HUD’s Office of Housing issued Notice H 2015-02 on March 2. The Notice provides guidance to ensure compliance with Section 230 of the FY14 Appropriations Act and Section 226 of the FY15 Appropriations Act that require HUD to take certain steps when a HUD-assisted multifamily property receives a score of 59 or below on a Real Estate Assessment Center (REAC) physical inspection report. A score of 59 or below is a failing grade.
The Notice applies to properties with Section 8 project-based assistance, as well as other programs such as the Rent Supplement program, Rental Assistance Program, and various Section 202 and 811 programs.
Sections 230 and 226 of the FY14 and FY15 Appropriations Acts, respectively, are identical. Notice H 2015-02 supplements the earlier Notice H 2012-16, which in turn is an extension of Notice H-2011-24. Most of Sections 230/226 codify procedures that HUD already follows.
Currently, HUD must take specific actions when a project receives a REAC score of 30 or less, between 31 and 59 and the owner fails to certify in writing that all deficiencies have been corrected, or between 31 and 59 and receives consecutive scores of less than 60.
HUD must notify owners of failing scores, and owners may request appeals. If violations remain, HUD must develop a Compliance, Disposition, and Enforcement (CDE) Plan within 60 days, with a timetable for correcting all deficiencies. Current HUD practice is to issue an owner a Notice of Violation of Regulatory Agreement (NOV) and/or a Notice of Default (NOD) of the Housing Assistance Payment (HAP) contract. These notices require the owner to survey 100% of the project’s units and take corrective action for all physical deficiencies. NOVs and NODs also currently state that if the owner does not comply, HUD will pursue appropriate enforcement and disposition of the project. Notice 2015-02 indicates that HUD considers existing NOVs and NODs to satisfy the requirements of what is contemplated by the CDE Plan.
HUD also must provide notice of a CDE Plan. Therefore, all NOVs and NODs that have a CDE Plan heading now will contain instructions to the owner to provide each tenant with a “Notice of the Plan.” A sample notice is provided as an appendix to Notice H 2015-02. Copies of this notice must also be sent to the local government and any lenders and contract administrators.
Currently, according to Notice H-2011-24, a property must undergo a re-inspection one year from the date of its last inspection if it had a REAC score of 31 to 59 and the owner responded to a NOV or NOD by providing a copy of a 100% survey of units and by certifying that the project is in compliance with HUD’s physical conditions standards. However, if an owner fails to respond, then HUD “strives” to conduct a re-inspection as soon after the 60-day NOV/NOD cure period as possible.
New language in Notice H 2015-02 indicates that in situations in which the deficiencies cannot be completed in 60 days, the NOV/NOD (CPE Plan) now instructs the owner to submit a repair plan with the 100% survey and to request an extension to complete the repairs. The repair plan must provide the cost and source of funds that will be used to make the repairs. If the repair plan is approved it will serve as an amendment to the CDE Plan; if not, a re-inspection will be scheduled as soon as possible after the 60-day cure period.
If HUD’s Departmental Enforcement Center (DEC) determines that a project’s physical condition as reflected in a re-inspection report demonstrates that an owner has not complied with an expired CDE Plan, HUD will proceed to consider civil money penalties. A subsequent REAC score of 59 or less will be considered a violation of the CDE Plan.
HUD is permitted to replace project management with a management agent and require HUD to take one or more of the following actions:
- Impose civil money penalties.
- Abate or partially abate any HAP contract until all deficiencies are corrected.
- Encourage transfer of the project or transfer and assign a HAP contract to a new owner.
- Seek judicial appointment of a receiver to manage the property or seek a judicial order of specific performance to cure all physical deficiencies.
HUD will issue a notice to tenants of any of the above enforcement actions.
Notice H 2015-02 is at http://portal.hud.gov/hudportal/documents/huddoc?id=15-02hsgn.pdf
Notice H 2012-16 is at http://portal.hud.gov/hudportal/documents/huddoc?id=12-16hsgn.pdf
Notice H-2011-24 is at http://portal.hud.gov/hudportal/documents/huddoc?id=11-24hsgn.pdf