Certifying Applicant with Disabled Son in Intermediate Care Facility

Q According to my state agency's occupancy rules, I'm not allowed to rent a two-bedroom unit to one person. A single applicant has a 40-year-old blind son who lives in an intermediate care facility. The applicant wants the son to stay with her for three to four days a week, and therefore wants to rent a two-bedroom unit. The disabled son's income is Social Security disability payments, which go directly to the care facility. The applicant is over-income for one person, but if I don't count the son's income, the applicant can't qualify for a two-bedroom unit.

My concern is that if I don't give the applicant a two-bedroom unit, she'll initiate a fair housing claim, and if I do give the applicant a two-bedroom unit, tax credits will be risked. Can I include her son, use the two-person income limit, and exclude his Social Security income?

A According to tax credit consultant Gwen Volk, the tax credit program doesn't say you can't put one person in a two-bedroom unit. The Section 8 program says that. In this situation, the state has established occupancy rules like the Section 8 rules that say you can't under-occupy a unit. In other words, there's probably no real financial exposure in terms of tax credit recapture if you decided to ignore the state agency's admonition and the agency issues an 8823, says tax credit expert Charles Durnin.

However, our experts recommend that you formally request a waiver from the state agency. Ask for an over-housing exception in this isolated circumstance, and see how the agency responds. If you were to rent the two-bedroom unit without a waiver, it's likely that an 8823 would be issued anyway. That would require an acceptable reply and would stay open until properly closed out in the mind of the agency. Also, this could probably preclude the owner from getting credits in that state or elsewhere until the 8823 is resolved.

Also, from a tax credit point of view, you can't count the son's income unless he's a household member or unless he regularly contributes income to the household, says tax credit expert Elizabeth Moreland. If you count the son as a household member, you must count all of his income. You can't count some of his income and exclude his Social Security because it's paid directly to the intermediate care facility. Social Security is an includable source of income, and you must count gross income before any deductions.

Most likely, the son doesn't qualify as a household member. To be considered a household member, the son has to: (1) live in the unit; (2) be considered temporarily absent with a reasonable return time; or (3) be permanently confined to a hospital or nursing home. Because his permanent home is the intermediate care facility, the son can't say he's going to live in the unit, and it can't be said he's temporarily absent, explains Moreland. And as for the permanently confined requirement, Moreland says he can't meet this option either; the HUD Handbook specifically says “permanently confined to a hospital or nursing home.” “I think an intermediate care facility can equate to a nursing home, but I am not sure you could say he is ‘confined’,” says Moreland.

The most practical approach may be to ask for the waiver and, if your request gets rejected, deny the applicant the unit and face any fair housing allegation head on, says Durnin. The other alternative would be to offer a one-bedroom unit if one is available at the site.

If the applicant does initiate a fair housing lawsuit, you would have a strong case. “Reasonable accommodation applies to the resident and not to the resident's visitors,” explains Volk. The resident doesn't have a disability. Also, in denying her applicant, you aren't saying that he can't visit. You're just saying the woman doesn't qualify for a larger unit.

Insider Sources

Charles J. Durnin: Senior Vice President, Interstate Realty Management Co., 3 Stow Rd., Marlton, NJ 08053; www.themichaelsorg.com.

Elizabeth Moreland, NCP-e: President, Elizabeth Moreland Consulting, Inc., 6907 University Ave., Ste. 196, Middleton, WI 53562; www.taxcredit.com.

Gwen Volk, CPM, SHCM, NAHP-e, HCCP: Director of Affordable Housing Compliance, LBK Management, 1320 Greenway Dr., Ste. 720, Irving, TX 75038; www.lbkmanagement.com.