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Residual Receipts: Latest on HAP Payments Offset Requirements

by Published On: Oct 05, 2012
HUD

On Oct. 2, the U.S. Department of Housing and Urban Development (HUD) issued a memorandum in response to requests from Hubs, Program Centers and industry partners to clarify  Notice H-2012-14: Use of "New Regulation" Section 8 Housing Assistance Payments (HAP) Contracts Residual Receipts to Offset Project-Based Section 8 Housing Assistance Payments, which was released on Aug. 3.

This memo contained a 29-page Frequently Asked Questions (FAQ) document to provide clarification and address questions that have been submitted to Headquarters.

According to the memorandum, “due to the high volume of questions received on this topic, until further notice, any further questions must be submitted by Hub Directors by e-mail to Eric Ramsey, director of the Policy and Participation Standards Division, at: Eric.Ramsey@hud.gov.” We encourage you to share, send, cc: your questions to us via CBloom@LeadingAge.org.

Analysis and Highlights

The following are our preliminary analysis and highlights. While the answers are not all necessarily crystal-clear, they do provide very important guidance on many/most issues we submitted to HUD.  

Timing Remains a Concern

Though the memo indicated (p. 6) that “the first required RR offset will occur with the November 2012 vouchers,” it should be understood (and we’ve discussed this with HUD HQ) that because November vouchers typically must be submitted by October 10, where owners and HUD Project managers have not already agreed upon the final amount of offsets available, using offset for the November voucher may not really be realistic.  

HUD’s goal here is to ensure that the dialogue has begun, and that agreement is reached as soon as possible, even if this means taking a month to arrive at the agreed balance and offset amounts. Should you experience any major problems in achieving this agreement, please let us know. The general practice is described on pages 15 and 16 of the memo, though HUD has worked to ensure/protect flexibility where certain HUD field offices have developed their own practices to achieve the desired (financial savings) end.

So, for the time being, move forward on the offsets agreements. And, if you haven’t contacted your HUD project-manager yet, you should probably do so. If you have agreement, use the off-sets at the next possible voucher. As always, be sure to document, document, document.   

Excerpts from FAQ

Excerpts of key points from the FAQ are presented below in the order in which they appear in the memo [with our LeadingAge commentary in brackets, if needed]:

Applicability – page 3

The notice specifically states that it applies to all projects that are subject to a new regulation Project-Based Section 8 HAP contract. Applicability includes: 

  • Section 8 New Construction/Substantial Rehabilitation projects subject to 24 CFR§§880.205, 881.205, or 883.306
  • Projects that are subject to both a Section 202 Direct Loan and a new regulation Section 8 HAP contract. 
    • Section 8 – subject to 24 CFR 880 - in effect Nov. 5, 1979.
    • Section 8 - subject to 24 CFR 881 - in effect Feb. 20, 1980.
    • Section 8 - subject to 24 CFR 883 - in effect Feb. 29, 1980.
    • 202/8 subject to new regulation 24 CFR 891 formerly 24 CFR 885.
    • Does not apply to 202 PRAC, 202 PAC, 811 PRAC, Section 8 LMSA, Section 8 PDSA.
    • 236 and BMIR properties do not submit vouchers.
    • Rent Supp and RAP are not mentioned.

According to the FAQ, the notice does not pertain to projects with LMSA or PD Section 8 HAP contracts or to projects with PAC and PRAC contracts.

The date of the Agreement to Enter into a Housing Assistance Payment Contract (AHAP)…[even if] the HAP contract does not include the language referenced in the Notice [H2012-14]..prevails.

[LeadingAge Note: So, any Section 8 AHAP entered into after the applicable date, even if/where the “stated typical language” is missing from contracts, is subject to the offsets]

Calculating Balance in Residual Receipts Account – page 4

The owner and HUD Project Manager must work together to determine the available balance in the residual receipts account and the amount that must be offset monthly until the account balance reaches the $250 per [revenue generating] unit retained balance.

The calculation for the retained balance ($250 per unit) is applied to all of the revenue-producing units in the project [not just those under the section 8 contract].

Effective Date – page 6
 
See discussion notes above on doing your best to comply ASAP. Hubs/PCs may refer to the sample email (processing guidance) sent to OAs by the San Francisco Hub

[LA Note:  the SF Hub guidance an be found on page 15 and 16 of the memo, but it too has a few minor things needing tweaks to be fully consistent with other responses elsewhere in the memo. Additional details on voucher preparation/impacts are included below, at the end of this article.]

Financial Statement Accounting – page 7

Residual Receipts are not considered new funds or an additional federal award coming into the property. They are considered a release from the residual receipts account to offset the Section 8 subsidy…and a management fee may be collected on the funds released for that purpose.

[There is also detailed guidance on how Residual Receipts Account Offsets should be reported, so be sure to take a look and pass along to your financial staff and auditors]

Flexible Subsidy – page 9

Offsets  must begin for all projects covered under the notices, irrespective of whether they have an outstanding Flexible Subsidy Loan.

Grants – page 10

All requests and approvals for use of Residual Receipts [for service coordination funding] must be documented by both the project owner and the HUD Project Manager.  

[LA Note: if you have such an understanding but no documentation to that effect already, you should request it promptly  -- and, per guidance elsewhere, you can request to set-aside enough funds for this year and next year's needs to fund service coordination using residuals -- see page 15 for more on service coordinator funds.] 

Miscellaneous – page 12

Owner advances or operating deficits [or other RR eligible items] that have accrued will be paid from the Retained Balance [but will not be used to reduce the available balance during negotiations].

Offset Amount – page 13

[LeadingAge Note: This is paraphrased]  Section 202 property mortgages costs must be considered when calculating the RR offset and balance available -- there must be remaining money on the voucher to pay the 202 mortgage. Offsets must be adjusted to include the Section 202 property mortgage payment.

CAs may adjust the FORQ if the owner forgets to enter the FORQ amount on the voucher

Each HUD office may have a variation on how they will communicate with the PBCA regarding the approved RR offsets.

Processing Steps – page 15

[LeadingAge Note:  There is flexibility for individual Hubs to implement the requirements of the Notice most efficiently in their jurisdictions. But a detailed processing guide has been included to serve as a model, with certain modifications we have discussed with HUD and certain members operating in the model (SF HUB) office area -- these include reference to number of units (would be producing revenues), use of current (vs. last annual financial statement for) residual receipts balance, and owners may need to prepare the HUD-9250 instead of the HUD project manager. If significant problems arise, please let us know. HUD HQ has solicited an open dialogue on this, and wishes us to communicate (and we do appreciate) they they are doing their  best to accommodate and create a whole new system.]

Refinancing – page 19

  • RR funds committed as a source in existing (completed) refinancings will remain in place.
  • Where transactions have been structured but lack formal HUD approval, requests must be sent to HUD HQ for approval.
  • Any requests may be subsequent to notice publication must be denied

Retained Balance – page 20

Funds for eligible but not previously approved uses will not be allowed – and the owner may not suspend participation in the offset process while waiting for a response from HUD.

Where an OA/HUD has executed a residual receipts note, payments on the note must come from the retained balance.

Risk Sharing – page 22

Underlying financing (eg. Risk Sharing) does not exempt a project.

Section 202 Projects – page 23

For Section 202/ Section 8 housing with a HUD mortgage, the project manager will notify the contract administrator of the total dollar amount in the property’s RR account that is available to offset vouchers and the amount of the 202 offset, if any. O/As with a Section 202 direct loan must leave enough money on the voucher to pay the mortgage (Section 202 offset).

Service Coordinators – page 25

Service coordinator programs that are now funded from residual receipts may continue to use Residual Receipts to fund those programs [and] residual receipts may continue to be used to fund Service Coordinators for one year terms after expiration of any existing one year agreements. 

HUD will continue to permit Service Coordinators to be funded from project budgets in accordance with outstanding instructions

[LeadingAge Note: This is a major success, as it allows more time to address/resolve issues regarding continued service coordination. However, keep in mind new restrictions on Budget-Based Rent Increases as part of Option 4 renewals, and the requirement for and effective cap based on rent comparability studies.]

Vouchers and Form HUD-9250 – page 26

HUD may instruct the PBCA to adjust the voucher with an RR offset (and elsewhere is says that CAs should make RR offsets on the voucher if the owner forgets to place a FORQ on the voucher).

Reminders that there must be enough money on the voucher to pay a property with a  202 direct loan (see also p. 13)

HUD, the CA and OA are responsible for tracking the Residual Receipts account balance and withdrawn amounts [how this will be actually achieved, is not specified].

Waviers – page 29

If there is an existing approval to use Residual Receipts for a specific purpose has been granted, it remains in place

Voucher Preparation for Properties Subject to Residual Receipts Offsets 

The following is information that was generated (and is here shared with permission) by Mary Ross of Ross Business Development:

In order to maintain compliance, you, or whoever processes the monthly voucher for the property, should read the Notice and the subsequent clarification memo and FAQs. 

Based on the HUD instruction and the FAQs, the HUD Project Managers and owner/agents will work together to determine the following:

  • The property’s current residual receipts balance.
  • The amount of the RR balance, if any, that is allocated for service coordinator expense.
  • The number of units under contract.
  • The amount of the RR balance that will be reserved for the units.
  • The amount of the RR balance that is available to offset vouchers.
  • If the property has a 202 direct loan, the PM and OA will also agree on the amount of the 202 offset, if any.
  1. Determine if the property subject to the HAP/Residual Receipts offset requirements as defined in HUD Notice 12-14.
    1. Section 8 – subject to 24 CFR 880. 
    2. Section 8 - subject to 24 CFR 881. 
    3. Section 8 - subject to 24 CFR 883. 
    4. 202/8 subject to new regulation 24 CFR 891 formerly 24 CFR 885.
    5. Does not apply to 202 PRAC, 202 PAC, 811 PRAC, Section 8 LMSA, Section 8 PDSA.
    6. 236 and BMIR properties do not submit vouchers.
    7. Rent Supp and RAP are not mentioned.

  2. Check the HAP contract to see if Residual Receipts are to be used to offset the housing assistance payment.  Note from RBD:  The HAP contract may include some language typically in Section 2.6 and phrased:  "Withdrawals from this residual receipts account will be made only with the approval of HUD and for project purposes, including the reduction of housing assistance payments."

  3. Determine the number of revenue-producing units.  Multiply the total number of units by $250.00.  Add amounts required to fund a Service Coordinator program, if applicable.  Add amounts previously approved by HUD, if applicable.  The sum provides your Retained Balance.

  4. Check the balance in the residual receipts account.

  5. Note amounts in excess of Retained Balance.  Note from RBD:  We are calling this the RR HAP Offset Balance.

  6. Create the voucher.

  7. If the HAP request is less than the RR HAP Offset Balance, reduce the voucher using the FORQ Miscellaneous Accounting Request.  The FORQ request is the full amount of the voucher using the description "RR OFFSET with dollar amount".  Note:  For OAs with 202 direct loans - When making an RR HAP Offset entry, leave enough money on the voucher to pay the mortgage (202 offset)
    For example:                                               
     
    Property has 100 units $250 x 100 = $25000.00.   This is the Retained Balance (assuming no Service Coordinator or other RR obligation)  
     
    Residual Receipts Account has a current balance of $1,000,000.00.              
     
    $975,000.00 is the RR HAP Offset Balance   
     
    Property requests $130,000.00 on the November 2012 HAP                          
     
    Owner/agent enters a Miscellaneous Accounting Request FORQ for -130,000.00 with a description RR OFFSET -$130,000.00
     
    Owner/agent submits HUD Form 9250 to HUD for approval.  If the submission is incomplete HUD will send a letter detailing the deficiency.  If the submission is complete HUD must approve within 10 business days and notify the PBCA or TCA 45 days in advance.  Note from RBD:  It is recommended that owner/agents reporting to a PBCA or TCA are prepared to submit a copy of the HUD Form 9250 to the appropriate PBCA or TCA if requested.

    This process will be repeated each month until the Residual Receipts account balance and the calculated Retained Balance is the same.
  8. If the HAP request is greater than the RR HAP Offset Balance, reduce the voucher using the FORQ Miscellaneous Accounting Request. Use the entire RR HAP Offset Balance to adjust the HAP using the description "RR OFFSET with dollar amount." The remainder of the voucher will be paid through LOCCS/TRACS as with previous submissions. Note:  For OAs with 202 direct loans - When making an RR HAP Offset entry, leave enough money on the voucher to pay the mortgage (202 offset).

    For example:                                               
     
    Property has 100 units $250 x 100 = $25000.00.   This is the Retained Balance (assuming no Service Coordinator or other RR obligation)  
     
    Residual Receipts Account has a current balance of $50,000.00.              
     
    $25,000.00 is the RR HAP Offset Balance   
     
    Property requests $130,000.00 on the November 2012 HAP                          
     
    Owner/agent enters a Miscellaneous Accounting Request FORQ for -25,000.00 with a description RR OFFSET -$25,000.00
     
    Total HAP request will be reduced to $105,000.00 which will be paid through TRACS/LOCCS as usual
    Owner/agent submits HUD Form 9250 to HUD for approval.  If the submission is incomplete HUD will send a letter detailing the deficiency.  If the submission is complete HUD must approve within 10 business days and notify the PBCA or TCA 45 days in advance.  Note from RBD:  It is recommended that owner/agents reporting to a PBCA or TCA are prepared to submit a copy of the HUD Form 9250 to the appropriate PBCA or TCA if requested.

  9. Submit to HUD Form 9250 Funds Authorizations for Use of Reserve for Replacement of Residual Receipts.

  10. The HUD Program Center (PC) shall submit Form 9250 authorizing releases to the project CA, if appropriate, and to the mortgagee.  In the case of a 202/8 the form will be submitted to the private bank that maintains the project residual receipts account.

  11. If future deposits to the Residual Receipts account cause the balance to exceed the Retained Balance, owner/agents must follow the steps outlined.
 



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