ST. LOUIS COUNTY MISSOURI

Transcription

1 ST. LOUIS COUNTY MISSOURI St. Louis County Office of Community Development Compliance in HOME Rental Projects A Guide for Property Owners/Managers March 2010

2 OCD Rental Compliance Guide 1. HOME Program Requirements 1.1 HOME Project 1.2 Home Assisted Rental Units 1.3 Deed Restrictions and Covenants 1.4 HOME Rule 1.5 Affordability Period 1.6 High HOME Rent Units & Low HOME Rent Units 1.7 HOME Unit Mix 1.8 Fixed HOME-Assisted Units and Floating HOME-Assisted Units 1.9 HOME Income Limits 1.10 HOME Rent Limits 1.11 Property Standards 1.12 Accessible Units 1.13 Affirmative Marketing & Tenant Selection 1.14 Prohibited Lease Terms & Tenant Protections 1.15 Conflict of Interest 1.16 Reports 1.17 Records 1.18 Terms of Enforcement 2. Maintaining Affordability 2.1 HOME Income Limits a. Determining Eligibility b. Recertifying Tenant Income c. Over-Income Tenants 2.2 Home Rent Limits a. High HOME Income b. Low HOME Income c. Utility Allowances d. Special Rent Limits e. Changes in Rent f. Rent Exceptions 3. Marketing 3.1 Non-discrimination in Housing 3.2 Affirmative Marketing 3.3 Marketing Accessible Units 4. Tenant Relations 4.1 Tenant Selection 4.2 Tenant Protections 4.3 Dispute Resolutions 5. Maintaining the Property 5.1 HOME Property Standards 5.2 HOME Minimum Standards 5.3 Lead Based Paint Requirements 5.4 Accessible Units 5.5 Property Insurance 6. Monitoring for HOME Compliance Exhibits 6.1 Owner s Monitoring Obligations 6.2 Range of Violations & Corrective Actions Exhibit 1: Exhibits 3.1 & 3.2 of the Technical Guide for Determining Income and Allowances for the HOME Program for a list of inclusions and exclusions Exhibit 2: Chapter two, General Requirements, of the Technical Guide for Determining Income and Allowances for the HOME Program Exhibit 3: Housing Quality Standards, 24 CFR Exhibit 4: Ongoing Monitoring; Rental Housing Project Checklist & Report Exhibit 5: HOME Regulatory Agreement Exhibits 2

3 OCD Rental Compliance Guide 1. Home Program Requirements 1.1- HOME Project A home project is one or more sites or buildings, under common ownership, management, and financing, that is assisted with HOME funds as a single undertaking. HOME funds are allocated to Participating Jurisdiction s (PJ s) as annual block grants. The PJ (St. Louis County) then reallocates these funds to particular construction projects/developers. The HOME requirements remain with the property for a period of affordability (See 1.5). During the period of affordability it is the property management s responsibility to implement all HOME requirements which are established in the original Regulatory Agreement HOME Assisted Rental Units The HOME Program distinguishes between units in a rental property that have been and have not been assisted with HOME funds. When ST. LOUIS COUNTY commits funds to a project it determines the total number of assisted units, by bedroom size, which can be found in the Regulatory Agreement. HOME requirements apply ONLY to the HOMEassisted units Deed Restrictions & Covenants A deed restriction or covenant (Regulatory Agreement) is a legally binding document that is attached to the HOME assisted property. The deed restriction or covenant runs with the land for the entire affordability period. This legal tool ensures that the HOME affordability requirements stay in place regardless of whether the mortgage or HOME assistance has been repaid, or property ownership transfers. This document is recorded by ST. LOUIS COUNTY at project completion HOME Rule HOME Rule establishes the requirements for the HOME Program and can be found in the Code of Federal Regulations at 24 CFR Part Affordability Period The affordability period is the length of time during which the HOME requirements apply to the assisted property. This period can be thought of as the compliance period. The affordability period can be 5, 10, 15, or 20 years, depending on the type of HOME project and the average per unit HOME investment. During this time period property owners must comply with: rent limits, tenant income limits, tenant lease protections, affirmative marketing, and property standards. HOME requirements end on the assisted property once the period of affordability has expired. ST. LOUIS COUNTY is able to arbitrarily establish longer affordability periods High HOME Rent Units & Low HOME Rent Units HUD publishes two annual HOME rent limits: the High Home rent limits and the Low HOME rent limits. These are the maximum rents that owners can charge tenants that reside in HOME assisted units. HOME properties with five or more HOME assisted units must have at least 20 percent of their HOME assisted units designated as Low HOME rent units. ST. LOUIS COUNTY determines the total number and type, by bedroom size, of High & Low HOME rent limits. The property owners must maintain this mix for the entire affordability period. High HOME Rent Units must be occupied by tenants whose incomes do not exceed the HUD HOME lowincome limits. Low HOME Rent Units must be occupied by tenants whose incomes do not exceed the HUD HOME very low-income limits HOME Unit Mix The HOME Unit Mix is the total number of High HOME and Low HOME rent limits that must be maintained during the affordability period. If the Unit Mix changes due to a vacancy or existing tenant becoming over income the owner/manager must take steps to restore compliance. 3

4 OCD Rental Compliance Guide 1.8- Fixed HOME- Assisted Units & Floating HOME-Assisted Units Fixed HOME units remain designated as HOMEassisted units for the entire affordability period. Designation as either a High HOME Rent or Low HOME Rent unit can change to ensure the Unit Mix is maintained. Floating HOME units do not enable to the Unit Mix to change, but do allow the initially designated HOME- Assisted unit to float or change from one unit to another. The total number of affordable units does not change but the units which are affordable can float or change HOME Income Limits Tenants that occupy HOME-assisted housing must meet specified income limits which are either: 1. Low-Income households must have incomes that do not exceed 80 percent of area median income. 2. Very Low-Income households must have incomes that do not exceed 50 percent of area median income. Low income limits apply to High HOME Rent units and very low-income applies to Low HOME Rent units. Income limits must be determined before renting units and must be recertified annually. ST. LOUIS COUNTY provides a definition of income and the annually updated income limits to owners/managers HOME Rent Limits HUD publishes HOME Rent Limits annually and owners/ managers must ensure that the rents they charge for their HOME assisted units do not exceed the applicable limits. HOME rent limits include utilities which means the rent that can be charged cannon be more than the HOME Rent limit minus the tenant-paid utilities. ST. LOUIS COUNTY provides the rent limits and the Housing Authority provides utility allowances to the owner/ managers annually Property Standards Completed HOME-assisted units and shared common space must meet all applicable HOME property standards, including Federal lead-based paint elimination standards Accessible Units In HOME projects constructed with five or more total units, the common spaces and a certain number of units must be made accessible to persons with mobility and/or sensory impairments. These units must be marketed to ensure that they are first offered to persons with disabilities Affirmative Marketing & Tenant Selection The owner/manager must market the low income housing opportunities to those who are not likely to apply without special outreach, such as minorities, families with children, persons with disabilities, or other persons protected by fair housing laws. Owners/managers must develop tenant selection policies and criteria to ensure that tenants are selected for occupancy at the property in a fair and equitable manner. Tenant selection criteria must be based on objective criteria that expressly prohibit bias. These policies should be clear and easily understood Prohibited Lease Terms and Tenant Protections Tenants of HOME-assisted units must be protected by a written lease. Owner/managers must make sure the leases do not exceed rent limits and do not include any clauses that are prohibited by the HOME Rule. Lease terms must be for a minimum of one year, unless agreed upon by the tenant and owner. In no event can the lease be for less than 30 days. Leases can be terminated or refused to be renewed without good cause and the owner/manager must provide 30 day written notice before terminating the lease. Owners must also comply with all applicable state and/or local tenant-landlord laws Conflict of Interest With exception of on-site managers and maintenance workers that reside in the unit, owners and their officers, employees, agents, or consultants may not occupy a HOME assisted unit. ST. LOUIS COUNTY may grant exceptions arbitrarily. 4

5 OCD Rental Compliance Guide Reports The owner/manager of the HOME assisted unit must complete quarterly reports and submit an annual report to ST. LOUIS COUNTY. ST. LOUIS COUNTY will provide the owner/manager with the reporting forms (See Exhibit 5: Exhibit B of the HOME Regulatory Agreement Exhibits) Records Owners must maintain records that document compliance for the most recent five year period during the affordability period and for five years after the end of that period. Records must reflect accuracy with the annual reports which are submitted to the ST. LOUIS COUNTY. Documentation includes, but is not limited to tenant income verifications, unit rents, affirmative marketing, and property standards Terms of Enforcement ST. LOUIS COUNTY determines how it will enforce an owner s compliance with the HOME requirements. The type of corrective action depends on the seriousness of noncompliance. Since HUD may require ST. LOUIS COUNTY to repay the HOME investment when a rental property fails and ST. LOUIS COUNTY could require repayment from the owners. 2. Maintaining Affordability 2.1- HOME Income Limits a. Initial Occupancy- When properties are first leased, ST. LOUIS COUNTY could require all HOME-assisted units to be occupied by households whose incomes are at or below 60 percent of area median income. b. Properties with Five or More Home-Assisted Units- At least 20 percent of the HOME-assisted units must be occupied by families who have annual gross income at or below 50 percent of area median income. c. How, When & Why Are the HOME Income Limits Established? HUD establishes the HOME income limits for different localities and adjusts them for household size, from one to eight persons. These limits are annually updated, generally in February or March. Owner/managers are able to obtain the HOME income limits from ST. LOUIS COUNTY. Income limits is a primary requirement of the HOME program. Prior to renting a HOME-assisted unit to a prospective tenant, the owner/manager must verify that the household is income eligible. Income eligible tenants will have incomes at or below the HOME established income limits. If an applicant s income exceeds the HUD income limit that household cannot occupy a HOME-assisted unit. d. Calculating Gross Annual Income The ST. LOUIS COUNTY must define annual gross income for the owner and should provide detailed written guidance of annual gross Income. When the owner is calculating household income they must include the income of ALL household members over the age of 18 and must examine income source documents to verify the initial income-eligibility. Acceptable source documents include: W-2 from previous year One month of the most recent consecutive paycheck stubs Any other source of income including child support documentation, unemployment benefits, social security, etc. (See Exhibit 1: Exhibits 3.1 & 3.2 of the Technical Guide for Determining Income and Allowances for the HOME Program for a list of inclusions and exclusions) If a member of the household is unemployed and over the age of 18 they must complete the Certification of Zero Income Anticipated income should be calculated for the next twelve month period (See Exhibit 2: Chapter two, General Requirements, of the Technical Guide for Determining Income and Allowances for the HOME Program). 5

6 OCD Rental Compliance Guide Income determinations are valid for a period up to six months for prospective tenants. If the tenant does not execute the HOME unit lease before six months have lapsed since the initial certification, the owner/manager must conduct a new incomeeligibility determination, based on a review of current source documents. e. Recertifying Tenant Income Tenant s income must be recertified on an annual basis throughout the period of affordability. f. What Does an Owner/Manager Do If a Tenant is Over-Income at Recertification? When a tenant of HOME unit becomes over-income, the unit and property are in temporary noncompliance with the HOME requirements. Temporary non-compliance is permissible as long as the owner/manager takes steps, at the next available opportunity, to restore the property to compliance. The Manager CANNOT terminate or fail to renew the tenant household s lease because the household is over income, but the rent must be adjusted. Over income tenants are protected by the terms of their leases; rent change can only go into effect when the lease permits. 2.2 HOME Rent Limit Requirements HUD requires that the rents that are charged for HOME-assisted units be affordable to low- and very low-income households. a. High HOME Rents- are the maximum rents that can be charged to low-income households. These are based on the lesser of: i. The Section 8 Fair Market Rents (FMR s) for existing housing; or ii. Thirty percent of the adjusted income of a family whose annual income equals 65 percent of median income. b. Low HOME Rents- are the maximum rents that can be charged to Low HOME rent units that are occupied by very low-income households. Low HOME Rents are based on one of the following: i. Thirty percent of the tenant s monthly adjusted income; or ii. Thirty percent of the annual income of a family whose income equals 50 percent of median income; or iii. If a property has a Federal or State project-based rental subsidy and the tenant pays no more than 30 percent of his or her adjusted income toward rent, the maximum rent may be the rent allowable under the project-based rental subsidy program. c. Utility Allowance- The HUD-published HOME rent limits include utilities. When a tenant pays directly for utilities, the owner/manager must subtract a ST. LOUIS COUNTY-approved utility allowance to determine the maximum rent that can be charged for the unit. The owner/manager should obtain the approved utility allowances from the St Louis County Housing Authority. d. Special Rent Limits- apply to certain types of projects including: units that have state or Federal project-based rental assistance, units with lowincome housing tax credits, group homes, and single-room occupancy units. e. Changes in Rent- The owner/manager may be able to raise or lower a tenants rent, depending on changes in the HUD-published HOME rent limits, changes in ST. LOUIS COUNTY s utility allowances, or changes in the tenant s income. i. Rents must be adjusted for tenants whose incomes rise above 80 percent area median income to 30 percent of their adjusted income for rent and utilities. ii. Tenants must be given at least 30 days written notice before increases are implemented. Any increases are also subject to other provisions of the lease agreement. f. Rent Exceptions- can occur if the property is in dire financial troubles. ST. LOUIS COUNTY can ask HUD to increase the rent limits to maintain 6

7 OCD Rental Compliance Guide the property s financial viability. Rents cannot exceed market rates under any circumstance. 3. Marketing 3.1 What is a Marketing Plan? Marketing Plans identify: a. Who is most likely to live in the building b. The property s assets that are likely to attract the target audience; and c. Methods to notify the target audience of the availability of units 3.2 What is an Affirmative Marketing Plan? An affirmative marketing plan fits into the property s overall marketing plan to ensure that the property serves a diverse cross-section of the population in the market areas. Affirmative marketing steps consist of action to provide information and otherwise attract eligible persons in the housing market areas that might not otherwise apply without special outreach. 3.3 HOME Marketing Requirements a. Owners/Managers must comply with all fair housing laws, which prohibit discrimination in housing based on a person s race, color, religion, sex, familial status, national origin, age, or disability. Owners cannot discriminate in: i. The rental of units ii. Establishing terms and conditions of property rentals iii. Advertising the availability of rental housing units b. Owners/Managers of properties with five or more HOME-assisted units must also follow affirmative marketing procedures to conduct special outreach to those groups least likely to apply for the HOME- assisted housing. c. Owners/Managers must offer accessible units in the property to person with disabilities first. 4. Tenant Relations 4.1 HOME Tenant Selection Requirements- Owners must develop tenant selection policies and criteria that ensure that all applicants and tenants are treated fairly and equitably. The HOME Program protects tenant rights in a number of ways: a. Every tenant must have a written lease: b. The lease term must be for at least twelve (12) months, unless otherwise approved by the ST. LOUIS COUNTY; c. The lease term may never be for less than 30 days; d. Certain lease clauses are prohibited; e. The ST. LOUIS COUNTY must approve all leases; and f. The owner must establish dispute resolution procedures for settling disagreements with tenants 4.1 Prohibited Lease Provisions- include: a. Agreement to be sued. b. Agreement regarding seizure of property. c. Agreement excusing the owner from responsibility. d. Waiver of notice of a lawsuit. e. Waiver of legal proceedings. f. Waiver of jury by trial. g. Waiver of right to appeal a court decision. h. Agreement to pay legal costs, regardless of outcome. 7

8 OCD Rental Compliance Guide 4.2 Can an Owner/Manager Terminate Tenancy or Refuse to Renew a Lease? Yes, but only if there is good cause which includes: a. Serious or repeated violation of the terms and conditions of the lease; b. Violation of applicable Federal, State, or local laws; c. Completion of the tenancy period for transitional housing; or d. Other good cause. Good cause should be defined in the lease agreement. 4.3 Dispute Resolution- owners should have policies in place to address: a. Disputes between individual tenants or households; and b. Tenant grievances against management 4.4 Tenant Relations in CHDO Projects a. Establish and implement a plan for tenant participation in management decisions and; b. Establish a fair lease and grievance procedure that is approved by the ST. LOUIS COUNTY 5. Maintaining the Physical Asset 5.1 HOME Property Standards- HOME-assisted rental properties must meet the HOEM property standards, including the control and abatement of leadbased paint. The property must comply with applicable standards for the entire affordability period, regardless of who manages the property, when the HOME-assistance is repaid, and/or whether the property s ownership is transferred. 5.2 HOME Minimum Property Standards a. Applicable state or local housing quality standards and code requirements b. If no local standards/codes apply, Section 8 Housing Quality Standards (HQS) apply (See exhibit 3: HQS Standards) c. Local written rehabilitation standards & i. Uniform Building Code (ICBO) ii. National Building Code (BOCA) d. Standard Building Code (SBCCI)\ e. Uniform Federal Accessibility Standard for accessible units, as applicable f. State & local code requirements. 5.3 Lead- Based Paint Owners/managers must comply with rules related to controlling or abating the hazards of lead-based paint. IN properties that were constructed prior to 1978m the rules require: a. Certain disclosures to applicants and tenants about any known or potential lead-based paint hazards; and b. Ongoing maintenance to monitor controls put in place to limit the hazards associated with the presence of lead-based paint. c. Maintenance requirements include: i. Visual Assessment of the unit to identify deteriorating paint or failed hazard reduction measures. ii. Lead Hazard Reduction addressing any deteriorated paint or failed reduction measures. iii. Clearance involves dust sampling to ensure that no dangerous dust hazards were created by any rehabilitation or maintenance work at the property or in the unit. iv. Notification of tenants of any work does with a Notice of Lead Hazard Reduction. 8

9 5.4 Accessible Units Persons with disabilities must be afforded equal access to, or enjoyment of, HOME-assisted housing. This means owners may have to modify rules, policies, or practices in order to accommodate the needs of a tenant or applicant with disabilities. The owner must conform to the Uniform Federal Accessibility Standards (UFAS) during the period of affordability. 5.5 Property Insurance Property Insurance is not required by HUD, but typically is by the lender and ST. LOUIS COUNTY. Nevertheless, regardless of whether or not property insurance is required it is beneficial for the owner to obtain this protection. There are two types of risk the owner should protect themselves against which includes: a. Hazards that pose a danger to the property structures; and b. Hazards that pose a dangers to individuals. The property owners may be liable for certain injuries sustained by tenants and their guests OCD Rental Compliance Guide 6.2 Range of Violations and Corrective Actions The severity and extent of the noncompliance with HOME requirements varies. In general, these violations fall into three categories: One-time instances of noncompliance that are relatively small and easy to remedy More severe instances of noncompliance that occur on multiple occasions Instances of gross negligence, fraud, discrimination or physical conditions that pose an imminent threat to the health or safety of the tenants Penalties for each instance vary by the severity of the infraction. ST. LOUIS COUNTY is required to act on each incidence in a timely manner for the purpose of correcting the violation. Repeated and blatant violations could result in significant short-term and long term financial penalties on the owner or management entity involved; and/or legal action. 6. Monitoring for HOME Compliance 6.1 Owner s Monitoring Obligations- At a minimum, the owner should review the performance of the property manager in the following key areas: Adherence to income limits, rent limits, and occupancy standards Financial management, including rent collections and cash controls Physical management, including routine maintenance, capital planning, and property standards Adherence to lease and tenant rights requirements Affirmative Marketing 9

10 Exhibit 1 Chapter Two General Requirements While PJs have the option of choosing one of three definitions of annual (gross) income to determine income eligibility of applicants to their HOME Program activities, certain rules and requirements apply regardless of the definition used. These overarching requirements include how to determine whose income to count, anticipate and verify income, and compare income to HUD income limits. This chapter reviews these requirements. Detennining Whose Income to Count The HOME Program regulations require that income of all family members be included in the determination of income. The Part 5 definition of annual income provides specific guidance pertaining to whose income in a household must be included in that calculation. Chapter Three reviews this in detail. Anticipating Income The HOME regulations at 24 CFR (d)( 1) require that, for the purpose of determining eligibility for HOME assistance, a PJ must project a household's income in the future. To do so, a ~snapshor of the household's current circumstances is used to project future income. In general, a PJ should assume that today's circumstances will continue for the next 12 months, unless there is verifiable evidence to the contrary. For example, if a head of household is currently working for $7.00 per hour, 40 hours per week, the PJ should assume that this family member will continue to do so for the next year. Thus, estimated earnings will be $7.00 per hour multiplied by hours, or $14,560 per year. This method should be used even when it is not clear that the type of income received currently will continue in the coming year. For example, assume a family member has been receiving unemployment benefits of $100 per month for 16 weeks at the time of income certification. It is unlikely that the family member will continue on unemployment for another 52 weeks. However, because it is not known whether or when the family member will find employment, the PJ should use the current circumstances to anticipate annual (gross) income. Income would therefore be ca leuiated as follows: $1 00 per week x 52 weeks, or $5,200. The exception to this rule is when documentation is provided that current circumstances are about to change. For example, an employer might report that an employee currently makes $7.50 an hour, but a negotiated union contract will increase this amount to $8.25 an hour eight weeks from the date of assistance. In such cases, income can be calculated based on the information provided, In this example, the calculation would be as follows: $7.50/hour x 40 hourslweek x 8 weeks = $2,400 $8.25/hour x 40 hourslweek x 44 weeks = $14,520 $2,400 + $14,520 = $16,920. Verifying Income The HOME regulations at 24 CFR (a) require that PJs determine income eligibility of HOME applicants by examining source documents (such as wage statements or interest statements) as evidence of annual income. PJs may develop their own verification procedures provided that they collect source documentation and that this documentation is sufficient for HUD to monitor program compliance. (Sample verification forms are provided in Appendix H.l PJs may use two of the three verification procedures provided to public housing agencies (PHAs) for the Section 8 Program Technical Guide for Delermining Income and Allowances (or the HOME Program - 5

11 Chapter Two - General Requirements as a basis for developing their procedures. These forms of verification are third party verification and review of documents. (The third method provided to PHAs, applicant certification, does not provide adequate source documentation for the HOME Program.) Third~Party Verification Under this form of verification, a third party (e.g.. employer, Social Security Administration, or public assistance agency) is contacted to provide information to verify income. Although written requests and responses are generally preferred, conversations with a third party are acceptable if documented through a memorandum to the file that notes the contact person, information conveyed, and date of call. In addition, a PJ may obtain third party written verification by facsimile, , or Internet The PJ must make adequate effort to ensure the sender is a valid third-party source. To conduct third-party verifications, a PJ must obtain a written release from the household that authorizes the third party to release required information. (See Appendix H for a sample release form, "HOME Program Eligibility Release Form.") Third-party verifications are helpful because they provide independent verification of information and permit the PJ to determine if any changes to current circumstances are anticipated. Some third-party providers may, however, be unwilling or unable to provide the needed information in a timely manner. Some third-party providers (such as banks) may charge a fee to provide the information. In such cases, the PJ should attempt to find suitable documentation without the thirdparty verification - for example, bank statements or a savings passbook. If suitable documentation is not available, costs associated with third party verifications are eligible administrative or project expenses under the HOME Program; however, low-income beneficiaries must not be required to pay for verifications as a condition of receiving assistance. Revie w ofdocuments Documents provided by the applicant (e.g., pay stubs, lax returns, etc.) may be most appropriate for certain types of income and can be used as an alternative to third party verifications. (Note, howevef'; that if a copy of a lax return is needed, IRS Form 4506 "Request for Copy of Tax Form" must be completed and signed.) Copies of documents should be retained in project files. Although easier to obtain than third-party verifications, a review of documents provided by the applicant often does not provide all necessary information. For instance, an employed applicant's pay stubs may not provide sufficient information about the average number of hours worked, overtime, tips, and bonuses. In this case, the PJ may also need to contact the employer to accu rately project annual income. Assessing Information PJs must assess all the facts underlying the income information collected. Below are some of the considerations PJs must take into account. Pay period. The PJ should determine the basis on which employees are paid (hourly, weekly or monthly, and with or without overtime). An employee who gets paid "twice a month" may actually be paid either twice a month (24 times a year) or every two weeks (26 times a year). An annual salary is counted as annual income regardless of the payment schedule. For example, if a teacher's annual salary is $30,000, this is the annual income regardless of whether the teacher is paid over a nine- or 12-month period. Variatio ns in pay. For applicants whose jobs provide steady employment (e.g., 40 hours a week, 50 weeks a year), it can be assumed that there will only be slight Technical Guide for Determming Income and Allowances for the HOME Program - 6

12 Chapter Two - General Requirements variations in the amount of earnings reflected in monthly or bi-weekly pay stubs. In such cases, three consecutive month's worth of income documentation is an appropriate amount upon which to base a projection of income over the following 12 month period. For those whose annual employment is less stable or does not conform to a twelvemonth schedule (e.g., seasonal laborers, construction workers, teachers), PJs should examine income documentation that covers the entire previous twelve~month period. Such workers can experience substantial variations in earned income over the course of a year. As such, an examination of three month's worth of income documentation may not provide an accurate basis upon which to project the applicant's income over the following 12 months. Sources of earned income. In addition to hourly earnings, PJs must account for all earned income. In addition to the base salary, this will include annual cost of living adjustments (COLAs), bonuses, raises, and overtime pay, In the case of overtime, it is important to clarify whether overtime is sporadic or a predictable component of an employee's income, If it is determined that an applicant has eamed and will continue to earn overtime pay on a regular basis, PJs should calculate the average amount of overtime pay earned by the applicant over the pay period the PJ is using to calculate income eligibility (3 months or 12 months). This average amount is then to be added to the total amount of projected earned income over the fallowing 12-month period. Exhibit 2.1 provides a step-by-step explanation of the standard methodology for projecting annual income. Comparing Annual Income to Published Income Limits Once household and income information has been established and verified, a PJ must compare the information to the appropriate HUD income limits to determine if the household is eligible for participation in the HOME Program. To determine eligibility, PJs must use a copy of the most recent HUD income limits, adjusted for family size and by geographic area (county or metropolitan area). The income limits are updated annually and are available through HUD offices or on the Internet at Drag ra ms/homellimits/income/index.cfm. Exhibit 2.2 provides a sample income limits table. Determining Household Size The income limits are adjusted by household 7 size; therefore, one of the first steps in determining eligibility is to determine the size of the applicant household. Some households may include persons who are not considered as family members for the purposes of determining household size and income eligibility, including: Foster children; Foster adults; Live-in aides; and Children of live-in aides. These persons should not be counted as household members when determining household size, and their income, if any, is not included when calculating annual income. A child who is subject to a shared-custody agreement in which the child resides with the household at least 50 percent of the time can be counted in the household. Comparing Household Income to the HUDLimits To compare a household's annual income information to the HUD income limits, follow these steps: 1. Find the geographic area in which the PJ is located on the HUD income limit chart. 2, Find the column that corresponds to the number of persons in the household (i.e., family size). Technical Guide for Determining Income and Allowances for the HOME Program - 7

13 Chapter Two - General Requirements 3. Compare the verified income of the household with the income limit for that household size. Using the sample income limits chart in Exhibit 2.2, consider the following example: Mr. and Mrs. Jackson have three children that permanently reside with them. It has been determined by the PJ staff that the Jackson's have an annual household income of $48,500. Based on the income limits, the Jackson family must have an income of less than $59,250 in order to participate in the HOME Program. Since the Jackson's income of $48,500 is Jess than the Low Income Limit of $59,250, they are eligible for HOME assistance. Timing of Income Certifications All households that receive HOME assistance must be income-eligible at the time assistance is provided. Generally, the HOME Program permits income verification dated no earlier than six months prior to receipt of assistance. Households must qualify as low-income at the time of occupancy or at the time HOME funds are invested, whichever is later. A preliminary determination of eligibility should, however, be made much earlier in the process. Application processing is labor intensive. Early screening for income eligibility can eliminate excessive work in processing an ineligible applicant. For example, when considering an application from a developer to rehabilitate an existing rental project, it is important for a PJ to know whether the current tenants will continue to be eligible once HOME funds are invested in the project. Establishing a deadline for formal eligibility determinations is a challenging part of the planning process. The formal determination of income eligibility must be made shortly before a household receives assistance. Because eligibility determination involves verification of income, waiting too long can delay a project. Conducting income certifications too early in the process, however, might mean that certifications become outdated and must be redone. Income Certifications for Lease Purchase or Contract-to-Purch ase Housing PJs have some flexibility when certifying the income of homebuyers in lease-purchase or co ntract-to-purchase prog ra ms. Homebuyetrs are required to qualify as lowincome: In the case of a contract to purchase existing housing, at the time of purchase; In the case of a lease-purchase agreement for existing housing or for housing to be constructed, at the time the agreement is signed; or In the case of a contract to purchase housing to be constructed, at the time the contract is signed. Income Recertification for Rental Housing in addition to initial certifications at the time of eligibility determinations, tenants receiving TBRA or occupying HOMEassisted rental units must have their incomes recertified annually. Because new income certifications should be effective on each tenant's Manniversary date" (one year from the start of assistance or last recertification date), the income certification process should begin 60 to 90 days prior to that time. For rental housing projects, the PJ must use one of the following three methods for recertifying tenant incomes: Review of source documents. This involves a review of source documentation, such as that done for a household's initial eligibility determination, Statement and certification from the family. This is a written statement from the family indicating family size and annual income. This must include a certification from the family that Technical Guide for Determining Income and Allowances for the HOME Program - 8

14 Chapter Two - General Requirements information is complete and accurate, and must indicate that source documents will be provided upon request. A sample certification is provided in Appendix J. Statement from another government program. This is a written statement from the administrator of another government program under which the family receives benefits, and that examines the annual (gross) income of the family each year. The statement must indicate the family size, or provide the current income limit for the program and a statement that the family's income does not exceed that limit. A sample of this type of certification is found in Appendix J. If the PJ chooses to allow rental project owners to accept the written statement from the family or other governmental entity at income recertification. it must require owners to review full source documentation every sixth year of the affordability period. For a rental project with a 20-year affordability period, for example, source documentation must be used to certify all tenants' income at initial lease-up, and in years six, 12 and 18 of th e affordability period. In the other years, the family or government program statement may be accepted without further verification of income. Technical Guide for Determining Income and Allowances for the HOME Program - 9

15 Chapter Two - General Requirements Exhibit Step-by-Step Methodology for Projecting Annual Income Steps Step 1: Collect appropriate income documentation. Step 2: Calculate the applicant household's projected income based upon documentation. Step 3: Compare the amount of projected income against current HOME income limits. Instructions Appropriate documentation includes pay stubs, third-party verification, bank statements (checking and/or savings), or certified copies of tax returns. (These can be acquired by submitting an IRS Form 4506, "Request for CODY of Tax Form.") This calculation must include hourly wage figures, overtime figures, bonuses, anticipated raises, COLAs, or other anticipated changes in income. Other specific inclusions must also be reflected in the calculation, deifending upon which definition of annual income the PJ has elected to use for Its program. Specific instructions for each of the three definitions of income under HOME are provided later in this ~uide. Once the PJ has calculated the household's income, based on its selected definition, it must compare the household's final projected figure to annual HOME income limits, which are adjusted according to household size. These limits are posted online at: WW'W.hud.gov/offices/cpd/affordablehousinq/orograms/home/limits/inco me/indexlcfm. This information is also available through the CPO office of your state or local HUD Field Office. Households whose projected annual income is less than the current HOME income limits are eligible for HOME assistance Exhibit Sam pie Income Limits Schedule (FY 2004) Area: Baltimore, MD Adjusted Income Limits Person Person Person Person Person Person Person Person 30% Limits $14,400 $16,450 $18,500 $20,600 $22,250 $23,850 $25,500 $27,150 Very Low- Income (50% Limits) $24,000 $27,450 $30,850 $34,300 $37,050 $ $42,550 $45,300 60% Limits $28,800 $32,940 $37,020 $41,160 $44,460 $47,760 $51,060 $54,360 Low-Income (80% Limits) $38,400 $43,900 $49,400 $54,900 $59,250 $ $68,050 $72,450 Last Modified: January 2005 Technical GUide for Determining Income and Allowances for the HOME Program - 10

16 Exhibit 2 Chapter Three - Calculating Annual (Gross) Income Exhibit CFR Part 5 Annual Income Inclusions 1. The full amount. before any payroll deductions, 5. Payments in lieu of earnings, such as of wages and salaries, overtime pay, unemployment and disability compensation, commissions, fees, tips and bonuses, and workers compensation, and severance pay other compensation for personal services. (except for certain exclusions, as listed in 2. The net income from the operation of a Exhibit 3.2, number 3). business or profession. Expenditures for 6. Welfare Assistance. Welfare assistance business expansion or amortization of capital payments made under the Temporary indebtedness shall not be used as deductions Assistance for Needy Families (TANF) program in determining net income. ~An allowance for are included in annual income: depreciation of assets used in a business or Qualify as assistance under the TANF profession may be deducted, based on program definition at 45 CFR : and straight-hne depreciation, as provided in Intemal Revenue Service regulations. Any Are otherwise excluded from the calculalion withdrawal of cash or assets from the operatton of annual 'Income per 24 CFR 5.609(c). of a business or profession will be included in If the welfare assistance payment includes an income, except 10 the extent the withdrawal is amount specifically designated for shelter and reimbursement of cash or assets invested in utilities that is subject to adjustment by the the operation by the family. welfare assistance agency in accordance with 3. Interest, dividends, and other net income of the actual cost of shelter and utilities, the any kind from real or personal property, amount of welfare assistance income to be Expenditures for amortization of capital included as income shall consist of: indebtedness shall not be used as deductions the amount of the allowance or grant in determining net income, An allowance for exclusive of the amount specifically depreciation IS permitted only as authorized in designated for shelter or utilities: plus number 2 (above). Any withdrawal of cash or the maximum amount that the welfare assets from an investment will be included in assistance agency could in fact allow the income, except to the extent the withdrawal is family for shelter and utilities. If the family's reimbursement of cash or assets invested by welfare assistance is reduced from the the family, Where the family has net family standard of need by applying a percentage, assets in excess of $5,000. annual income the amount calculated under 24 CFR 5609 shall include the greater of the actual income shall be the amount resulting from one derived from all net family assets or a application of the percentage. percentage of the value of such assets based on the current passbook savings rate, as 7. Periodic and determinable allowances, such as determined by HUD. alimony and child support payments, and regular contributions or gifts received from 4. The full amount of periodic amounts received organizations or from persons not residing in from Social Security, annuities, insurance the dwelling policies, retirement funds, pensions, disability or death benefits, and other similar types of 8. All regular pay, special pay. and allowances of periodic receipts, including a lump-sum amount a member of the Armed Forces (except as or prospective monthly amounts for the provided in number 8 of Income Exclusions) delayed start of a periodic amount (except for certain exclusions, listed in Exhibit 3.2, number 14). Last Modified: January 2005 Technical Guide for Determining Income and Allowances for the HOME Program - 20

17 Chapter Three - Calculating Annual (Grossjlncome Exhibit CFR Part 5 Annual Income Exclusions,. Income from employment of chrldren (including maintenance, resident iniliatives coordination foster children) under the age of 18 years. and serving as a member of the PHA's ' 2. Payments received for the care of foster children or foster adults (usually persons with disabilities, unrelated to the tenant family, who are unable \0 live alone). 3. Lump-sum additions to family assets, such as inheritances, insyc'!.nce payments (including payments under health and accident insurance and worker's compensation), capital gains, and settlement for personal or property losses (except as provided in Exhibit 3.1, number 5 of Income Inclusions). 4. Amounts received by the family that are specifically for, or in reimbursement of, the cost of medical expenses for any family member. 5. Income of a live-in aide (as defined in 24 CFR 5403). 7. The full amount of student financial assistance paid directly to the student or to the educational institution. S. The special pay 10 a family member serving in the Armed Forces who is exposed to hostile fire. 9. (a) Amounts received under training programs funded by HUO. governing board. No resident may receive more than one such stipend during the same period of time. (e) Incremental earnings and benefits resulting to any family member from participation in qualifying stale or local employment training programs (including lraining not affiliated with a local government) and training of a family member as resident management staff. Amounts excluded by this provision must be re.ceived under employment training programs with clearly defined goals and objeclives, and are excluded only for lhe period during which the family member participates in the employment training program. 10. Temporary, nonrecurring, or sporadic income (including gifts). 6. Certain increases in income of a disabled member of qualified families residing in HOME assisted housing or receiving HOME tenant based rental assistance (24 CFR (a»). 11 Reparation payments paid by a foreign government pursuant 10 claims filed under the laws of that government by persons who were persecuted during the Nazi era. 12. Earnings in excess of $480 for each full-time student 18 years old or older (excluding the head of household or spouse). 13. Adoption assislance payments in excess of $480 per adopted child. 14. Deferred periodic amounts from supplemental security income and social security benefits thai are received in a lump sum amount or in prospective monthly amounts. (b) Amounts received by a person with a disability that are disregarded for a limited time 15. Amounts received by the family in the form of for purposes of Supplemental Security Income refunds or rebates under state or local law for eligibility and benefits because they are set property taxes paid on the dwelling unit. side for use under a Plan to Attain Self Sufficiency (PASS). 16 Amounts paid by a state agency to a family with a member who has a developmental (c) Amounts received by a participanl in other publicly assisted programs that are specifically for, or in reimbursement of. OUI-of-pocket expenses incurred (special equipment, clothing, transportation, childcare, etc.) and which are made solely to allow participation in a specific program. (d) Amounts received under a resident service stipend. A resident service stipend is a modest amount (not 10 exceed $200 per month) received by a resident lor performing a service for the PHA or owner, on a part-time basis, that enhances the quality of life in the development. Such services may include, but are not limited to, fire patrol, hall monitoring, lawn disability and is living at home to offset the cost of services and equipment needed to keep Ihe developmentally disabled family member at home. 17. Amounts specifically excluded by any other Federal statute from consideration as income for purposes of determinmg eligibility or benefits under a category of assislance programs that includes assistance under any program to which the exclusions set forth in 24 CFR 5.609(c) apply. A notice will be published in the Federal Register and distnbuted 10 housing owners identifying the benefits that qualify for Ihis exclusion. Technical Guide for Determining Income and Allowances for the HOME Program - 21

18 Chapter Three - Calculating Annual (Gross) Income Updates will be published and distributed when necessary. The following is a list of income sources that qualify for that exclusion: The value of the allotment provided to an eligible household under the Food Stamp Act of 1977; Payments to volunteers undef the Domestic Volunteer Service Act of 1973 (employment through AmeriCorps, VISTA, Refii'ed Senior Volunteer Program. Foster Grandparents Program, youthful offender incarceration alternatives, senior companions); Payments received under the Alaskan Native Claims Settlement Act; Income derived from the disposition of funds to the Grand River Band of Ottawa Indians; Income derived from certain submarginal land of the United States that is held in trust for certain Indian tribes, Payments or allowances made under the Department of Health and Human Services' Low-Income Home Energy Assistance Program; Payments received under the Maine Indian Claims Settlement Act of 1980 (25 U.S,C. 1721); The first $2,000 of per capita shares received from judgment funds awarded by the Indian Claims Commission or the U.S, Claims Court and the interests of individual Indians in trust or restricted lands, including the first $2,000 per year of income received by individual Indians from funds derived from interests held in such trust or restricted lands; Amounts of scholarships funded under Title IV of the Higher Education Act of 1965, including awards under the Federal workstudy program or under the Bureau of Indian Affairs student assistance programs; Payments received from programs funded under Title V of the Older Americans Act of 1985 (Green Thumb, Senior Aides, Older American Community Service Employment Program); Payments received on or after January 1, 1989, from the Agent Orange Settlement Fund or any other fund established pursuant to the settlement in the In Re Agent Orange product liability litigation, M.O.L. No. 381 (E.O.N.Y.l; Earned income tax credit refund payments received on or after January , including advanced earned income credit payments; The value of any child care plovided or arranged (or any amount received as payment for such care or reimbursement for costs incurred for such care) under the Child Care and Development Block Grant Act of 1990; Payments received under programs funded in whole or in part under the Job Training Partnership Act (employment and training programs for Native Americans and migrant and seasonal farm workers, Job Corps. veterans employment programs, state job training programs and career intern programs, AmeriCorps); Payments by the Indian Claims Commission to the Confederated Tribes and Bands of Yakima Indian Nation or the Apache Tribe of Mescalero Reservation; Allowances, earnings, and payments to AmeriCorps participants under the National and Community Service Act of 1990; Any allowance paid under the provisions of 38 U,S.C to a child suffering from spina biflda who is the child of a Vietnam veteran; Any amount of crime victim compensation (under the Victims of Crime Act) received through crime victim assistance (or payment or reimbursement of the cost of such assistance) as determined under the Victims of Crime Act because of the commission of a crime against the applicant under the Victims of Crime Act; and Allowances, earnings, and payments to individuals participating in programs under the Workforce Investment Act of Last Modified: January 2005 Technical Guide for Determining Income and Allowances for the HOME Program - 22