Residual Receipts Voucher Offset: Start Now – No Delay!

In September’s Practical Points we described the provisions of HUD Notice 2012-14, issued on August 3, 2012. This Notice requires certain properties to use excess Residual Receipts (RR) to offset Section 8 vouchers, beginning with the November 2012 voucher, or as quickly as possible after that. On October 3, 2012, HUD
published Frequently Asked Questions regarding the Notice.

Start now!
There is no delay. The earliest voucher that will be offset is the 11/2012 voucher. We know that you have already submitted that voucher, and may not have discussed a potential offset with HUD.

HUD’s goal is to make sure everyone is starting to consult with their HUD Project Manager now, and that the offset process starts as soon as possible – even if this means starting with the December or January voucher. It will take some time to consult your Project Manager, and arrive at an agreed-upon RR balance, Retained
Balance, and offset amounts.

If your property has any outstanding use agreements (HUD-approved uses for your RR), be sure to discuss them with your HUD PM so that your Retained Balance can be calculated correctly. As always, be sure to document, document, document.

Does this apply to my property?
This process does not apply to 811 PRACs, 202 PRACs, PACs, Section 236 and BMIR properties without Section 8, Rent Supplement or RAP subsidies. It also does not apply to Loan Management Set-Asides (LMSA) or Property Disposition Set-Asides (PDSA).

This notice only affects Section 8 “new regulation” contracts. These are:

• Section 202/8 projects, Section 8 New Construction and Section 8 Substantial Rehabilitation properties which are subject to 24 CFR parts 880.205(e), 881.205(e), and 883.306(e).
• New regulations are as follows: 24 C.F.R. Part 880 in effect as of November 5, 1979; 24 C.F.R. Part 881 in effect as of February 20, 1980; and 24 C.F.R. Part 883 in effect as of February 29, 1980. Page 2 of 8

If your Section 8 property has an original HAP contract date of November 5, 1979 or later, you are most likely required to use excess RR to offset your vouchers… even if there is no specific language stating that it can be used for that purpose.

The Notice does apply to appropriate properties, including those with Flexible Subsidy Loans or Risk Share  financing. If you are in doubt about whether your property is affected, check with your HUD Project Manager.

Calculating the amount
You must work with your HUD Project Manager to figure out the balance available for voucher offset (if any), and the amount that must be used to offset each voucher monthly, until the RR contains only the allowable $250/unit Retained Balance. Working together is a “must” because the RR balance is reported to HUD on the
property’s annual financial statement, and that may not reflect the current balance accurately. This procedure applies to Mark to Market properties as well.

The $250/unit retained balance is based on all revenue-producing units on site, not just the Section 8 units. So if you have a 200-unit Section 236 site with 85 Section 8 units, the Retained Balance will be $250 x 200.

If the RR is in an investment account, managed by the lender, and the lender charges a fee, the property cannot keep the fee on top of the Retained Balance; fees must be paid out of the Retained Balance.

Together, management and the HUD PM must document all requests that have been submitted, and all uses that have already been approved for RR funds. If any use was previously approved, the property can keep that approved amount over and above the $250 per unit, as part of the Retained Balance.

If your HUD office is already using your property’s RR to reduce rent increases, that practice can be continued, and is considered an approved use. If HUD already approved the use of RR funds for refinancing, that approval will remain in place.

Any requests for use of RR funds that were in progress before 8/3/12 must be sent to HUD Headquarters for approval. Any requests made after 8/3/12 will be denied.

To help plan for Service Coordinator funding, one full year of funding can be allocated for this purpose. That amount is subtracted from the RR balance before the $250/unit is calculated and any excess determined. These programs may continue to be paid from RR on this basis, for additional one-year terms after the current oneyear term expires.

Funds for bed bug treatment must come from the Retained Balance unless HUD approved such a request prior
to 8/3/12.

Financial Statement Accounting
RR eligible items that have already accrued (i.e. owner advances, operating deficits) will be paid from the Retained Balance. If the site has a Residual Receipts Note, payments must come from the Retained Balance.

Residual Receipts are not considered new funds or an additional federal award coming to the property; they’re considered a release from the RR account to offset the Section 8 subsidy. A management fee may be collected on the RR funds released to offset subsidy.
The FAQ document contains detailed guidance on how Residual Receipts Account Offsets should be reported on financial statements, so you should send this document along to your financial staff and auditors.

Notice 2012-14 does not supersede any 202 refinancing procedures; 202/8 sites must implement RR voucher offset procedures just as any other property does.

Procedures and Timing
Failure to comply may result in delayed or interrupted voucher payments.

The Housing Notice provides flexibility for the individual HUD offices to implement the requirements in a manner most efficient in their jurisdictions. Pages 16-19 of the FAQ document show detailed steps for implementing the offset, developed by the San Francisco Multifamily Hub. Although it’s not required that all HUD offices use these steps, HUD has presented it as a model.

Once you and your HUD PM have determined that there is an excess RR balance to be used to offset vouchers, you need to understand the process your HUD office is following, particularly regarding the completion of the Form 9250. Some HUD office are requesting the form be completed by the OA and submitted to HUD; other
HUD offices are using pre-filled Form 9250s (containing everything except the amounts), and completing the amount section themselves after the CA has reconciled the voucher and informed HUD of the offset amount.

You should add an FORQ (Field Office Request Manual Adjustment) to your next voucher(s) as agreed upon. Enter this monthly amount as a negative number. You will receive any remaining voucher amount through the normal LOCCS payment process; with the RR offset amount received through the Form 9250 process.

If your HUD office is requiring the OA complete the Form 9250, we strongly recommend that you wait until you have confirmation from your CA of the amount that has been approved. This is because CAs often make adjustments to the OA voucher requests, which means the RR offset entered by the OA may be changed by the CA as well.

HUD will sign the approved 9250 and provide a copy to the lender and OA. The release from residual receipts must be timed in order for the funds to be received by the owner simultaneously with the normal voucher payment.

If you have a 202/8, and your mortgage payment is deducted from your voucher, the voucher amount after the offset must be sufficient to pay the usual mortgage offset. In this case, the RR offset will be for a lower amount than the total calculation, and that lower amount would be deducted from your vouchers. If your CA adjusts the voucher, the CA must make sure that the adjusted voucher amount, after the RR offset, is sufficient to pay your mortgage offset.

CAs can make or adjust the FORQ if the site doesn’t do it properly, forgets to do it, or if the CA makes voucher adjustments based on their voucher review. You, HUD, and your CA (if you have one) are all responsible to track the total offset amount, its monthly balance, and the amount of the FORQ(s) on each voucher. Each HUD office may issue its own procedures for this.

Resources:
HUD Notice 2012-14
FAQ