HUD Updates Guidance for Addressing Low Physical Inspection Scores

HUD recently issued Notice H-2018-08 to provide updated guidance to HUD Multifamily staff regarding actions to take when a private property assisted with various HUD programs has a Uniform Physical Condition Standards (UPCS) score of less than 60 and/or when a property owner fails to certify within three days that Exigent Health and Safety (EHS) deficiencies have been corrected.

Public housing and private properties assisted with Section 8 rental assistance and other programs administered by HUD’s Office of Multifamily Housing Programs are subject to inspections through HUD’s Real Estate Assessment Center (REAC). REAC collects and scores data on a property’s physical condition as well as its financial condition. REAC no longer considers resident satisfaction.

Notice H-2018-08 provides guidance to staff of HUD’s Office of Multifamily Asset Management and Portfolio Oversight (OAMPO) for implementing Section 223 of the 2017 Appropriations Act and Section 222 of the 2018 Appropriations Act. The notice is effective immediately and applies to projects for which a physical inspection score was released on or after May 5, 2017, the date Section 223 was enacted. Notice H-2018-08 replaces Notice H-2015-02.

In addition to properties with a Section 8 Housing Assistance Payment (HAP) contract, the notice applies to: Rent Supplement (Rent Supp), Rental Assistance Program (RAP), Section 202 or 811 Project Rental Assistance Contracts (PRACs), Section 201/162 Project Assistance Contracts (PACs), Section 811 Project Rental Assistance (PRAs), and Senior Preservation Rental Assistance Contracts (SPRACs).

Notice H-2018-08 lists actions that must be taken when a property has a UPCS score of less than 60 and/or when a property owner fails to certify within three days that EHS deficiencies have been corrected. Actions listed in the notice include:

• Issue within 15 days of the release of the physical inspection report a notice of violation of regulatory agreement (NOV) and/or a notice of default of subsidy contract (NOD). The NOV/NOD must notify the owner of the violations/defaults and provide a reasonable time to correct the deficiency—that is, a “cure period.” Owners must provide a copy of the NOV/NOD to residents by leaving a notice under each door, posting the notice in the mail room and on each floor, or by other means. HUD must provide a copy of a NOV/NOD to the chief executive officer of the local government.
• Issue a demand for corrective action (DCA) if a property scores above 60 but OAMPO staff believe unsatisfactory conditions exist. The DCA may require the owner to perform a unit survey and conduct necessary repairs.
• Conduct a REAC re-inspection to ensure that an owner has corrected the deficiencies. The time frame for conducting the re-inspection depends on whether the REAC score was 30 or less.
• EHS deficiencies are not explicitly defined, but an Aug. 9, 2012, Federal Register notice pertaining to public housing contains a revised Dictionary of Deficiency Definitions that describes UPCS health and safety (H&S) deficiencies and explains that EHS deficiencies are a subset of H&S deficiencies. The dictionary indicates whether an item to be inspected has an H&S deficiency and whether it’s life-threatening (LT) or non-life-threatening (NLT). For example, a water heater with a misaligned ventilation system is LT, while a water heater with a missing pressure relief valve is NLT. Life-threatening Exigent Health and Safety deficiencies require immediate attention.

Section 222 requires HUD to submit quarterly reports to Congress. The reports must include all sites that receive a REAC score of less than 60 or that receive an Unsatisfactory Management and Occupancy Review (MOR) within the prior 36 months. The report must include actions taken to address each site’s physical condition to protect residents.