Seven Tips for Managing a Mixed-Income Site
There are some distinct differences between managing a mixed-income site versus a 100 percent tax credit site. The most obvious is that, with a 100 percent site, you know that all of your units are low income. But if your site is mixed income, and you rent to both low-income and market-rate households, your site staff must clearly understand which units have been designated for low-income households, and which rules apply. Making a mistake can be costly.
Here are a few tips that can help you and your staff to avoid noncompliance when managing a mixed-income site.
Review the Regulatory Agreements
Site management can head off common mistakes by taking the time to review the site's regulatory agreements and keeping informed on what the assumptions are, says Debbie Piltch, director of compliance, Maloney Properties Inc. Piltch teaches courses on the tax credit program for the New England Affordable Housing Management Association.
A critical tool for site staff is a development map that lays out the units, bedroom size, square footage, and income limits, and designates whether each unit is tax credit or market, and is part of any other site-specific set-aside, Piltch says. “The map is basically a summary of what the site requirements are for each building and unit by agreement,” she explains. “Depending on whether it's an individual one-bin development or a multi-bin development, you're going to have different development maps. It's the only way that you can track for the available unit rule and the vacant unit rule.” (See “Development Map: Create a Compliance Blueprint of Your Site, Insider, October 2010, p. 4.)
EDITOR'S NOTE: When taking over a new tax credit site, use a checklist to make sure that you get the critical information that you need to stay in compliance. Our Model Checklist, “Checklist for Information to Get When Taking Over Tax Credit Site,” lists 10 questions that you need to answer, and where to obtain the information. See “Ask 10 Questions When Taking Over Management of Tax Credit Site,” Insider, December 2004, p. 5.
Find Out Whether There Are Additional Set-Asides
When managing a mixed-income building, you can rent a portion of the units to market-rate households, but you also must ensure that you are meeting your site's minimum set-aside for each building.
To confirm the minimum set-aside for your site, ask the owner for a copy of IRS Form 8609 for each building. The owner must elect a minimum set-aside on line 10c of the form (for example, 40-60, which means that at least 40 percent of the units must be rented to households that earn no more than 60 percent of the area median gross income).
If you're managing a multibuilding site, you also will need to determine whether each building has its own set-aside or whether the set-aside applies to several buildings. You can find this information on Form 8609, as well. According to the IRS, each building of a multiple-building tax credit site is considered a separate project unless the owner has checked the “yes” box on line 8b.
Also be aware that there may be additional set-asides, says Piltch. For instance, the owner may have agreed to set-aside specific units for special population groups, such as the elderly, homeless, or individuals with disabilities. If so, you will need to know which units have been designated to these groups.
To find out whether the owner made any extra promises to the state housing agency in return for its tax credit allocation, check the application for tax credits or the extended-use agreement that the owner signed with your state housing agency. If you find that the owner agreed to an additional set-aside, ask for a development map that shows where each special unit has been assigned.
Follow the Available Unit Rule
According to the available unit rule, a low-income household does not cease to qualify even if its income goes above 140 percent of the income limit (or 170 percent in deep-skewed units). To maintain the unit's low-income status, you must follow the next available unit rule by renting the next available unit of comparable or smaller size in the building to another qualified low-income household.
In a 100 percent tax credit building, it's relatively easy to keep from violating the available unit rule—unless you make a mistake when certifying a household. In a mixed-income building, you must be careful not to rent the next available unit to a market-rate household by mistake.
Comply with the Vacant Unit Rule
If you manage a mixed-income site, and a low-income unit becomes vacant, you must make “reasonable attempts” to re-rent that unit or rent the next available unit of comparable or smaller size to a qualified low-income household before renting units to market-rate households. If you do so, the tax credit law allows you to continue treating the unit as a qualified low-income unit.
According to the IRS, what constitutes a reasonable attempt to rent a vacant unit may differ from site to site, and depends on factors such as the size and location of the site, household turnover rates, and market conditions, as well as the different advertising methods that are accessible to owners and prospective residents.
The IRS offers this example: The owner of a 200-unit mixed-use housing site has 10 qualified low-income units that are vacant, none of which are over-income units. To advertise the tax credit units, the owner displays a banner and for-rent signs at the site's entrance, places classified ads in two local newspapers, and contacts low-income prospects on the site's waiting list, as well as on a local public housing authority list of Section 8 voucher holders. All of these practices are considered common methods of advertising unit vacancies in the area where the site is located. After the low-income units became vacant, a market-rate unit of comparable size to the low-income units becomes vacant, which the owner rents before renting any of the low-income units.
According to the IRS, the owner is in compliance with the vacant unit rule because it used reasonable methods of advertising a low-income unit vacancy before it rented the market-rate unit. Thus, the owner made reasonable attempts to rent the vacant low-income units.
Be Aware of State Agency Requirements for Marketing
Marketing is another area that can bring a mixed-income site into noncompliance. It can be a balancing act—you have to market to both low-income and market-rate households, “but you also have to make it clear that you have some units with restrictions,” Piltch says. She adds that you also may be required to adhere to HUD'S Affirmative Fair Housing Marketing Plan requirements. “Although Section 42 does not require it, your state agency may require it or require to you comply with comparable requirements,” she says.
The Fair Housing Act (FHA) prohibits owners and managers of rental housing from discriminating against applicants on the basis of race, color, religion, sex, disability, familial status, or national origin. In addition, HUD recently proposed protection for applicants against discrimination based on sexual orientation or gender identity.
It's important to understand that the FHA doesn't just apply when owners or managers reject applicants—if you run discriminatory ads, you also will be violating the FHA. An ad for rental housing is considered discriminatory if an ordinary reader would get the impression from the ad that you prefer applications from households of a particular race, color, religion, sex, or national origin, or that you discourage households with children or individuals with disabilities.
Also, keep in mind that HUD requires ads to include an equal housing opportunity logo, statement, or slogan to inform applicants that the site is available to all persons regardless of race, color, religion, sex, handicap, familial status, or national origin.
PRACTICAL POINTER: There are two commonly used advertising strategies that often land owners and managers into trouble with the FHA: ads that describe the ideal applicant, and ads with pictures of the site showing human models (for instance, selectively using members of only one sex, a particular race, or of adults only).
Adhere to LEP Requirements
HUD published its Limited English Proficiency (LEP) guidance in the Federal Register three years ago. Since then, the agency has been working steadily to help owners and managers provide meaningful access to benefits, information, services, and programs for individuals with LEP.
Although the LEP requirements under Title VI of the Civil Rights Act of 1964 do not apply to 100 percent tax credit sites, mixed-income sites that receive project-based Section 8 or any other federal financial assistance are subject to Title VI.
“Even if you're not required by Section 42 to provide LEP access to applicants, the ability to communicate with your applicants is a practical business reality,” says Piltch.
HUD has translated several vital documents, including model leases for subsidized programs (in 14 languages), fair housing posters, rent determination fact sheets, annual recertification notices and reminders, rent increase notices, and more. Translated documents are available at www.hud.gov.
One of the biggest mistakes that site staff make that can lead to noncompliance is not asking questions when something seems amiss. Many times, people apply the “it has always been done that way” mentality to their work. That can be a fatal mistake when it comes to tax credit compliance.
“Don't fail to ask questions,” Piltch says. “Sometimes there are errors or contradictions in the regulatory agreements. If it doesn't make sense to you, you've got to question it.”
Debbie Piltch: Director of Compliance, Maloney Properties Inc.; Trainer, The New England Affordable Housing Management Association (NEAHMA); (978) 807-2650; www.neahma.org.