Have the rules for annual recertification at LIHTC properties really changed?
The past 12 months have brought a rash of regulatory changes to the affordable housing industry. It began with the passage of H.R. 3221, the Housing and Economic Recovery Act (HERA), at the end of July 2008, whichg was then followed by the passage of the American Recovery and Reinvestment Act (ARRA) in February 2009. And on Aug. 1, Change 3 to HUD Handbook 4350.3 went into effect.
The most radical–and confusing–element of these changes is the provision in HERA that eliminates the need for annual tenant recertification at 100% LIHTC properties. The potential impact of this modification could be dramatic, as it liberates owners from the annual chore of certifying household composition and income, including the acquisition of back-up verifications. Or has it?
Almost from the time of passage and publication of HERA, most state housing credit agencies who oversee the LIHTC program around the country adopted policies whereby they would continue to require at least a first annual recertification at these properties regardless of the regulatory amendment. Since the elimination of annual recertification was such a drastic departure from standard LIHTC protocol, they felt that conducting a certification at the end of the first year would help to validate the initial certification and help reveal where that validity may be questionable. In some states, the decision was even made to require the first annual recertification during a tax credit property’s extended use period where there had not been a certification requirement beyond initial qualification before. Both of these restrictions were added to stress the importance of the initial certification in qualifying the units as accurately affordable.
However, some syndicators have made the decision to be even more cautious than the state agencies in choosing not to follow the new federal guidance at all by continuing to require annual recertification at housing credit properties. They believe that the only way to truly comply with the Section 42 regulations–and protect their investors in the meantime–is to proceed with annually certifying their tenants as was the requirement and standard practice before HERA. To their credit, there are a couple of program issues that are only truly demonstrable through conducting an annual recertification of family income. These are whether or not the Next Available Unit Rule should be followed and whether or not a family would be qualified for transfer to another building at a multiple-building site. Both of these issues depend upon whether a family’s annual income has exceeded 140% of the current applicable income limit at the time of recertification. Without recertifying them, there is really no way of knowing this and leaves enough room for doubt that they have decided not to allow for that chance to be taken at their properties.
So, where does all of this leave a tax credit manager? First of all, managers need to educate themselves on the certification policy of their state agency remembering that they may be requiring some recertification even during the extended use period for properties that have gone beyond year-15 in terms of compliance. Secondly, managers should check with their syndicators to find out where they stand on recertification. As indicated before, many investors these days do not want to chance loss or recapture of credits due to lack of recertification. Finally, managers should keep in mind that if their tax credit property is mixed-income that this provision does not apply to them. Also, managers of LIHTC properties that are blended with other housing subsidy programs that require annual recertification should continue to conduct them to ensure that they are following the regulatory requirements associated with those programs. (An example of this would be project-based Section 8 layered with LIHTC.) By taking the time to investigate these issues, tax credit managers should be able to navigate through this challenge and steer their properties in the right direction for successful tenant certification.