HUD Delays HOTMA Implementation for Multifamily Housing

HUD recently issued Notice H2023-10 that provides guidance to multifamily housing owners regarding the implementation of the many program changes brought about by the Housing Opportunity Through Modernization Act of 2016 (HOTMA). The recent notice makes implementation changes for sections 102 and 104 of HOTMA that were detailed in the final rule published by HUD in the Federal Register on Feb. 14, 2023. It’s important to note that the IRS intends to follow the HOTMA final rule regarding the determination of income and assets. In effect, with this notice, the deadline for implementation and full compliance has been moved up a year to Jan. 1, 2025.

Why the delay? According to HUD, full implementation and compliance with the final rule by Jan. 1, 2024, was unlikely due to systems changes and owners and households needing time to understand the changes and implement them. For example, the system development changes to the Housing Information Portal (HIP) and Tenant Rental Assistance Certification System (TRACS) still need to be done. Also, to implement new policies, owners would need to send out resident notifications and HUD hasn’t made any resident-facing material available to help owners adjust to new HOTMA rules that impact rent calculations and basic eligibility for HUD housing.

Changes that affect LIHTC sites. The notice also contains Attachments A-J which cover topic areas to help HUD multifamily owners in identifying HOTMA changes that affect their operations. The notice states that it supersedes relevant portions of HUD’s guidance as provided in HUD Handbook 4350.3 and that HUD will update or replace the affected chapters in the Handbook. As a result, updates to sections 1 and 3 of Chapter 5 (Determining Income and Calculating Rent) will affect LIHTC sites as these sections set out the rules that must be followed for calculating and verifying income.

We’ll go over the compliance dates and required actions that HUD multifamily owners must perform before the January 2025 full implementation deadline.

Compliance Dates and Required Actions

Sections 102 and 104 of HOTMA make sweeping changes to the U.S. Housing Act of 1937, particularly those rules affecting income calculations and reviews. Section 102 changes requirements related to income reviews for Section 8 programs. And Section 104 sets maximum asset limits for Public Housing and Section 8 applicants and participants. Because HUD acknowledges that implementing the HOTMA final rule will be an ongoing process that will happen over the course of a year as routine program activities occur, the notice establishes required actions owners must do by certain dates before the Jan. 1, 2025, deadline for full implementation.

By March 31, 2024, HUD multifamily owners must update their tenant selection plans and Enterprise Income Verification (EIV) system policies and procedures to reflect HOTMA rules and discretionary policies. These owners also must make the revised tenant selection plan publicly available by March 31.

How HUD Will Monitor Compliance Before 2025

Prior to Jan. 1, 2025, multifamily housing owners won’t be penalized for HOTMA-related tenant file errors during Management and Occupancy Reviews (MORs). Instead, the site’s contract administrator will issue observations with corrective actions.

After Jan. 1, 2025, contract administrators will issue HOTMA-related findings during MORs and HUD multifamily owners must correct all HOTMA-related observations that were issued by contract administrators during 2024. After Jan. 1, 2025, HUD multifamily owners who fail to implement HOTMA may be found in default of their business agreements with HUD.