HUD Multifamily Housing Compliance

1. HUD MultifamilyHousing Compliance It’s Your Project, but is it really? Presented by Karen K. Smith, CPAPrincipal, Reznick Group, P.C. May 10, 2007

2. Important Documents • Housing Assistance Payments (HAP) Contract (Section 8) • Regulatory Agreement • Appendix A of the Industry User Guide for the Financial Assessment Subsystem (Real Estate Assessment Center) • HUD Handbook IG 2000.04 REV-2 CHG-1, “Consolidated Audit Guide for Audits of HUD Programs” • Other HUD Handbooks • 4381.5 REV-2 Management Documents, Agents and Fees • 4350.3 REV-1 Occupancy Requirements of Subsidized Multifamily Housing Programs • 4370.2 Financial Operations and Accounting Procedures for Insured Multifamily Projects Reznick Group Building Business Value

3. Who is Required to File a Financial Statement with HUD (REAC) • HUD Insured or HUD Held Loans • HAP Contract • Almost all uninsured projects with HAP Contracts are required to file (The HAP contract format language prior to 1979/1980 does not generally require financial statements) • Any HAP Contracts that are assigned currently have the requirement for financial reporting in accordance with 24 CFR Subpart H Reznick Group Building Business Value

4. When are the Financial Statements Due • Regulatory agreement specifies 60 days • Current requirement under for electronic submission is actually 90 days Reznick Group Building Business Value

5. What happens if you don’t file? • Active Partners Performance System (APPS) Flag • Referral to Enforcement Center • Basis for debarment • Other administrative sanctions • If there is HUD-held subordinate debt under Mark-to-Market owners cannot receive or accrue the Incentive Performance Fee and Capital Recovery Payments must be suspended. The IPF is lost for the entire reporting year. Reznick Group Building Business Value

6. What is a distribution? • Equity distribution (payment to partners on the statement of partners’ equity) • Payment of Mortgagor Entity Expenses • Payment of Development Fees Reznick Group Building Business Value

7. What is a Mortgagor Entity Expense? A Mortgagor Entity Expense is an expense that cannot be paid from project operating funds. Examples of mortgagor entity expenses include: • Fees relating to debt refinancing • Tax projections performed in connection with analyzing a potential sale of the property • Investor service/partnership administration fees • Interest paid on certain subordinate debt (HUD M2M 2nd and 3rd Mortgages) Reznick Group Building Business Value

8. When can you make a distribution? • Distributions must be made from “surplus cash” • As of and after the end of a semiannual or annual fiscal period • Cannot make a distribution from borrowed funds, prior to the completion of the project, or when there is any default under the regulatory agreement or under the note or mortgage • Must be in compliance with all outstanding notices of requirements for proper maintenance of the project Reznick Group Building Business Value

9. What is “Surplus Cash?” • Cash (Accounts 1120, 1170 and 1191) • Accounts Receivable – HUD • Other LESS: • Accrued mortgage interest payable • Delinquent mortgage principal payments • Delinquent deposits to reserve for replacements • Accounts payable (due within 30 days) • Loans and notes payable (due within 30 days) • Deficient tax, insurance or MIP escrow deposits • Accrued expenses (not escrowed) • Prepaid revenue (Account 2210) • Tenant security deposits liability (Account 2191) • Other current obligations Reznick Group Building Business Value