How to Process Households’ Requests for Minimum Rent Exemptions

The “sequester,” which has dominated news headlines since the election, is a term used to describe a series of across-the-board federal spending cuts. At the beginning of March, the cuts began to kick in when President Obama and members of Congress were unable to work out a deal. As a result, by the end of the fiscal year, $85 billion in automatic reductions to both defense and domestic spending will take effect.

     Various affordable housing programs at the local level are expected to feel the budget squeeze. In California, federal unemployment benefits for more than 400,000 Californians are being reduced due to federal spending cuts. And the White House has stated that the next cuts will impact the most vulnerable, including 70,000 children who get meals through the Head Start program, and seniors and low-income women who get meals through nutrition programs.

     Due to the sequester’s ripple effects, you may see an uptick of residents at the poverty line needing a minimum rent exemption. These residents may have lost federal, state, or local government assistance or have a pending assistance claim, or they may be getting by with no income except for occasional family loans and food stamps. HUD occupancy regulations require all households living at Section 8 sites to pay a monthly rent of at least $25 [HUD Handbook 4350.3, par. 5-26(D)]. This minimum rent doesn’t apply to Section 202 PAC, Section 202 PRAC, Section 811 PRAC, RAP, Rent Supplement, Section 221(d)(3) BMIR, or Section 236 programs.

     But households that can’t afford to pay the $25-per-month minimum rent can ask you for an exemption from this requirement. If a household requests an exemption, you must take certain steps, including:

• Determining whether the household qualifies for either a short-term or long-term exemption;
• Implementing the exemption if the household qualifies; and
• Seeking repayment from households that don’t qualify or qualify for only short-term exemptions.

     We’ll tell you who qualifies for an exemption from paying minimum rent. And we’ll tell you what steps to take to process an exemption request properly. To help you, we’ll give you a Model Form: Have Households Submit Written Requests for Minimum Rent Exemption, and a Model Agreement: Use Agreement to Spell Out Repayment Terms.

Who Qualifies for Minimum Rent Exemption?

Households qualify for a minimum rent exemption if they’re unable to pay due to “financial hardship.” In general, this means that a household’s income is so low that it can’t afford to pay even the $25 minimum rent. HUD rules say that any household that “would be evicted if the minimum rent requirement was imposed” qualifies for the exemption [HUD Handbook 4350.3, par. 5-26(D)(3)]. Because any household that can’t afford to pay the minimum rent, for whatever reason, can be evicted for nonpayment of rent, this essentially means that any household qualifies for the exemption if it can verify that it can’t afford the minimum rent.

     In addition to this broad standard, HUD rules also state specific circumstances that may explain why the household won’t be able to or—for those that have been paying minimum rent—can no longer afford to pay the minimum rent. These circumstances are that:

     1. The household lost eligibility for—or is awaiting an eligibility determination for—a federal, state, or local assistance program;

     2. The household would be evicted if the minimum rent requirement was imposed;

     3. The household’s income has decreased because of changed circumstances, including the loss of employment; or

     4. A death has occurred in the household [HUD Handbook 4350.3, par. 5-26(D)(3)(a)].

     When evaluating a household’s request for an exemption, you should consider whether any of these circumstances apply.

     In addition, a household may qualify for either a long-term or short-term exemption. Generally, households that can verify that the circumstances qualifying them for the exemption will last for more than 90 days qualify for long-term exemptions. If so, the household will be exempt from paying the minimum rent for as long as the qualifying circumstances continue [HUD Handbook 4350.3, par. 5-26(D)(3)(b)(4)].

     Households whose circumstances are expected to last for 90 days or less qualify for short-term exemptions. You must temporarily suspend their minimum rent obligations for 90 days. At the end of the 90-day period, the household is responsible for paying the minimum rent, retroactive to the initial date of the suspension [HUD Handbook 4350.3, par. 5-26(D)(3)(b)(2)]. In other words, the household must repay the total amount of suspended rent at the end of the 90-day period, subject to a reasonable repayment schedule.

Take Seven Steps if Household Requests Exemption

When you certify or recertify households whose incomes qualify them for minimum rent, tell them that HUD allows certain exemptions from the minimum rent requirement, and ask them if they want to apply for an exemption. If they do, take the following seven steps to process the request.

     Step #1: Have household request exemption in writing. Have the household request the exemption in writing. You can ask the household head to submit a form to get the information you need to process the request. Like our Model Form, your form should describe the basics of exemption; ask whether hardship is short-term or long-term; and get households to agree to repay suspended rent.

     Step #2: Suspend minimum rent. Once a household requests an exemption from minimum rent, you must suspend the minimum rent beginning with the month that immediately follows the date of the request [HUD Handbook 4350.3, par. 5-26(D)(3)(b)]. This means that you can’t evict the household for not paying the minimum rent during the time it takes to determine whether the household qualifies for an exemption.

     Step #3: Investigate and verify whether household qualifies for exemption. You must then investigate and promptly determine whether the household qualifies for an exemption. To do this, you’ll need to verify the circumstances that qualify the household for the exemption using HUD verification rules. This is the most important step, but it also can be the hardest. In some cases, it’s easy to verify the circumstances, such as when a household claims that a household member lost a job or died. But other claims may be harder to verify. If the household claims more than one basis for exemption, it’s a good idea to choose the more easily verifiable basis first. If you have any questions or problems verifying a household’s claim, ask your local HUD office or contract administrator what documentation it would accept.

     Step #4: Decide whether household qualifies for exemption. Based on your investigation, you must decide whether to grant the request. There are three decisions you can reach:

     Household ineligible. If you determine that the household isn’t eligible for the exemption (or you can’t verify that it’s eligible), you must resume the minimum rent requirement. In this case, the household must pay back any minimum rent due from the date you suspended their obligation to pay the minimum rent until the date you made your determination. The owner may not evict the tenant for nonpayment of rent during the time in which the owner was making the determination. The owner and resident should reach a reasonable repayment agreement for any back payment of rent [HUD Handbook 4350.3, par. 5-26(D)(3)(b)(2)].

     Household qualifies for short-term exemption. You may determine that the household qualifies for an exemption, but that the circumstances that make them qualify are likely to be temporary (that is, they’ll last for 90 days or less). In this case, HUD says you must give the household a 90-day grace period during which it doesn’t have to pay the minimum rent. At the end of the grace period, the household must start paying minimum rent again. And it must pay back the minimum rent that accrued during the grace period. But you can’t evict the household during this period for not paying the minimum rent [HUD Handbook 4350.3, par. 5-26(D)(3)(b)(3)].

     Household qualifies for long-term exemption.You may determine that a household qualifies for a long-term exemption (that is, the qualifying circumstances are likely to last for more than 90 days). In this case, the household is exempt from paying minimum rent for as long as the qualifying circumstances continue. However, the owner must recertify the household every 90 days while the suspension lasts to verify that circumstances haven’t changed. The length of the hardship exemption may vary from one family to another depending on the circumstances of each family. The owner must process an interim recertification to implement a long-term exemption. Owners must maintain documentation on all requests and determinations regarding hardship exemptions [HUD Handbook 4350.3, par. 5-26(D)(3)(b)(3)].

     Step #5: Notify household of determination. Once you’ve made your determination, complete and sign the bottom section of the request form to indicate whether the household qualifies or doesn’t qualify for the exemption and whether the exemption should be short-term or long-term. Notify the household of your decision in writing. If the household qualifies for a long-term exemption, tell the household that it’s exempt from paying minimum rent until its circumstances change. And tell the household about its obligation to report any change in circumstances to management and that the owner will recertify the household every 90 days while the suspension lasts.

     If the household qualifies for a short-term exemption, tell it that its obligation to pay minimum rent is suspended for 90 days, but it must repay the $75 in rent (that is, $25 x 3 months), in accordance with a repayment agreement. Explain that you’ll negotiate the repayment agreement with them based on the circumstances that exist at the end of the 90 days.

     And if the household doesn’t qualify for an exemption, tell it this and ask the household head to come to the management office to repay the rent suspended while you processed the request—in all likelihood, $25—or to sign a reasonable repayment agreement.

     Step #6: Have household head sign repayment agreement. As noted above, if you determine that a household doesn’t qualify for an exemption, or if the exemption is short-term, the household must repay any past-due minimum rent. But you can’t demand it all back at once. HUD says you must offer households a reasonable repayment agreement [HUD Handbook 4350.3, par. 5-26(D)(3)(b)(2-3)]. Ask your attorney about using our Model Agreement to get residents to pay past-due minimum rent. Like our repayment agreement, yours should include the following information: total back rent due; repayment schedule; information on when and where to pay; and a due date for monthly payments.

     Step #7: Keep records of exemption paperwork. HUD requires you to keep all documentation relating to requests for exemptions from minimum rent [HUD Handbook 4350.3, par. 5-26(D)(3)(b)(4)]. It says that, as part of its routine management reviews, it will monitor whether you’re processing these requests properly. So keep all exemption request forms, verification forms, letters, and repayment agreements in the file of each household that requests an exemption.