How to Verify Guarantor's Expected Rent Payments During Certification
Some tax credit sites may require a household to get a third party to sign a lease guaranty if its ability to pay the rent is questionable. In a guaranty, a third party (known as a guarantor) becomes legally responsible for the rent in case the household doesn’t pay. And sometimes, a household expects the guarantor will pay part of the rent each month.
If a guarantor makes rent payments, the HUD Handbook requires you to count those payments as part of the household’s income [Handbook 4350.3, par. 5-6(G)(1)]. HUD classifies cash gifts from persons not living in the unit as income. These sources may include rent payments paid on behalf of the resident.
If you don’t count the payments, you’ll make certification mistakes that could put the owner’s tax credits at risk. And you must also determine, before you complete a household’s initial certification, whether counting a guarantor’s rent payments would make the household ineligible to occupy its low-income unit.
To prevent mistakes and be prepared for audits, verify the amount of rent payments the household “expects to receive” from a guarantor [Handbook 4350.3, par. 5-5(A)]. When a nonhousehold member such as a guarantor plans to give “recurring contributions and gifts,” HUD prefers that you verify this income using a notarized form or statements signed by the person providing assistance or the applicant that states the purpose, dates, and value of the gifts [Handbook 4350.3, App. 3]. Here’s a rundown on how to use the form and what it should say.
It’s important to note that guarantors aren’t household members, so you needn’t count them when determining which income limit to use nor count their income as part of the household’s. And instead of testing a guarantor’s income eligibility, you’ll want to make sure a guarantor earns enough money to pay the rent in case a household can’t.
How to Use Form
Start by making enough copies of the form so that you have them handy to use each time a household signs a lease with a guarantor. It’s a good idea to use the form whether or not a guarantor plans to assist the household with rental payments. If a guarantor plans to assist the household, the form will be proof that you anticipated this income and included it in your calculations for the household. And if a guarantor tells you she doesn’t plan to assist the household, the form will show your state housing agency that the household didn’t expect to get any assistance when you performed its initial certification. This will cover you if a guarantor later makes rental payments.
Keep copies of your completed forms in the appropriate household’s file. This way, you’ll be able to easily access the form if your state housing agency has any questions.
What Form Should Say
Your form, like our Model Form, should do the following:
Identify household. The form should ask you to fill in the household’s name, unit number, and Building Identification Number (BIN).
State purpose. The form should say that the guarantor is guaranteeing the household’s rent under the lease. It should then state the household’s monthly rent under the lease. Because the rent is for a low-income unit, this amount should be equal to or less than the appropriate tax credit rent for the unit.
State whether guarantor will make payments. Your form should then ask the guarantor to check the correct box to indicate whether she plans to assist with the household’s rent.
Give expected dates and amounts. State when the guarantor plans to send the rental payments to assist the household. Keep in mind that the Handbook requires you to anticipate household income for only the 12-month period following the effective date of a household’s certification [Handbook 4350.3, par. 5-4(A)(2)]. So don’t list any payments a guarantor plans to make after the current certification year. If the guarantor doesn’t plan to give rental assistance to the household, write zero.
Get guarantor’s notarized signature and date. Have the guarantor sign the form in front of a notary public. Also have the guarantor write the date so that an auditor can see that you verified the household’s income from the guarantor within 120 days of the household’s initial certification [Handbook 4350.3, par. 5-17(B)(1)].
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