Update 3.0: Updated HUD FAQ provides additional details on COVID-related guidance, including property management, asset management, FHA, tenant notice, and recertification issues

April 02, 2020

Affordable Housing Alert

Author(s): Nathaniel S. Cushman, Harry J. Kelly, Deborah VanAmerongen

HUD’s Office of Multifamily Housing today provided a further update to its FAQs relating to issues being created across HUD projects and programs by the unfolding COVID-19 pandemic.

The Department of Housing and Urban Development’s (HUD’s) Office of Multifamily Housing today provided a further update to its FAQs relating to issues being created across HUD projects and programs by the unfolding COVID-19 pandemic. These FAQs again largely extend the prior FAQs. [1] Today’s guidance provides additional clarification on property management and asset management issues, including additional detailed guidance on Federal Housing Administration (FHA) transactions looking to close on initial endorsements, experiencing construction delays, or working through the generation of required appraisals, environmental reports, and other reports. There is also guidance in these FAQs relating to Rental Assistance Demonstration (RAD) timelines, including detailed guidance on holding virtual tenant meetings in place of required in-person meetings. This guidance may be instructive for other HUD program contexts, as well. There is also additional flexibility and clarification provided relating to tenant certification and interim recertification requirements.

Here's a summary of the latest FAQ update.

Use of reserve for replacement and residual receipts funds

The updated FAQs restate the policy of allowing for advances from reserve for replacement and residual receipts accounts in accordance with existing handbook provisions and  also clarifies that, with prior HUD approval, residual receipts can be used for costs related to safety and preventative equipment for staff use, including maintenance staff. And there is a new FAQ that implies, but does not directly state, that reserve for replacement accounts may potentially be accessible for payments of debt service on FHA-insured loans.

Potential delay in initial endorsement of some FHA deals

HUD states that they may delay initial endorsement on some FHA-insured loans that involve tenant-in-place rehabilitation or tenant relocation, or in areas that have shelter-in-place orders. For projects that have time-sensitive restrictions or contractual obligations (e.g., delivery of low income housing tax credits), that will expire if endorsement is delayed, HUD will close the loan but will need to see a demonstration that mitigants are in place to offset unplanned construction delays.

Guidance for FHA transactions experiencing construction delays

This update provides additional clarification regarding processes for FHA-insured projects experiencing construction delays, whether pursuant to a state or local shelter-in-place or similar order or otherwise, including:

  • Allowance for reimbursement of the cost of work on new construction and substantial rehabilitation jobs, even if the supervising architect and/or HUD inspector are not able to conduct an on-site inspection, for example, via a virtual inspection and virtual site meeting
  • Clarification and additional flexibility regarding repair escrows in 223(f), 223(a)(7), and related inspection requirements
  • Allowances in connection with the release and reduction of surplus cash hold-back or assurance of completion funds
  • Allowance for monthly change orders for time extensions

Guidance on site visit requirements and alternatives for appraisals and environmental reports
HUD is providing some flexibility to accept reports at a later date or to accept substitute visits or virtual visits in certain circumstances.
Detailed guidance on holding virtual resident meetings rather than in-person resident meetings, in order to meet RAD requirements
This virtual meeting guidance may be instructive in other contexts in which a resident meeting is required as part of a HUD-processing action. In addition to virtual meetings and resident engagement requirements, HUD is also recommending in these FAQs that public housing agencies (PHAs) and owners develop an alternative communication plan that is sustainable for eight weeks or more.
Additional flexibility for income certification and interim recertification requirements

  • Allowance for self-certification in certain circumstances
  • Allowance for signature on certifications by copy/image/email/fax so long as an original signature is obtained later
  • Allowance to provide documents by electronic delivery at the owner’s discretion, with original documents to be provided later
  • Clarification on processing interim recertifications in TRACS

On property management

HUD now cites directly to the CDC guidance for preventing the spread of the virus at retirement communities and independent living facilities, discussed in our Update 2.0 last week. While the CDC guidance focuses on the challenges faced by senior housing properties, much of the advice in that guidance may be useful for operators of multifamily housing properties generally.
Future guidance on FHA and risk-share forbearance
The FAQ also states that HUD expects to be able to provide future guidance on forbearance on FHA-insured and risk-share loans. For the time being, the FAQ links to a recent GNMA blog post discussing the issue.

  1. See our earlier client alerts, “HUD issues updates to FAQs for owners of multifamily assisted housing on dealing with COVID-19 and legal guidance for closing transactions” and “New HUD FAQ extends guidance on property management, recertification, and HUD closing issues” for a discussion of the earlier iterations of these FAQs. [Back to reference]

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