Finding Number: 2023-002
Program: HOME Investment Partnerships Program (HOME)
ALN #: 14.239
Pass-through entity: NA – Direct Award
Federal Agency: Department of Housing and Urban Development
Federal Award Numbers: M14-MC060518, M15-MC060518, M16-MC060518, M17-MC060518, M18-MC060518, M19-MC060518, M21-MC060518, and M22-MC060518
Federal Award Year: 11/18/2015–09/01/2023, 01/19/2017–09/01/2024, 09/22/2017–09/01/2025, 09/12/2018- 09/01/2026, 09/04/2019–09/01/2027, 08/19/2021–09/01/2029, and 11/09/2022–09/01/2030
Compliance Requirement: Eligibility
Criteria
24 CFR92.252 Qualification as affordable housing: Rental housing.
(e) Periods of affordability. The HOME-assisted units must meet the affordability requirements for not less than the applicable period, beginning after project completion.
(1) The affordability requirements:
(i) Apply without regard to the term of any loan or mortgage, repayment of the HOME investment, or the transfer of ownership;
(ii) Must be imposed by a deed restriction, a covenant running with the land, an agreement restricting the use of the property, or other mechanisms approved by HUD and must give the participating jurisdiction the right to require specific performance (except that the participating jurisdiction may provide that the affordability restrictions may terminate upon foreclosure or transfer in lieu of foreclosure); and
(iii) Must be recorded in accordance with State recordation laws.
(2) The participating jurisdiction may use purchase options, rights of first refusal or other preemptive rights to purchase the housing before foreclosure or deed in lieu of foreclosure in order to preserve affordability.
(3) The affordability restrictions shall be revived according to the original terms if, during the original affordability period, the owner of record before the foreclosure, or deed in lieu of foreclosure, or any entity that includes the former owner or those with whom the former owner has or had family or business ties, obtains an ownership interest in the project or property.
(4) The termination of the restrictions on the project does not terminate the participating jurisdiction’s repayment obligation under § 92.503(b).
Rental housing activity (Minimum period of affordability - In years)
Rehabilitation or acquisition of existing housing per unit amount of HOME funds: Under $15,000 (5)
15,000 to $14,000 (10)
Over $40,000 or rehabilitation involving refinancing (15)
New construction or acquisition of newly constructed housing (20)
(h) Tenant income. The income of each tenant must be determined initially in accordance with §92.203(a)(1)(i). In addition, each year during the period of affordability the project owner must re-examine each tenant’s annual income in accordance with one of the options in § 92.203 selected by the participating jurisdiction. An owner of a multifamily project with an affordability period of ten years or more who re-examines tenant’s annual income through a statement and certification in accordance with § 92.203(b)(1)(ii), must examine the income of each tenant, in accordance with § 92.203(b)(1)(i), every sixth year of the affordability period, except that, for units that receive Federal or State project-based rental subsidy, the owner must accept the income determination pursuant to §92.203(a)(1).
24 CFR 92.203 Income determinations-
(b) Required Documentation for Annual Income Calculations
(1) For families who are tenants in HOME-assisted housing and not receiving HOME tenant-based rental assistance, the participating jurisdiction must initially determine annual income using the method in paragraph (b)(1)(i) of this section. For subsequent income determinations during the period of affordability, the participating jurisdiction may use any one of the following methods in accordance with § 92.252(h):
(i) Examine at least two months of source documents evidencing annual income (e.g., wage statement, interest statement, and unemployment compensation statement) for the family.
(ii) Obtain from the family a written statement of the amount of the family’s annual income and family size, along with a certification that the information is complete and accurate. The certification must state that the family will provide source documents upon request.
(iii) Obtain a written statement from the administrator of a government program under which the family receives benefits and which examines each year the annual income of the family. The statement must indicate the tenant’s family size and state the amount of the family’s annual income; or alternatively, the statement must indicate the current dollar limit for very low- or low-income families for the family size of the tenant and state that the tenant’s annual income
does not exceed this limit.
Title 45 US Code of Federal Regulations Part 75 (45 CFR part 75), Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards, section 75.303 also states that nonfederal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations and the terms and conditions of the federal award.
Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure eligibility criteria are met and documented.
Conditions Found
The City was unable to collect documents from the property manager at the inspection site to ensure that individuals who occupied HOME - assisted units were eligible tenants. For 4 of 60 sample selections, which all related to the same development group, but different properties, the City did not complete the required eligibility procedures. Therefore, the City did not determine each family’s income to determine eligibility, did not ensure the family was low income or very low income, and that the rent did not exceed 30% of adjusted income of a family whose income equals 65% of the median income for the area. Additionally, for the same development group, the City was unable to determine if, for projects with five or more units, 20% of HOME units were occupied by very-low income families.
Per discussion with the City, they were unable to collect eligibility documents related to any of the loans related to this developer. Per review of the City’s HOME loan rollforward, 21 out of 279 loans relate to this developer, which represent 6% of the total loan population. Additionally, the 21 loans represent $13.4M of $87.5M of total loans disbursed, or approximately 15% of the total population.
Cause
Per inquiry with the Housing Development Officer, for the four exceptions related to the same development group, there were multiple attempts between July 6, 2023 and January 26, 2024 to contact the property manager and retrieve income verification documentation for individuals occupying HOME assisted units. It was later determined that the project manager for the developer was no longer with the company. The City then provided a six-week extension to the development agency on January 26, 2024, in a last attempt for them to provide the documentation. No documents or further communication was made with the City. The City was ultimately unable to obtain the documents needed to determine eligibility.
Effect
Participants who do not meet income requirements could potentially cause the City to not be in compliance with HUD requirements.
Questioned Costs
Not applicable
Repeat finding
2022-001
Statistical sampling
The sample was not intended to be, and was not, a statistically valid sample.
Recommendation
We recommend the City continue working with the developer to ensure eligibility documents are gathered and within a timely manner.
Views of Responsible Officials
The Community Development Department continues to complete eligibility procedures and is diligently working to collect the required documents. As noted by KPMG, 4 out of 60 sample selections were all related to properties held by the same development group. It is inaccurate to state that the City has ceased attempts to obtain corrective action from the developer. Since granting the developer a six-week extension on January 26, 2024, the Community Development Department has continued to communicate with the developer to obtain the missing documentation. During a Teams call with a representative from KPMG on July 18, 2024, the City provided the auditor with evidence of continued correspondence with the developer, in the form of emails dated March 18, 2024, March 20, 2024, and, most recently, July 1, 2024. Issues with tenant income eligibility and other related matters with this particular developer have persisted for several years and are well known to the Community Development Department, the grantor, other relevant City
departments, and external agencies related to the grantor.