Units First Available Prior to Oct. 1, 1981: at least 75% of
units must be rented to Very Low-Income Families.
– Units First Available After Oct. 1, 1981: at least 85% of units must be rented to Very Low-Income Families.
– Exceptions: owner must demonstrate a need for broad range of incomes, insufficient Very Low-Income families, State requirements or to prevent displacement.
Section 8 Income Levels(cont’d)
Additional Income Targeting Requirements– Of Section 8 dwelling units that become available for
occupancy in any fiscal year, not less than 40% shall be available for leasing only by families that are Extremely Low-Income (30% or less of AMI) at the time of admission
Section 8 Project-Based Rent Requirements
Tenant Rent: Section 8 project-based programs, the total tenant rent is the total tenant payment minus the utility allowance– TTP: generally 30% of family’s adjusted income.
– Utility Allowance: estimate of monthly cost of reasonable consumption of utilities by an energy conservative household of modest circumstances consistent with requirement of safe, sanitary and healthy living approved by PHA or HUD.
– Utility Reimbursement: amount, if any, by which utility allowance exceeds the TTP
Minimum Rent: for section 8 project-based programs, the minimum rent is $25 with exceptions for financial hardship.
Section 8 Project-Based Rent Adjustments
Need to review the specific section of your HAP Contract
Three Basic Methods:– AAF
– Budget-Based Rent Increase
– OCAF (for LIHPRHA)
Section 8 Project-Based Rent Adjustments(continued)
Special Adjustments: For substantial general increases in real property taxes, assessments, utility rates, security costs and other similar costs beyond control of the owner.
Rent Reasonableness: No material difference between rents charged for assisted units and those for comparable unassisted units.
Project-Based Contract Renewals
MAHRAA– Multifamily Assisted Housing Reform Act of 1997– Provides renewal terms of all section 8 project-based
contracts
Contract renewals administered by PHAs under PBCA contracts with HUD
Rent Comparability Studies
Project-Based Contract Renewal Options
Mark-Up-To-Market
OCAF / Budget-Based Rent Increase
Mark-To-Market
Project-Based Contract Renewal Options (continued)
Exception projects
Demonstration and Preservation projects
Opt-Out
Rent Adjustments After Renewal
Option 1: Mark-Up-To-Market
Entitlement MUTM– Property Condition
– Ownership
– Current Rent Levels
– Use Restriction
Option 1: Mark-Up-To-Market(continued)
Discretionary MUTM– Vulnerable Populations
– Low Vacancy or Rural Area
– Community Support
Option 1: Mark-Up-To-Market(continued)
Non-Profit Eligibility
– Not eligible for MUTM
– Eligible for Mark-Up-To-Budget (Chapter 15 of the Renewal Guide)
Option 2: Current Rents At or Below Comparables
Renewal Rents: adjusted by OCAF or Budget
Capped by Comparable Rents
Option 3: Referral to OAHP
Criteria
– FHA-insured mortgage (not risk-sharing)
– Rents above comparable market rents
Full versus Lite
Option 3: Referral to OAHP(continued)
OAHP Lite Contracts
– Rents reduced to market rents without mortgage restructuring based on RCS
– Potentially Troubled
Option 3: Referral to OAHP(continued)
Full Restructuring
– PAE and OAHP negotiate mortgage restructuring plan with owner which generally will result in reduction in first mortgage and inclusion of balance in 2nd and 3rd mortgages
– Rent reduced to comparable market rents
Option 4: Exception Projects
Eligibility Criteria
– No FHA insurance (e.g., 202 and 515 projects)
– Rents above comparable market rents
– State or local financing with FHA insurance (conflict with State or local law)
Option 4: Exception Projects (continued)
Initial Renewal– Can choose Options 1, 2 or 4– Under option 4: initial rent is set at the lesser of existing plus
OCAF or budget-based rent
Subsequent Renewal– Have options and subject to lesser of test
Subsequent Rent Adjustments– OCAF or Budget
Option 5: Demonstration & Preservation Projects
Portfolio Reengineering Demonstration– Mortgage Restructured/Rents Reduced
5 Year adjustment at OCAF At end of 5 years, RCS and eligible for
Option 1 and 2– No Mortgage Restructuring
May be referred to OAHP
Option 5: Demonstration & Preservation Projects (continued)
Preservation Projects– Approved Plan of Action
– Generally no ability to opt out, but in exception cases owner must submit plan as to how owner can comply with use agreement
– POA versus Use Agreement
Option 6: Owner Opt Out
Importance of Tenant Notification
If not provided, tenant cannot pay more than 30% of adjusted income as rent
Short term renewal to comply
Residual Receipts and Reserve for Replacements
Residual Receipts v. Reserve for Replacement
“Old” Regulation v. “New” Regulation