How to Avoid Noncompliance After Realizing You've Overcharged Rent
It's easy to make a mistake when calculating the rent you charge low-income households at your tax credit site. For instance, a staff member might have made an error in arithmetic when adding a household's utility allowance, or staff may have used the income limits for the wrong geographic area or family size to calculate a resident's rent.
If you charge too much rent, it's unfair to the household, of course. But many managers don't realize that accidentally overcharging a household could bring their sites into noncompliance, says tax credit expert, A.J. Johnson. For the units at your tax credit site to be considered low income, you can't charge more than the “maximum allowable rent” for them. If you charge a household in a low-income unit more than the maximum—for even one month—the unit will fall out of compliance (for at least that month), notes Johnson. And the owner won't be able to claim credits for that unit for the entire time the household's rent exceeds the maximum, unless you correct the problem.
On top of losing tax credits for any noncomplying units, the owner could lose its credits for the entire building or site, warns Johnson. This could happen if the noncomplying units are needed to meet the building's or site's minimum set-aside, he explains. Fortunately, the problem is correctable, but until you correct it, the owner's tax credits will be at risk, Johnson warns. With so much at stake, if you discover you've been overcharging a household, you must act immediately, he says.
TAKE FOUR STEPS WHEN YOU DISCOVER OVERCHARGE
Here are four steps you can take to make sure that the owner's tax credits stay safe.
Step #1: Start Charging Correct Rent
If you discover you're charging a low-income household the wrong rent, start charging the correct rent immediately. That way, you'll stop the owner's liability from spreading to future months. If you need to correct the rent, you must amend the lease by crossing out the old rent and writing in the new rent next to it, advises Johnson. Initial and date the correction, and have the household head visit your office to do the same, he suggests. Don't send the lease to the household to initial because it could get lost, he cautions.
Step #2: Calculate Overage Due Household
Many managers think that if they discover they've been overcharging a household, they only need to start charging the correct rent, says Johnson. This stops noncompliance from continuing, but it doesn't undo the consequences of the earlier error, he warns. To correct the problem, you must also refund the overage—that is, the amount of rent the household was overcharged—to the household for the months it was overcharged. Until you do, the owner's credits for those months will be at risk, he explains.
To calculate the overage due households, you can use our Model Form: Amount of Rent Overage Worksheet. If the rent changed during the period covered by the worksheet, you can use the “Notes” section to explain the change.
Step #3: Refund Overage to Household
Write a letter to each overcharged household enclosing a check for the overage and a copy of your completed worksheet. If a household needs to visit your office to amend the lease (see Step #1), don't send the letter to the household, Johnson recommends. Instead, ask the household head to visit your office, and hand her the letter in person, along with the check and the completed worksheet, he suggests. By holding the check, you give the household head an added incentive to visit your office to amend the lease, Johnson explains.
Your letter, like our Model Letter, should admit that you made an error in calculating the household's rent. Tell the household the date(s) you overcharged it and by how much. Say that you're enclosing a check to cover the overage and a worksheet that explains how you calculated the overage. If you need to start charging a lower rent, tell the household how much the new rent will be and when it will become effective. End the letter by asking the household to contact you with any questions.
Before you give your letter with the check and completed worksheet to the household, make a copy for the household file, recommends Johnson. This will enable you to show your state housing agency that you diligently corrected the problem and refunded the overage to the household.
It's important to note that it does not matter if the overcharged household no longer lives in the unit or even at your site. As long as you charged a household more than the maximum, you will risk noncompliance until you return the extra amount, warns Johnson. If you're sending a check to a household that no longer lives at your site, use the most recent address you have. And send the check by certified mail, return receipt requested, to help ensure the household gets the check and to document your efforts in sending it. If you can't locate the household, ask your state agency what you should do with the overage, Johnson recommends. Although this means admitting to the agency that you made a mistake, owning up is necessary to avoid noncompliance, he points out.
Step #4: Determine Why Problem Occurred
Correcting the lease and returning the overage to the household takes care of the immediate problem. But to prevent a similar problem from recurring, you need to find out what caused it. Talk to your staff members about what went wrong, and review the rent calculations in the household files. You may discover that your staff members didn't know exactly how to calculate rent under the tax credit law. For example, they may have used the wrong income limits. It's also possible that your staff members do know how to calculate rent but are just careless with arithmetic.
Whatever the reason for the problem, once you understand why it occurred, you'll know how to train your staff members to make sure it doesn't happen again, says Johnson.
A.J. Johnson, HCCP: President, A.J. Johnson Consulting Services, Inc., 3521 Frances Berkeley, Williamsburg, VA 23188; www.ajccs.net.