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Q&A-Section 8 Contract Renewals 

Questions and Answers (Q&A) - Section 8 Contract Renewals

 Request for renewal of a Section 8 Contract is an analysis of who will benefit from the process, U.S. Departments of Housing & Urban Development (HUD) or Owners and Management Agents on behalf of Owners. Through years of assisting Owners and Management Agents (O/A) of HUD Subsidized projects I have observed and concluded that if O/A does not do their due diligence prior to committing to an Option under HUD Section 8 Contract Renewal policy Guide (Guide) there may be repercussions. Possible repercussions may result in many after affects.

 

Question: Who benefits from HUD published Guide?

 

Answer: Do you really think HUD would publish the Guide for O/A benefits; I have a bridge in Brooklyn I would like to sell you? The Departments has a responsibility to the US Congress to develop policies and procedures to justify its existence. This could be in the form of restricting funding to O/A to a minimum.
 

Question: What monetary benefits Profit-Motivated and Limited Dividend can expect from renewal of their Section 8 Contracts?

 

Answer: Since the Department’s original publication of the Guide over the years, it has resulted in over 300 pages of outstanding instructions. Through the years HUD reviewed the Guide and made efforts to close as many loop-holds as possible so that Owners receive little or no monetary gains/windfalls.

 

Question: What are some of the changes over the years to the Guide that indicates the Department’s has made it difficult for Owners to receive a deserving annual rent adjustment under a long-term Contract?

 

Answer: There are 5-Options under the Guide that may apply to Owners when they choose to renew their Section 8 Contracts. Each Option has its own requirements, which appear to stand on its own and others that require Owners’ due diligence in deciding which Option to choose from.

 

For instance, under Option Four – Renewal of Projects Exempt from or not Eligible for Debt-Restructuring, originally when an Owner chose this Option initial rents were set at the “lesser of” a Budget-based Rent Increase (BBRI) potential or an Operating Cost Adjustment Factor (OCAF) potential. During a long-term Contract, each year the owner had the choice of requesting an increase in rents through a BBRI or OCAF rent adjustment.

 

Currently, HUD eliminated original annual choices for rent adjustments under this Option; HUD has restricted Owners to ONLY 1-choice under Option Four; for year-2 forward under a long-term Contract Owners may ONLY receive annual OCAF rent adjustments.

 

Question: What specific change to the Guide that may trigger HUD internal review of Owners’ Rent Comparability Study (RCS) when they submit requests for renewal of Section 8 Contracts?

 

Answer: HUD added to Chapter Nine of the Guide a mandatory Owners’ RCS market rent threshold. Owners’ RCS must conclude that projects’ median rent for assisted units, as derived from Owners’ RCS, do not exceed 140 percent of “Median Gross Rent By Zip Code Tabulation Area” as published by the U. S. Bureau of the Census or other comparable source as determined by the Department. If 140% is exceeded an HUD Independent RCS is triggered.

 

Normally, this has little or no affect on most Section 8 renewal processes; however, I had a client whose rents were drastically cut as a result of a HUD Independent RCS.

Caution: After an O/A commissions a RCS, which cost thousands of dollars, and O/A compares RCS Market Rent Potential to currently approved Section 8 Contract Rent Potential it may be discovered the RCS Market Rate Rent Potential is less than current Potential.  In this case, a complete RCS would NOT qualify to be used for a request for increase in rents when renewing a Section 8 Contract.

What is the O/A alternative; DO NOT commission a complete RCS, but requests the Appraiser to provide LIMITED RCS GRIDS. After an O/A reviews RCS GRIDS with their Appraisers make a determination if a complete RCS is feasible.

Also, there is a HUD qualifying analyses of Owners’ RCS Grids Market Rents that may trigger a HUD commissioned Independent RCS. It is important O/A use the suggested LIMITED RCS GRIDS procedure. I suggest discussing this proactive pre-review with LIMITED RCS GRIDS with your Appraiser. When assisting preparation of renewal proposals for clients, I found that in some cases O/A did NOT do their due diligent ahead of time before accepting a complete RCS for submission of a request for renewal of their Section 8 Contracts which resulted in HUD reduced their current rents substantially.   

Question: How can Owners/Management Agents submission of HUD BBRI either benefit projects’ cash flow or may cause future operating deficits?  

 

Answer: From any other HUD outstanding instructions, the procedures for preparing and submission of a HUD BBRI process are unique. You might say the HUD process, in my opinion, has built-in HUD subjectivities.

 

As a former HUD Multifamily Asset Manager I can prepare several versions of HUD BBRI that may or may not pass HUD muster; on the other hand if an independent review was conducted by a HUD Multifamily Account Executive my prepared BBRI may be subject to HUD Field Office internal policies; all HUD Field Offices policies are not equal.  

 

When the rubber meets the road I know where all the bodies are buried and by using my creative skills and knowledge of HUD instructions can assist my clients in navigating HUD mine fields.

 

Question: What approach should be used in selecting an Option under the Guide when requesting renewal of a Section 8 Contract?

 

Answer: The decision in selecting an Option under the Guide for renewal of a Section 8 Contract is not one dimensional but must be reviewed from several prospective.

 

If you need my assistance in preparing a Proposal for Contract renewal, please contact me.

 

Alvin L. Sutherlin

Housing Consultant

Post Office Box 162

Mount Rainier, MD 20712-0162

 

Office Address: 4104-29th Street

Mount Rainier, MD 20712-1820 

 

301-277-3465

 

ALVINL.SUTHERLIN@VERIZON.NET

 

http://hud-consultant.com

 

References:

http://hud-consultant.com/References.html