How to Avoid Four Common Timing Mistakes During the Verification Process

How to Avoid Four Common Timing Mistakes During the Verification Process

To calculate and verify household income at tax credit sites, owners and managers are required to follow the rules set out in HUD Handbook 4350.3 (Occupancy Requirements of Subsidized Multifamily Housing Programs). Specifically, sections 1 and 3 of Chapter 5 (Determining Income and Calculating Rent) set out the rules you must follow for calculating and verifying income.

To calculate and verify household income at tax credit sites, owners and managers are required to follow the rules set out in HUD Handbook 4350.3 (Occupancy Requirements of Subsidized Multifamily Housing Programs). Specifically, sections 1 and 3 of Chapter 5 (Determining Income and Calculating Rent) set out the rules you must follow for calculating and verifying income.

When verifying income, time limits apply to verification forms and the verification process, but many managers aren’t aware of HUD rules on the timing of verifications. Not all timing rules appear on the verification forms themselves. However, the rules are discussed in HUD Handbook 4350.3, Chapter 5, which you’re required to follow when certifying household income at tax credit sites.

For example, HUD rules limit how long the household’s signed consent on a verification form remains effective, when during the certification process verification forms must be sent, and how long you may rely on verified information. Violation of these rules may cost you in a management review. Or residents may sue you for violating privacy laws. Site staff who knowingly violate these timing rules could even face criminal prosecution.

To help you avoid verification errors, we’ll identify and discuss some common verification timing mistakes.

Mistake #1: Seeking Verification with Stale Forms

If your site consists entirely of LIHTC units, the IRS doesn’t require recertification after initial occupancy because the next available unit will be rented to an eligible family, regardless of any one family’s increase in income. But for mixed-income sites, household incomes are verified annually and if a recertified household income exceeds the 140 percent limit, the unit can still qualify for low-income housing tax credits if owner rents next the available unit to an eligible household.

Sometimes managers at mixed-income sites keep on file copies of verification forms that households signed, but which were never sent to verification sources. When managers have to verify year after year the same information about households with the same sources, they may be tempted to simply pull out the verification form the household signed the prior year, photocopy it, and send it to sources. But that is a mistake.

HUD says signed consents on verification forms are effective for only 15 months. This is intended to cover the period beginning 120 days prior to certification and ending on the last day of the one-year certification period. Individual verification forms signed by households more than 15 months ago are not valid for use in verifying information with third parties [HUD Handbook 4350.3, par. 5-15(B)(1)].

What to do. Have residents sign new copies of all necessary verification forms at every certification meeting. Never use verification forms that households signed at prior certifications or recertifications.

Mistake #2: Verifying After Certification

When households have a proven track record of truthfulness or site staff are buried under a backlog of paperwork, you may be tempted to recertify households before you receive verification of the information they’ve given you. But that’s a mistake.

What to do. Send out verification forms immediately after households sign them and well before you certify the household. That way, you leave yourself time to send another copy if, as sometimes happens, the verification source loses the form.

The only exception to this rule is if the initial verification response is inconsistent in some way with the information provided by household members. Only then, HUD says, may you contact verification sources after certification to resolve or clarify the discrepancy.

Mistake #3: Seeking Verification of Information More than 12 Months Old

Sometimes managers are tempted to go beyond the information that’s strictly necessary for certification. For example, managers may be tempted to ask verification sources for additional information because they have a vague suspicion that households may not be telling the truth. But HUD limits how far back in time your inquiries can go in the absence of verified information consistent with what household members have told you.

Under ordinary circumstances, HUD prohibits owners and managers from asking verification sources for information that’s more than 12 months old [Handbook 4350.3, par. 5-16(A)(2)(a)].

What to do. All questions on your individual verification forms should seek current information or information that’s no more than one year old. For example, you risk violating privacy laws by asking banks (for certification purposes) to give you information on households’ bank accounts going back several years. The only exception is if you have already received verification from third parties indicating that members may have lied to you about bank accounts, in which case you may seek to verify information up to five years old [Handbook 4350.3, par.5-16(A)(2)(b)].

Mistake #4: Certifying Based on Stale Verification

Sometimes an unusual delay occurs between the date on which site staff meet with households and the date of certification. For example, one verification source may not return the form right away. But you cannot afford to let sources take as long as they want to respond. HUD says verifications are effective for only 120 days after you receive the form back from the third party [Handbook 4350.3, par. 5-16(B)(1)]. While you wait for that last verification source to respond, verifications you got on a more timely basis may grow stale.

What to do. If you receive verification more than 120 days before you sit down to certify the household, verbally reconfirming the information is no longer an option. Instead, you must repeat the entire third-party verification process by sending a new form.

Don’t Use EIV System for Income Verification

If your LIHTC site also includes a HUD rental assistance program, it’s important to note that that you can’t use HUD’s Enterprise Income Verification (EIV) system to verify income for the tax credit program. The EIV system is a web-based system that contains third-party income source information for Social Security, Supplemental Security Income, employment, unemployment, and other sources of household income.

The information in the EIV system is extremely sensitive and protected under the Federal Privacy Act and HUD’s agreements with the third-party sources of the information. Penalties for misuse or unauthorized disclosure include a felony conviction, a maximum of $5,000 or up to five years in prison, and civil damages. Unauthorized inspection is a misdemeanor and includes penalties of up to $1,000 and/or one year in prison, and civil damages.

According to HUD guidance, EIV data can be used to verify tenant income for specific HUD multifamily housing programs. EIV data cannot be used to verify tenant income for LIHTC program requirements. The contracts that HUD has entered into with third-party sources of information contained in EIV allow access to this information only for use in conjunction with the following HUD rental assistance programs: Section 8 Project-Based Assistance; Rental Assistance Payment (RAP); Section 202 Project Assistance Contract (PAC); Section 202 Project Rental Assistance Contract (PRAC); Section 811 Project Rental Assistance Contract (PRAC); Section 236; Section 221(d)(3) Below-Market Interest Rate (BMIR); and Section 101 Rent Supplement.

When a site’s financing includes one of the applicable HUD rental assistance program and LIHTCs, the EIV information required for the HUD rental assistance program needs to be kept separately from the LIHTC qualification documents for each household. The verification of income and assets required for the LIHTC program must support the household’s income fully without the use of the information provided by EIV. Compliance monitors from the state housing credit agency and auditors from the Internal Revenue Service cannot be given access to the EIV information when monitoring for compliance with the LIHTC program requirements.