HUD Multifamily Housing Compliance

1
HUD MultifamilyHousing Compliance

• Its Your Project, but is it really?
• Presented by Karen K. Smith, CPAPrincipal,
  Reznick Group, P.C.
• May 10, 2007

2
Important Documents

• Housing Assistance Payments (HAP) Contract
  (Section 8)
• Regulatory Agreement
• Appendix A of the Industry User Guide for the
  Financial Assessment Subsystem (Real Estate
  Assessment Center)
• HUD Handbook IG 2000.04 REV-2 CHG-1,
  Consolidated Audit Guide for Audits of HUD
  Programs
• Other HUD Handbooks
• 4381.5 REV-2 Management Documents, Agents and
  Fees
• 4350.3 REV-1 Occupancy Requirements of Subsidized
  Multifamily Housing Programs
• 4370.2 Financial Operations and Accounting
  Procedures for Insured Multifamily Projects

3
Who is Required to File a Financial Statement
with HUD (REAC)

• HUD Insured or HUD Held Loans
• HAP Contract
• Almost all uninsured projects with HAP Contracts
  are required to file (The HAP contract format
  language prior to 1979/1980 does not generally
  require financial statements)
• Any HAP Contracts that are assigned currently
  have the requirement for financial reporting in
  accordance with 24 CFR Subpart H

4
When are the Financial Statements Due

• Regulatory agreement specifies 60 days
• Current requirement under for electronic
  submission is actually 90 days

5
What happens if you dont file?

• Active Partners Performance System (APPS) Flag
• Referral to Enforcement Center
• Basis for debarment
• Other administrative sanctions
• If there is HUD-held subordinate debt under
  Mark-to-Market owners cannot receive or accrue
  the Incentive Performance Fee and Capital
  Recovery Payments must be suspended. The IPF is
  lost for the entire reporting year.

6
What is a distribution?

• Equity distribution (payment to partners on the
  statement of partners equity)
• Payment of Mortgagor Entity Expenses
• Payment of Development Fees

7
What is a Mortgagor Entity Expense?

• A Mortgagor Entity Expense is an expense that
  cannot be paid from project operating funds.
  Examples of mortgagor entity expenses include
• Fees relating to debt refinancing
• Tax projections performed in connection with
  analyzing a potential sale of the property
• Investor service/partnership administration fees
• Interest paid on certain subordinate debt (HUD
  M2M 2nd and 3rd Mortgages)

8
When can you make a distribution?

• Distributions must be made from surplus cash
• As of and after the end of a semiannual or annual
  fiscal period
• Cannot make a distribution from borrowed funds,
  prior to the completion of the project, or when
  there is any default under the regulatory
  agreement or under the note or mortgage
• Must be in compliance with all outstanding
  notices of requirements for proper maintenance of
  the project

9
What is Surplus Cash?

• Cash (Accounts 1120, 1170 and 1191)
• Accounts Receivable HUD
• Other
• LESS
• Accrued mortgage interest payable
• Delinquent mortgage principal payments
• Delinquent deposits to reserve for replacements
• Accounts payable (due within 30 days)
• Loans and notes payable (due within 30 days)
• Deficient tax, insurance or MIP escrow deposits
• Accrued expenses (not escrowed)
• Prepaid revenue (Account 2210)
• Tenant security deposits liability (Account 2191)
• Other current obligations