4 Tips for Complying with HUD’s Asset Disposition Rule
When interviewing households at certifications, you must find out whether they have disposed of or sold, given away, or put in trust assets for less than fair market value within the last two years. If they have, you generally must factor such assets into your calculations for the household even though the household no longer owns the assets.
This is known as HUD’s asset disposition rule. Its purpose is to ensure that applicants are not getting rid of their assets in order to qualify for HUD-assisted housing. But there’s more to complying with the rule than just including these assets in your calculations. If you don’t know how to comply, you might not account for some assets. Here are four tips to help you comply with HUD’s asset disposition rule and avoid costly certification mistakes.
Tip #1: Count Difference Between Cash Value and Amount Received
If you learn that within the last two years a household disposed of an asset for less than fair market value, you must count the difference between the asset’s “cash value” and the amount the household received (if any) for disposing of the asset [HUD Handbook 4350.3, par. 5-7(G)(8)]. To calculate the cash value of an asset, subtract the expenses necessary to sell or convert the asset from its fair market value as of the date of its disposal.
Example: Last year, Joe paid a friend $100 to find a buyer for his car, which he sold for $4,000. The car’s fair market value was $6,000, which means the car is an asset that the household disposed of for less than fair market value. Because the car’s cash value is $5,900 ($6,000-$100), you must count $1,900 ($5,900-$4,000) as an asset for Joe’s household.
Tip #2: Count Disposal if Difference Between Fair Market Value and Amount Received Totals over $1,000
HUD is interested in household assets disposed of for less than fair market value within the past two years only if the total fair market value of all such assets exceeds the gross amount received for them by at least $1,000 [Handbook 4350.3, par. 5-7(G)(8)(b)]. In the example above, you must count Joe’s car because its fair market value at the time of the disposal exceeded the amount Joe received for the car by $2,000 ($6,000-$4,000).
Tip #3: Verify Disposal Information if Contradictory
HUD says you generally can rely on a household member’s self-certification that he did or didn’t dispose of an asset for less than fair market value within the last two years. But HUD says that you must verify this information “if it does not appear to agree” with other information the resident reported [HUD Handbook 4350.3, par. 5-7(G)(8)(f),(g)].
For example, this could happen if a household member certifies that he sold his car for less than fair market value within the past two years, after telling you earlier that he “got rid of it a few years ago.” You can also add language to your asset disposition form that requires household to acknowledge that they are responsible for providing backup documentation of a disposed asset’s fair market value, the amount they received for the asset (if any) and the costs of selling the asset or converting it to cash.
Tip #4: Don’t Count Disposals from Certain Judgments
HUD makes an exception for involuntary disposition or assets disposed of for less than fair market value as a result of bankruptcy, divorce, separation, or foreclosure [HUD Handbook 4350.3, par. 5-7(g)(6)(d)]. Owners and managers should clearly document inquiries with the tenant as to why the disposition was involuntary and collect supporting documents where necessary, such as divorce agreements and foreclosure documents, to support the involuntary nature of the disposition.
You don’t need to count these involuntary dispositions in household income. And if a household puts an asset disposed of for less than fair market value into a nonrevocable trust, you must not count it as an asset if the household received this asset through a judgment or a settlement [HUD Handbook 4350.3, par. 5-7(G)(8)(e)].