Use Tough Notice to Get Unauthorized Occupants on Lease or Off Site
According to HUD's latest report on U.S. Rental Housing Characteristics, vacancies in assisted rental housing are much lower than the national average. Fewer units are affordable to low-income renters. In fact, according to the 2011 Housing and Homelessness policy statement distributed by the National Health Care for the Homeless Council, low-income renters have faced the tightest market for affordable housing since 1985.
Because of this affordable housing shortage, the stagnant economy, and the high unemployment rate, an increasing number of families and individuals are living with family and friends due to economic hardship. This trend may pose a compliance problem at your site. If your state housing agency finds that the number of people living in a unit is greater than the number you listed on the certification form, this could lead to a report of noncompliance to the IRS.
If you suspect that someone has moved in with a household at your tax credit site without your permission, you should immediately send a notice to the household head asking him to identify any new household members, says tax credit expert Charles Durnin. By sending this notice, you give the household a chance to comply with your site's rules. The notice also shows your state housing agency that you're being vigilant about tax credit compliance. And if you end up in court seeking the household's eviction because of the unauthorized occupant, the notice shows that you tried to deal reasonably with the problem before taking any drastic steps. We'll give you a Model Notice: Get Households to Report Unauthorized Occupants, that you may use.
Why Should You Care?
Oftentimes unauthorized occupants bring additional income to the household, says Durnin. You should stay on top of this problem for various reasons.
Avoids appearance of noncompliance. Although you are not required to recertify households between annual recertifications whenever a new member moves in, it's still important for you to keep track of who lives in a low-income unit. Otherwise, you run the risk that households won't bother to tell you about a new member at their annual recertification out of fear that their rent will increase. If your state housing agency finds that the number of people living in a unit is greater that the number you listed on the certification form, they'll get the impression that you're taking a lackadaisical approach to tax credit management, which can lead to a noncompliance report to the IRS.
If you know that an unauthorized occupant is living in the unit at recertification time, you need to certify the occupant properly and include him or her on the lease. If you don't, you could be threatening the owner's tax credits. The new occupant's presence may increase the household income to above 140 percent of tax credit limits, which means you'll have to rent the next available comparable or smaller unit to a qualified low-income household. Therefore, if you don't try to get information about a new occupant at recertification, your state housing agency or the IRS may conclude that you're not complying with the next available unit rule. This could result in the household living in a unit that your occupancy standards don't allow.
Avoids over-occupancy. Over-occupancy can lead to greater wear and tear in a unit and increase the utility costs that you're responsible for paying. It can also violate local health or fire codes.
Protects your right to evict. If an unauthorized occupant is involved in a destructive or criminal act at the site, you may want to evict the household. But it can be hard to evict a household over a lease violation committed by an occupant who's not on the lease.
Make Sure Lease Requires Approval of New Occupants
If you haven't already done so, you should put a clause in your lease that requires the household to get your written permission before any new occupant can move into the unit. Make it clear that failure to comply with this requirement is a “substantial violation” of the lease.
Here's an example of language you can use to do this. Be sure to get your attorney's approval before you insert this clause in your lease.
Model Lease Clause
Tenants agree not to permit individuals other than those listed on the Income Certification Form to reside in the unit without first obtaining Landlord's prior written approval. Failure to comply with this provision is a substantial violation of this lease.
When to Send Notice
Send a notice as soon as you learn or suspect that an unauthorized person has moved into a unit, says Durnin. That way, the household's attorney won't be able to convince a court in an eviction proceeding that you gave up your right to evict because you didn't act quickly enough.
Also, check with your attorney on any state law limits on the deadline for the response to your notice and be sure this information is accurately included in the notice. Durnin recommends giving no more than 30 days.
Charles J. Durnin, Jr. HCCP, C3P, SHCM: Senior Vice President, Interstate Realty Management Co., 3 E. Stow Rd., Marlton, NJ 08053; www.irmmanagement.com.
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