HUD Housing Notice § 2011-24

                  U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                   WASHINGTON, DC 20410-8000

ASSISTANT SECRETARY FOR HOUSING-
FEDERAL HOUSING COMMISSIONER




Special Attention of

All Multifamily Hub Directors                                  Notice
                                                                H-2011-24
All Multifamily Program Center Directors            Issued: September 13, 2011
All Multifamily Operations Officers
All Multifamily Directors of Project Management     Expires: September 30, 2012
All Multifamily Field Counsel
All Contract Administrators                  Cross References: Notice H-2010-04



SUBJECT: Reissuance of Revised Protocol for Placing a Flag in the Active Partners
           Performance System (APPS) When a Property Receives a Physical
           Inspection Score Below 60 but Above 30


I.    Purpose

     This Notice reissues the revised protocol for placing flags in the Active Partners
Performance System (APPS) when a property receives a physical inspection score that is
below 60 but above 30. This reissuance takes effect as of the date of this Notice.
Properties that receive a physical inspection score of 30 or below will continue to be
automatically referred to the Departmental Enforcement Center (DEC) and a flag will
automatically be recorded in APPS.

II.     Background

        It has become clear that the Notice H-10-04 protocol requiring that a flag be placed
in APPS when a property receives a physical inspection score that is below 60 was not
accomplishing the results it was designed to achieve. Prior to the publication of Notice
H-10-04, a flag was placed in APPS when a property received a physical inspection score
that was below 60 to alert HUD staff that there was a potential risk that should be
evaluated when a participant applies to do new business with the Department. The
Notice H-10-04 protocol also dictated that a Hub/Program Center should resolve the flag
if the property received a physical inspection score of 60 or above after it has been
re-inspected. However, in many cases, the Notice H-10-04 protocol actually hindered
new business from taking place because the Department cannot complete a timely
re-inspection of the property even though the Owner(s) has certified that he or she has
identified all deficiencies and completed all repairs.

        The reissued revised protocol, as outlined below, will help ensure that any flags
placed in APPS after a property receives a first physical inspection score that is below 60
but above 30 are true indicators of potential risks to the Department.
                                                                                                                       2



III.      The Revised Protocol

        As of the date of this Notice, Hub/Program Center staff will no longer be required
to place a flag in the APPS system or when a property receives a physical inspection
score below 60 but above 30 on the first inspection. Instead, the Hub/Program Center
will take the following actions:

The New Protocol for Physical Inspection Report Scores from 31 – 59

        The Hub/Program Center will not place a flag in APPS but the Hub Director or
his or her designee will meet with the Owner in person or by telephone. As a result of the
discussions, the Hub Director or his/her designee will issue a Notice of Violation (NOV)
and/or Notice of Default (NOD) of a business agreement(s) for substandard physical
condition within 10 days of the release of a physical inspection report with a score below
60 but above 30.

       a. The Hub Director or his or her designee will meet with the Owner in person or by
          telephone to inform him or her that the inspection report identified serious
          physical deficiencies that demonstrate that the Owner is in default or violation of
          one or more business agreements and what actions may result if he/she fails to
          take the necessary corrective action. The Hub Director will also issue a NOD
          and/or NOV of a business agreement(s). The NOD and/or NOV will inform the
          Owner that he or she: (1) must conduct a survey of the entire project and identify
          all physical deficiencies; (2) must correct all of the physical deficiencies at the
          project, including but not limited to, those deficiencies identified in the REAC
          inspection; and, (3) must execute and deliver the “Project Owner’s Certification
          that the Physical Condition of the Project is in Compliance with HUD Contracts
          and the Physical Condition Standards of 24 CFR. Part 5.703” and the
          comprehensive survey to the HUD Office cited in the Notice (see Attachment 1).
          The NOD and/or NOV must also inform the Owner that HUD’s Office of
          Multifamily Housing will flag the Owner and other parties responsible for the
          subject of the Notice in APPS if the Owner does not submit the “Project Owner’s
          Certification” within the 60-day timeframe specified in the Notice.

       b. If the Owner submits the “Project Owner’s Certification” within the designated
          timeframe, the Hub Director or his or her designee(s) will not place a flag in
          APPS and will inform the Office of Asset Management, Business Relationships
          and Special Initiatives Division that the project will be subject to the annual
          inspection process and will be inspected by the mortgagee or bid out in a Reverse
          Auction on or about the new ideal date the following year.1 If the property
          receives another score below 60 the following year, the Hub Director or his or her
          designee must place a flag in the APPS system, issue a new NOD and/or NOV,

1
 The Hub Director retains the authority to request that a physical inspection be scheduled at anytime if he or she
determines that there is good cause for doing so, such as tenant complaints, code violations, poor past performance,
below average or unsatisfactory Management and Occupancy Review ratings, etc.
                                                                                                                 3


         and order a new inspection through the Office of Asset Management, Business
         Relationships and Special Initiatives Division. The new inspection will be
         scheduled as soon as possible after the end of the 60-day cure period referenced in
         the NOD and/or NOV. If upon re-inspection the property once again receives a
         score that is below 60, the Hub/Program Center must once again flag the Owner
         in APPS and complete a Compliance, Disposition, and Enforcement (CDE) plan
         which recommends what actions should be taken to obtain Owner compliance
         with the terms of all business agreements and submit it to the Office of Asset
         Management, Business Relationships and Special initiatives Division for
         approval.2

    c. If the Hub/Program Center does not receive the “Project Owner’s Certification”
       within the 60-day timeframe, the Hub Director or his/her designee(s) must place a
       flag in APPS and request a re-inspection of the property through the Office of
       Asset Management, Business Relationships and Special Initiatives Division. The
       Department will strive to ensure that the property is re-inspected as soon as
       possible after the end of the 60 day cure period referenced in the NOD and/or
       NOV. If upon re-inspection the property once again receives a score that is below
       60, the Hub/Program Center must once again flag the Owner in APPS and submit
       a CDE plan which recommends what actions should be taken to obtain Owner
       compliance with the terms of all business agreements to the Office of Asset
       Management, Business Relationships and Special Initiatives Division, for
       approval within 30 days of the release on the last inspection report. The
       Department will strive to review and approve all CDE plans within 30 days of
       receipt.

        In order to ensure that follow-up inspections are conducted at the appropriate
time, the Hub Director or his/her designee must provide the Office of Asset Management,
Director, Business Relationships and Special Initiatives Division, with a
bi-weekly report by email. This report will be used to ensure that the properties in
question are inspected at the appropriate time. The report must list all of the properties in
the Hub Director’s jurisdiction that were issued a NOD and/or NOV within a two-week
period and provide all of the information included on Attachment 2. The subject line of
the email must read “Hub Name – Bi-Weekly Re-Inspection Report.” The
bi-weekly report will be due on the first Monday after the end of every time and
attendance reporting period.


Administrative Procedures for Processing Physical Inspection Scores Above 30 but
below 60 if the Score was Released Before the Date of this Notice.

        If a property received a physical inspection score that was below 60 but above 30
before the date of this Notice and the Hub/Program Center has already made an elective

2
 An Office of Asset Management memorandum dated April 7, 2003, captioned, “Under 60 Compliance – Disposition
and Enforcement,” discusses some of the enforcement actions that may be taken to obtain Owner compliance as well as
what disposition options are available if the Owner refuses to comply with the terms of all business agreements.
                                                                                            4


referral to the DEC, then the Hub/Program Center should continue to process the referral
using the protocol that was in effect before the date this Notice was issued. In cases
where a property received a physical inspection score that was below 60 but above 30
before the date of this Notice and the Hub/Program Center has not made an elective
referral to the DEC, then the Hub/Program Center should remove any flags that were
placed as a result of the physical inspection score and follow the new protocol outlined
above.

        It should be emphasized that this change to the protocol only applies to physical
inspection scores that are between 31 and 59. For first inspection scores that fall below
31, there is no change in protocol. If you have any questions regarding the attached
guidance, please contact the Office of Asset Management, Business Relationships and
Special Initiatives Division at (202) 402-2629. Persons with hearing or speech
impairments may access this number via TTY by calling the Federal Information relay
service at (800) 877-8339.

        The information collection requirements referenced in this Notice have been
submitted to the Office of Management and Budget (OMB) under the Paperwork
Reduction Act of 1995 (44 U.S.C. 3501–3520) for approval. In accordance with the
Paperwork Reduction Act, an agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information, unless the collection displays a
currently valid OMB control number.


                                                           /s/
                                             ______________________________
                                             Carol J. Galante
                                             Acting Assistant Secretary for Housing -
                                                Federal Housing Commissioner


Attachments 1 & 2