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Verification of Income

Posted on: July 29th, 2020 by Christa Landram No Comments

As property owners continue to strive for compliance, more questions arise as to what establishes proper verification. The HUD Handbook includes a useful outline of third party verification that may help answer these questions. The IRS treasury regulation 1.42-5 also breaks down the proper documentation for LIHTC. It says:

Documentation to support each low-income tenant’s income certification (for example, a copy of the tenant’s federal income tax return, Forms W-2, or verifications of income from third parties such as employers or state agencies paying unemployment compensation). For an exception to this requirement, see section 42(g)(8)(B) (which provides a special rule for a 100 percent low-income building). Tenant income is calculated in a manner consistent with the determination of annual income under section 8 of the United States Housing Act of 1937 (“Section 8”), not in accordance with the determination of gross income for federal income tax liability. In the case of a tenant receiving housing assistance payments under Section 8, the documentation requirement of this paragraph (b)(1)(vii) is satisfied if the public housing authority provides a statement to the building owner declaring that the tenant’s income does not exceed the applicable income limit under section 42 (g);

For some time, it was thought that a document completed by a third party but provided by the resident was not third-party verification; however, HUD has indicated that this is still considered third-party verification. Some examples of this include paystubs or a tax return. When utilizing paystubs, it is important that you have the minimum required amount (4-6 for LIHTC or 2 months for HOME) and that they are current and consecutive.

Another proper third-party verification of income is a more common one. This form of documentation is sent directly from the third party. There are many ways this can be done.  The form can be mailed, emailed, or faxed. No matter what form of delivery, it still needs to be verified that it is from the correct source. If it is mailed, your state agency or management company may require that you include the envelope as backup.

One source that has been in question for some state agencies is information verified from the Internet. This is considered third-party verification if it can be shown and documented that it is from a reliable source. The HUD Handbook states that a printout from the Internet is suitable verification. It is important that if the owner is using this as the verification of income that the reliability of the source is evident.

Finally, it is important to note that verification made over the phone may also be considered third-party verification. It is often suggested that the owner or owner representative be the one calling the third party to ensure it is a reliable source and that the person on the phone is the correct party. When the third party is initiating the call, it is harder to verify the source and caller.

Keep in mind that there are some instances when such information is not sufficient. If the documentation provided is not current and it is not clear if the information has changed, then the household could be out of compliance for failure to provide sufficient verification of income. Another example of when such information may not be sufficient is when the documentation provided, no matter the source, is not complete. If for instance, a resident provides paystubs completed by the employer and the pay isn’t clear, the frequency isn’t listed, or there are not enough check stubs to determine the income, then this form of verification may not be acceptable due to the inability to properly verify the income.  With most everything, the state agencies can enforce stricter rules and have specific ways they want documentation obtained. Though knowing the HUD guidance and regulations is important, it is just as important to verify with your state as to how they want verifications obtained and documented.

Unit Transfers

Posted on: July 22nd, 2020 by Christa Landram No Comments

Unit Transfers:

Anyone who participates in the affordable housing industry has dealt with or will deal with a transfer(s) at some point in the affordability period. It is crucial to understand the different rules pertaining to transfers. To help compartmentalize the various rules, we will break it down by funding source.

LIHTC/HC
With LIHTC, the owners must know whether the building is part of a multiple building project or a single building project.
Note – building election can be found on Form 8609, Line 8b.

Each building is a project:
Transfer between buildings: If the owner chose each building to be a project, then each building is treated as a separate project. This means that Initial Certifications must precede transfers between buildings or “projects,” and the household requesting a transfer to a different building is treated as a new move-in. This means the household must meet the applicable income limit.

Transfers within the same building – 100% Low-income: households can transfer within the same building without having to test their income because, per IRS regulations, they do not have to conduct recertifications and at initial they were presumably under the applicable income limit.

Transfers within the same building – Mixed Income: transfers can take place within the same building, but income should be “tested” to see if the household exceeds 140%. If the household does exceed 140% of the applicable AMI, then the household can still transfer, but to maintain compliance, the Next Available Unit Rule (NAUR) will need to be invoked.

Multiple Building Project
100% Low-income: households can transfer within buildings and between buildings without having to test their income because, by IRS regulations, they do not have to conduct recertifications and at initial they were presumably under the applicable income limit. Even though Florida Housing conducts one annual recertification for these projects, they still do not prohibit transfers between buildings, even when a household exceeds 140%.

Mixed-income – transfers within the same building: transfers can take place within the same building, but income should be “tested” to see if the household exceeds 140%. If the household does exceed 140% of the applicable AMI, then the household can still transfer, but to maintain compliance, the NAUR will need to be invoked.

Mixed-Income – transfers between buildings: income must be tested to see if the household exceeds 140% of the applicable AMI. If it does, then the household cannot transfer. If the household does not, then the household is permitted to transfer.

MMRB
NOTE: following is a Florida Housing rule. Please check with your bond issuer to see if they follow the same principles.

When a property is combined with MMRB/SAIL, the HC rule applies. The IRS states that when a property is 100% low-income, annual recertifications do not have to be conducted and transfers can take place without restriction.

When it is not combined with HC, but is still 100% low-income, the same rule applies (see LIHTC/HC rules above).

When a project is not 100% low-income, all transfers must be treated as new move-ins and the entire initial certification process must be completed.

SAIL

The SAIL definition of very low-income indicates that when a property is combined with HC/SAIL, the HC rule applies.

The IRS states that when a property is 100% low-income, annual recertifications do not have to be conducted and transfers can take place without restriction.

When it is not combined with HC, but is still 100% low-income, the same rule applies (see LIHTC HC rules above).

When a project is not 100% low-income, all transfers must be treated as new move-ins and the entire initial certification process must be completed.

HOME

Under HOME, the transfer rule is slightly ambiguous, and it is important to inquire how to do all transfers with the PJ (Participating Jurisdiction) or the Program Administrator. Many administrators require the household to be treated as a new move-in before conducting the transfer. Transfers are often done at lease renewal. To accommodate appropriate occupancy, an owner should complete the entire certification process to ensure the current household and associated income has been captured. At all times, the unit mix must be maintained.

STUDENTS

Posted on: July 15th, 2020 by Christa Landram No Comments

Students continue to be a hot topic in the affordable housing industry, and for good reason. Neither HUD nor the IRS see affordable housing as dormitory housing; however, they understand that being a student is also important. I have created a quick breakdown to assist it different program rules.

To start, I will review the two more common programs: LIHTC and Bond. Households comprised entirely of full-time students for five or more months during the calendar year are not eligible for a LIHTC unit. The five months do not have to be consecutive and it is considered a month even if the student is only active for one day during that month. It is up to the school to tell you what constitutes as fulltime. The student eligibility requirement includes students in elementary, middle/ junior/ senior high school and institutes of higher learning.

Checking fulltime student status is an ongoing LIHTC requirement, not just an initial occupancy restriction. A household may be income-qualified, but if the household is comprised entirely of fulltime students and does not meet an exception, they do not qualify for an LIHTC unit.

There are five exceptions to this rule.  If the household is comprised of:

A single parent and their children and such parents are not dependents of another individual other than a parent of such children: Verify by a tax return.

Students who are married that are entitled to file a joint federal income tax return with a spouse: Verify by a tax return or a marriage certificate.

Receiving assistance under the Title IV of the Social Security Act, including TANF: This can be verified by an award letter.

Enrolled in and receiving assistance under the Job Training Partnership Act (JTPA), or a similar governmental job training program such as Workforce Investment Act (WIA): Mission statement must be like the one for the JTPA program.

A household member has been a part of the foster care program and is in transition to independence: Verify by foster care or welfare agency.

This is applicable to ALL projects for which HOME funds are committed and is effective for all income determinations completed after 8/23/2013.

As for HOME, the student rule is triggered when ANY member (see exclusions below) is a student, be it part-time or full-time. So, HOME makes no distinction between part-time and fulltime.

See a comparison graph:

If a unit receives HOME funds (even if it is combined with LIHTC or other funding programs) it excludes any adult student that:

Is enrolled in a higher education institution AND
Is under age 24 (the focus is on adults ages 18-23) OR
Is not a veteran of the U.S. military
Is not married
Does not have a dependent child(ren)
Is not a person with disabilities who received assistance prior to 11/30/2005
Is independent from parents or has parents who are income eligible

The last exclusion refers to being eligible for Section 8. So, if the student’s parents are eligible to receive Section 8 then they would meet this exception. To prove that a person age 18-23 is independent, owners must document that they are:
Legal age under state law AND
Have established separate residence (dorms and other student housing do not qualify) from parents for at least a year OR meet the U.S. Department of Education definition of independent student, AND
are not claimed on parents’ tax return AND
Do not receive financial help from parents.

Excluded students are prohibited from receiving any type of HOME assistance, including renting HOME-assisted rental units, receiving HOME tenant-based rental assistance, or otherwise participating in the HOME program independent of their low- or very low-income families.

Social Security Verification of Income

Posted on: July 14th, 2020 by Christa Landram No Comments

Many affordable housing property managers have found that obtaining third-party verification for Social Security income has become even more challenging. The Social Security Administration (SSA) has stopped sending verification letters to third parties (i.e., property managers, onsite staff, management, etc.).
The potential residents and recipients of the award must provide documentation. It is important to note that bank statements are not sufficient since those reflect net and you must use gross income. The SSA office has issued the following guidance: “You can request a benefit verification letter online by using your ‘my Social Security account.’ This letter is sometimes called a ‘budget letter,’ a ‘benefits letter,’ a ‘proof of income letter,’ or a ‘proof of award letter.’”
Social Security and Supplemental Security Income (SSI): Check with your HFA to see if they will accept the current year award letters for regular Social Security and a current Proof of Income Letter (with 120-days) for SSI or current confirmation within 120 days.
Unemployment and TANF: Benefit letters dated within 120-days of the effective date are required
Pensions and Annuity Payments: a document from the entity providing the payment dated within 120-days of the effective date should be obtained.
Unemployment Income: The document from the SSA must be within 120 days of the effective date. Unemployment not related to a seasonal job, must be annualized over 52 weeks no matter what timeframe is listed on the verification letter.

If the applicant/tenant has a seasonal job, recurring job, or a firm job offer, the unemployment should only be calculated for the period it will be received and documented on the verification letter.

With all Social Security income, COLA must be included in the benefit amount if it has been announced and is not already on the verification letter.

For example, an increase is announced on 10/1. Properties can use current rate from 10/1 until 12/31 and include the increase starting 1/1. If the increase is 1.6%, starting 1/1, let’s see how this will look in the file.
• 11/1 certification
• Household is currently getting $500/month in Social Security
• 11/1 – 12/31: $500 x 2 = $1000
• As of 1/1 it will be $500 x 1.6% = $8
o $500 + $8 = $508
• So, 1/1-10/31 = $508 x 10 = $5080
SS income for the year is $1000 + $5080 = $6080

If you have any questions for the Social Security Administration, you can call the office at 1-800-772-1213 (TTY 1-800-325-0778), Monday through Friday from 7 a.m. to 7 p.m. throughout the U.S.

Real Estate as an Asset

Posted on: July 1st, 2020 by Christa Landram No Comments

Under Section 42, all assets must be accounted for, with the exception of assets that have been disposed of more than two years ago. Real estate is part of assets that must be counted. Since there are a few types of real estate, it can be confusing as to how to calculate it.

To determine the asset value of a normal sale of real estate sold at market value, the cash value of the property and the imputed value (if it exceeds $5,000) must be calculated. Once that is completed, the higher value is used. The cash value is determined by taking the actual value of the property and deducting the outstanding mortgage, closing costs, and any other applicable fees.

A household that is using their real estate as a rental property may apply to live in your community. When dealing with this scenario, two calculations must be done. The cash value must be determined as noted above. The second calculation that must be done is determining the monthly income that is received for rent. The actual income received is not what is included. Management must take that amount and subtract the mortgage and any applicable maintenance fees.

If real estate has been foreclosed upon, then it will not be considered in the asset calculations as the tenant will not be receiving income from the foreclosure. Keep in mind that until the foreclosure is complete, the real estate is sold at an auction, or the title has been transferred to another party, the real estate is still technically considered the tenant’s asset.

The real estate may have gone through a short sale and, if so, is typically not considered an asset. In most short sale situations, the owner will not be receiving income from the sale. However, if there is a difference in the sale that is in favor of the resident, that difference is counted as an asset, which must be verified by a third party if it is a HOME project and if it exceeds $5,000, for a LIHTC project.

One final note pertains to reverse mortgages. These are similar to loans since the income from this must be paid back. Keep in mind that the real estate would still need to be treated as an asset and calculated accordingly. The calculation for the cash value of this is done by taking the market value less the principal balance due on the reverse mortgage.

There are many scenarios when dealing with real estate, so please ensure you consult with your HFA or State Agency if you come across one of these examples.

LIHTC Y16

Posted on: June 25th, 2020 by Christa Landram No Comments

LIHTC Post Year-15
Many LIHTC properties are nearing or have already reached completion of the 15th year of their compliance period and are not aware of their role or the Internal Revenue Service’s role. Though the IRS requires LIHTC properties to have an extended use period of an additional 15 years past the 15-year compliance period, noncompliance issues are no longer submitted to them. The State continues to monitor the property and they are bound to the regulations and the requirements as stated in the LURA. As stated in the IRC 42(h)(6), there are several requirements under the extended use agreement, including:

√ The applicable fraction for each building shall never fall below what is stated in the agreement.

√ The owner must not dispose of the building until the affordability period has been completed.

√ The units must remain rent and income restricted.

For a full listing and explanation of the requirements, please visit the Internal Revenue Code Ruling.

Throughout the extended use period the State will continue to conduct file reviews and onsite inspections. If a noncompliance issue is found, Form 8823 is not submitted to the IRS; however, owners are still responsible for the compliance of the property, as not doing so could jeopardize the relationship with the State.

During the entire 15-year extended use period, initial certifications still need to be completed in their entirety, including completed TICs and third-party verifications for income and assets. Some states will also require annual recertification.

It is important to be in constant communication with your state agency or HFA throughout the affordability period, including the extended use period, as they may add on additional requirements and/or relax some of the requirements. Please also note that if there are other programs attached, there may be different monitoring requirements which will need to be adhered to, some of which may be more stringent.

Determining Household Members Under LIHTC Guidelines

Posted on: June 17th, 2020 by Christa Landram No Comments

A question many LIHTC properties have for us is who is and who is not considered a household member. A tenant’s income eligibility is determined by comparing the household’s gross annual anticipated income (per HUD guidelines) to the LIHTC set aside limits that apply to the project (50% AMI, 60% AMI, or Average Income Test). Let us go over a few of the more common situations so that you understand what income limits to use for the applicable household.
Included:
• All heads of household. This includes individuals who are absent.
• All co-heads and spouses. This includes individuals who are absent.
• Foster Children
• Foster Adults
• Children temporarily absent due to placement in a foster home
• Children away at school, but who live with the family during school recesses
• A person confined to a hospital or nursing home per family decision
• A son or daughter on active military duty only if this person leaves dependents or a spouse in the unit.
• The IRS considers unborn children and children in the process of being adopted as household members in determining income limits.
Do NOT count the following in determining income limits:
• Live-in Attendants
• Visitors or Guests (the length of time someone can be considered a guest needs to be reviewed with the local and landlord law)
• Guarantors
It is important that there be consistency in the file as to who is considered a household member. Be sure to review all documents prior to certification.
Changes to household composition:
The addition of a new member(s) to an existing household requires initial certification steps for the addition(s). That means their income is third-party verified, assets are documented (in some cases third-party verified), student status is verified, they are put on the lease, etc.
This is regardless of how many people already live in the unit. If it is 100% low income, the income of the new household member is added to the original TIC (or recertification TIC for Florida). If it is a mixed income project, then it is added to the most recent TIC.
Removing a household member generally requires less documentation from a federal standpoint. When a member moves out, it is recommended that the owner have the household member complete a move-out form. A new Tenant Income Certification is not required; however, they will be removed from the composition and all recertification paperwork at their anniversary.
Under IRC 42 regulations, an original household member must always reside in the unit as changes are made to the household composition. If all original household members have vacated the unit, then the entire household must be treated as a new move-in by certifying them under initial certification procedures, including income qualifying them under the current income limit.
An exception to this is if the remaining members were income qualified as of the date they moved into the unit. This may look different depending on how your allocating agency interprets the 8823 Guide; however, many agencies choose one or both of the following guidelines:
• The entire household was income qualified under the income limits in effect at time of move-in based on the household size.
• The added member was independently qualified under the one-person income limit that was in effect at time of move-in.

Determining Income Eligibility Exercise

Posted on: June 10th, 2020 by Christa Landram No Comments

Today’s blog is designed to test your knowledge of various income aspects! Answers and explanations will be posted tomorrow!

While sitting in the clubhouse one day, looking out at your perfect, Affordable Housing community, you notice a kind-looking lady with salt and pepper hair walking toward the leasing office. She reminds you of your grandmother and when she walks in you can almost smell fresh-baked cookies.

“Welcome to Magnolia Sabal Pinewoods! How can I help you today?” you say, giving her your best professional smile.

“Hello, I’m looking for a nice quiet community to live in where my grandchildren can come and visit me!” she says.

“Then the first step is to fill out an application” you reply.

During the application interview you learn the following information:

Her name is Sarah Jones and she’s 62 years old.

Ms. Jones works at Sandalwood Elementary School as a cafeteria worker.  She receives an annual salary of $21,000.

To supplement her income, Ms. Jones, also receives $100 every month from her annuity fund valued at $160,000.

The answers to these previously posted questions are shown below:

Which of the following is not pertinent to the application process in determining her eligibility?

Answer: Do you have any pets? Though it may be important to know about pets, and could affect their occupancy, it does not affect their eligibility

Would it be necessary to inquire if the applicant works during the summer?

Answer: Yes. It is always important to ask applicants about all income for the upcoming certification year; however, it is especially crucial you cover this question when you know a place of employment may not last year-round. An example of this is an educational employee. Though some may work at the school year-round, it is not guaranteed. Many educational employees take off the summers, while many work another job. Another form of income some education employees have is unemployment during the summer months. Please keep that in mind when processing their applications.

Is the annuity included as income or an asset?

Answer: Income. An annuity is a contract sold by an insurance company designed to provide payments, at specified times. Many annuities will be paid for the life of the recipient.

Once a holder starts receiving regular payments, they can no longer convert it to a lump sum of cash. In this situation, Ms. Jones will receive regular payments from the annuity and it will be treated as regular income, not asset income and no calculation of income from assets will be made. In addition, the balance from the annuity will not be counted as an asset.

Since you discover that Ms. Jones is eligible under the income guidelines, is it necessary to determine if Ms. Jones will have any roommates?

Answer: Yes. Just like you should ask all applicants about income, you should ask all applicants about additional household members. You must ask if they anticipate ANY changes to the household within the upcoming certification year.

Should you inquire about how long and often the grandchildren will be visiting?

Answer: Yes. Anyone who is in the household at least 50% of the time should be considered a household member. So, if she is planning on her grandchildren being in the unit more than 50% of the time, you must include them as household members for income eligibility purposes.

Advanced Income Examples

Posted on: June 3rd, 2020 by Christa Landram No Comments

At recent affordable housing meetings there has been much discussion regarding the challenges that owners are faced with when it comes to different forms of income. Below are some common income challenges that have surfaced recently. In many cases, states have collectively come up with best practices and I have shared them below.

A common asset mistake deals with Debit Cards. The IRS has provided guidance to treat these like savings accounts, though many state agencies have decided to treat them as checking accounts. Debit Cards include everything paid with a debit card, e.g., paychecks, SS, and child support. Again, the IRS has given guidance, but your state agency may treat it differently. You also want to ask how your state agency wants it verified, as some mention verification such as ATM receipts as being sufficient, while others disagree.

Sporadic and seasonal work is very common in states such as Florida and California. A hot topic right now is how many weeks or months of pay do you verify? Currently, there is no regulation addressing the number; however, the trend among the different state agencies is to obtain 12 months’ worth, in order to obtain an accurate picture of each season. This is a matter of interpretation and it is important that however you decide to verify it, you are consistent.

One of the more challenging forms of seasonal pay verification comes into play with migrant farmworkers. It is understood that there are some day duty workers who only receive cash. If you come across this, know that there is The Migrant and Seasonal Agricultural Worker Protection Act (MSPA), which protects migrant and seasonal agricultural workers by establishing employment standards related to wages, housing, transportation, disclosures and record-keeping. Farm labor contractors are required to register through the Department of Labor. If they do not, they are heavily fined. The first preference is third-party verification. If you are unable to obtain that, you can try to get paystubs. Next, you can try for receipts that show how many berries, for instance, they picked. If the form of verification is receipts, you should get as many of those as you can. Finally, have them sign a self-affidavit.

There are many forms of income that can present challenges, much like the ones listed above. When you are faced with a difficult form of income, it is best to contact your state monitor or state agency, for best practices.

Child Support

Posted on: June 2nd, 2020 by Christa Landram No Comments

How to handle child support has been a common area of concern for property owners everywhere. HUD states in the 4350, Chapter 5 that:

Owners must count alimony or child support amounts awarded by the court unless the applicant certifies that payments are not being made and that he or she has taken all reasonable legal actions to collect amounts due, including filing with the appropriate courts or agencies responsible for enforcing payment.

The owner may accept printouts from the court or agency responsible for enforcing support payments, or other evidence indicating the frequency and amount of support payments actually received.

Child support paid to the custodial parent through a state child support enforcement or welfare agency may be included in the family’s monthly welfare check and may be designated in different ways. In some states these payments are not identified as separate from the welfare grant. In these states, it is important to determine which portion is child support and not to count it twice. In other states, the payment may be listed as child support or as “pass-through” payments. These amounts must be counted as annual income.

When no documentation of child support, divorce, or separation is available, either because there was no marriage or for another reason, the owner may require the family to sign a certification stating the amount of child support received.”

There are many approaches to handling child support. If it falls in line with HUD’s guidance, an owner may choose their own approach, at their State Agency’s discretion and direction.

Let’s look at an example of what falls within HUD’s guidance. If an owner has a court order and a printout from the enforcement agency, an owner may use the average payment from the printout, in lieu of the amount on the court order.

What does using the average payment mean? An owner will take the average number of payments listed on the printout and annualize to determine the amount of child support to be listed in the annual income for the upcoming certification year.

Looking at an example:
On September 7, Stacey Jones verifies she has been court ordered child support for her daughter, Evie, in the amount of $500 a month. She certifies that she does not receive it and receives varying amounts. She supplies her printout from the enforcer which shows a history of 6 months.

Since we have at least three months of history and the printout from the enforcer, we will be able to use the average of actual payments instead of the court ordered amount.

March: $225
April: $300
May: $150
June: $400
July: $300
August: $200

We start by adding the totals ($1,575), then divide that by the number of months shown ($1,575/ 6 = $262.50) and use that amount as the monthly amount versus the court ordered amount of $500.

The annualized child support income will be $3,150.

As a reminder, the following steps should always be taken:

Every household should be asked if there is child support or if child support is due, even if children are not present in the household.
Note: A child support affidavit is not required by HUD but may be by your state agency. An owner shall inquire about child support for every household and properly document the file with the applicant’s third-party documentation or self-certification of non-receipt.

The questions should be:
a. Do you receive child support?
b. At what frequency?
c. In what amount?
d. Have you been awarded child support by court order?

The questions should cover ALL children.

The court order in its entirety is recommended; however, if not present it will not be a discrepancy when the printout from the enforcement agency clearly shows the amount due to them, the frequency of pay, the payer, and the children(s) names.

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