HOTMA is still the hot topic of Affordable Housing and in the Tax Credit world, it’s no different. LIHTC properties are looking toward their respective states for guidance, resulting in a variety of approaches to HOTMA across the US for Tax Credit. To provide some insight on what LIHTC properties can be doing to tackle HOTMA head-on, we sat down with Tax Credit expert, Scott Michael Dunn, CEO and Owner of Costello Compliance, to ask some questions.
Stepping back for context to the question, one of the biggest LIHTC complications relating to HOTMA has been implementation. A strength of the LIHTC program is the right of states to design the best housing program for the people of each state. However, this results in multiple approaches to rolling out HOTMA among the states.
Legally, HOTMA applied starting 1/1/2024. Some LIHTC states implemented then. Of course, HUD recognized the severe challenges of implementing HOTMA without software, most notably HUD TRACS 203A. HUD public housing has a similar issue with the new HIP system. Because of this, most Offices of HUD allowed more time, setting 1/1/2025 as the date to come into compliance with the HOTMA requirements.
As of 9/20/2024, HUD has extended the deadline from 1/1/2025 to 7/1/2025 – with no sign of 203A or estimated date of arrival. Since we legally determine income for the LIHTC in a manner consistent with Section 8 (and Section 8 is not using HOTMA yet), many states moved the LIHTC HOTMA compliance date to 1/1/2025. Some appear to be determined to stick with that date, and others have moved the date to 7/1/2025.
Finally, some are silent on the issue altogether, apparently leaving the implementation decisions up to owners/agents. With this background in mind, it cannot be overstated how much a moving target LIHTC HOTMA implementation is, depending on the state a property is in. Regardless of where a property is, however, HOTMA either is or will be a reality, and preparation is essential.
Beyond the obvious need to get a massive amount of education on HOTMA, I think that our attitude is the first thing to address. It will affect all aspects of our HOTMA implementation decisions. Congress’ stated purpose for HOTMA is to reduce burdens for all parties. It does this through a significant reduction of verification requirements and eliminates a lot of income sources.
The new asset rules, for instance, are harder to learn than they will be to implement and will result in massive simplification of the certification process and eliminate delays that contribute to under-housing, homelessness, and other major societal issues. New treatment of retirement accounts, child support, use of other mean-test program determinations of income, and using the current balance on checking are also huge simplifications.
All of this has significant business benefits to properties, especially at a time when staffing is existentially problematic. They are completely in keeping with the existing Section 42 code and guidance. How much time we have for staff doing unnecessary work may determine how successful an LIHTC property is.
However, the question is how far the LIHTC industry will go to accept the gifts and benefits HOTMA gives us. Objection to not reviewing months of bank statements and insisting on verification of court-ordered child support, for instance, are ideas a few states and owners/agents seem to be clinging to.
The mindset that “we’ve always done it that way” and systemic distrust of low-income residents are barriers to HOTMA’s intent. The more layers that state agencies and owners/agents impose, the more diluted the HOTMA benefits become. Some may even make compliance more complicated. Our attitude may make all the difference as to how much benefit we will reap.
After being absorbed in HOTMA for almost two years, I am convinced that the HOTMA era will give us significant improvements if we step back, take a deep breath, and prepare to release some of our long-held beliefs, policies, and procedures in favor of lessoned burdens.
I think that revised forms, policies, and procedures continue to be the things that we are asked about most. The key is to get started. It is such a big project, that many are paralyzed and have not finished (or started the project). The old saying about eating an elephant one bite at a time comes to mind. Pick an aspect of HOTMA, develop a draft policy, and determine if any forms are involved. Do not expect perfection, this is a process we are all going through and we will iterate our policies with experience.
It has been said that “perfect is the enemy of progress," and waiting to be inspired to have perfect policies will result in a lack of progress when we cannot afford it.
I would say that the most vital thing to do for states that have not published an implementation date is get an answer in writing – at least in an email. Then, for states that published a 1/1/2025 date, determine if they have moved to 7/1/2025. States that started on 1/1/2024 generally allowed to 1/1/2025 before they would treat noncompliance with HOTMA as an 8823 issue. As this was based on HUD’s model, find out if this deadline has moved to 7/1/2025.
This is up to the state. HUD will provide a time during which HUD Management Occupancy Review (MOR) audit issues relating to HOTMA will not be findings, but rather observations that will need to be corrected. These will not affect MOR scores. Following this model, some state LIHTC agencies will also allow time during which HOTMA-related findings will not result in 8823’s.
Additionally, most state agencies have proposed deadlines, but an owner/agent can select a date on or before the deadline. This would allow the owners/agents to control the implementation and prep time to some degree.
The National Council of State Housing Agencies (NCSHA) recently released their best practices TIC. It nicely addresses HOTMA issues. Except for states that have already invested design and development time and money into a TIC, I think that this will be the emerging front-runner form. Software vendors have often waited for this and the advent of a best practice form is welcome.
About Scott Michael Dunn: Scott Michael has been involved in affordable housing development, management, and compliance for over 30 years. As the CEO of the consulting firm Costello Compliance, Scott Michael has worked with over two-thirds of the state LIHTC agencies. He provides training, policy advice, and compliance manual design. Additionally, he is an executive with Costello Property Management, a 5,000-unit management company in the upper Midwest. In that role, the implementation of HOTMA for all major affordable housing programs is a very real challenge in his everyday life.
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