Addressing Rehab/Modernization During Planned REAC Inspections

Regulation | March 04, 2019 | by

Given REAC's new 14-day inspection notification policy, many owners are concerned about the potential impacts of major rehabilitation or modernization work in progress going on at the time of the inspection. According to HUD, however, owners can secure a database adjustment by providing required documentation within 45 days to mitigate any negative scoring.

On February 20, HUD announced the standardization of shortened timeframes between inspection notification and actual inspection dates. The new policy to provide owners with no more than 14 days with which to notify residents and have contracted inspectors onsite to do the inspection is detailed in Notice H 2019-04.

According to HUD, if the initial date is declined, refused or canceled for any reason, a score of zero will be recorded - and only an inspection scheduled within the following 7 days will allow the site to avoid the zero-score becoming permanent.

Requesting Extensions for Modernization No Longer Permitted

So how do owner/agents handle issues like planned modernization, rehabilitation, or time-sensitive structural work as with tax credit refinancing?

In the past, owners could request an extension of inspection deadlines until after major work was completed.

Not any longer.

Due to apparent abuses by some bad-actor owners, which HUD reports as saying they are doing work but not really doing anything at all, the new 14-day notification notice specifically states that “Requests to extend or reschedule an inspection outside of the notification window, such as for any circumstances which may significantly impact the execution of an inspection or inspection results (e.g., major renovations, significant rehabilitation, fire, etc.), must be submitted by the POA and approved by HUD prior to the proposed date of inspection.” (Emphasis ours.)

And, despite the notification exception for inspection contracts awarded prior to the release of the notice which might have taken into account future planned work, some HUD field office staff have already begun to assert the sufficiency of retroactively applying a Data Base Adjustments to remove any negative scoring that resulted from HUD-approved work in progress.

So, fixing any undue negative impacts after the inspection has occurred appears to be the preferred, and soon the only, available option.

Seeking Adjustments After Receiving Inspection Scores

Details concerning documentation requirements to obtain a database adjustments are the focus of a modified policy posted on the REAC PASS main page concerning "Ongoing Modernization Work in Progress."

According to the current statement, posted just after the formal release of Notice H 2019-04, “Properties and developments undergoing modernization work in progress may qualify for a database adjustment for observed deficiencies actively being worked on at the time of the inspection by, within 45 days of getting the inspection report, providing the required documentation listed below:

  • an executed contract with a copy of the scope of work, including change orders if applicable;
  • a Notice to Proceed with start and completion dates;
  • an affidavit from the contractor’s authorized representative identifying:
    • the modernization work in progress that it was performing at the time of the inspection;
    • the identifiable location of the work in progress;
    • the work it has completed as of the date of the affidavit;
    • the date n which the work was completed; and
    • if the work is not completed as of the date of the affidavit, an explanation of why the work is still in progress and when it will be completed; and
  • photographic evidence sufficient to show that the observed deficiencies have been corrected or are in the process of being corrected.

HUD says that documents submitted from the contractor(s) must be on the contractor’s letterhead and include the contractor’s licensing and contact information. Only the observed deficiencies that were in the process of being corrected by modernization work in progress at the time of inspection are eligible for consideration. Additionally, before processing a database adjustment, it is stated that REAC may contact the contractor for additional information or visit the property to verify the information submitted in the appeal.

Further, HUD states, “[m]odernization work to be performed under an executed contract, but not in progress at the time of the inspection, is not eligible for a database adjustment.”

By adding the photographic component, these requirements only somewhat expand previously existing documentation requirements for REAC appeals. LeadingAge welcomes information and insights from members as to how this change in notification policy, and with securing database adjustments, may impact the ability to perform modernization work.

Find Out More About HUD Inspection Changes Coming

As disclosed at the first REAC listening session on February 21, this change constitutes the bulk of any changes expected to impact HUD-subsidized properties nationwide in the next couple of years, outside of a still-to-come policy expected requiring carbon monoxide detectors.

For more information on reforms being considered for the REAC inspection process, see our February article and HUD slides on Improving Real Estate Assessment Center’s (REAC) Inspections: A Presentation to HUD’s Inspections Partners in Philadelphia, PA