In this installment of “Compliance Corner,” we will tackle a commonly asked question about asset management for Low Income Housing Tax Credit projects and try to debunk the myths surrounding the topic:
“A tax credit tenant just came into the office and told me they have a new job. What do I do? Will they have to move?”
If a household has an increase in income it does not automatically mean they will have to move or be evicted. This holds true even if the combined annual household income is higher than the maximum income limit. This being said, it is very important to document the events that led to the new source of income.
The most common scenario you may encounter is when a household member who was not employed at the time of move-in finds employment. (For the purposes of this scenario all of the units in the project were funded through the Low Income Housing Tax Credit program.)
After receiving this information, follow these steps:
- Start this process with third-party verification of all sources of household income, including the new employment income. It is important to document the household member’s new employment start date to ensure they were not employed at the time of initial certification and that the income was not anticipated at the time of move-in.
- Ask the tenant to complete a self-affidavit that states when she or he began looking for employment and the steps that led to employment. The statement can be something as simple as “I was not looking for a job but was offered one” or “I had applied for a job a very long time ago and did not anticipate being offered a job.”
- Next, compare the new annual household income total with the applicable income limit. Is the household now above the maximum allowable income limit for your project? If so, you need to adjust the set-aside of the unit for reporting purposes.
- Recalculate the tenant-paid rent in accordance with your policies and procedures or rules governing other funding sources (if applicable). After finalizing the calculation, take caution to ensure that the gross rent does not exceed the maximum rent limit. If it does, you must adjust the tenant paid rent to bring the gross rent below the maximum rent limit amount.
- Complete an updated Tenant Income Certification (TIC) and calculation worksheet for the file. Note: The LIHTC program does not recognize interim recertification. You will need to mark the “Other” box at the top of the TIC and write in “update to household income” or “re-examination.”
- The final step is to gather all the documentation above and place it in the file using the same procedure you would use as if completing an annual recertification.
This scenario is just one of many that can occur; however, the addition of employment income has proven to be the most common. It is important to keep in mind that some state agencies might require a specific form be used as an update to the tenant file. In these cases, the mandatory form should be inserted where applicable in the process outlined above.
A situation that should also be discussed is the possibility of that dreaded word — fraud. As noted above, you should check the employment start date against the certification date.
If the household member was employed prior to the move-in certification date and it places the household over the maximum allowable income limit, this would trigger cause for eviction. In most cases, fraud can be very hard to prove. In this situation you would need to have solid proof, and the eviction would need to occur in order to protect your credits.
As always, if you have questions regarding this topic or any other compliance needs, feel free to contact the Travois Asset Management team at assetmanagement@travois.com or 816-994-8970.
Check out our previous “Compliance Corner” blog: Social Security announces 1.5 percent benefit increase for 2014