Operating an apartment community while also incorporating tax credit rules and regulations can be a challenging task. Managers and owners new to the tax credit program and the affordable housing industry can find compliance requirements burdensome as they juggle the day-to-day responsibilities of operating a residential community. A monitoring visit from a state agency can cause even competent, confident owners and managers to doubt their skills. Common mistakes discovered during monitoring visits performed by state agencies are discussed below with some tips to help keep an affordable housing community in compliance.

1. Allowing tenants to move in before the placed-in-service (PIS) date and/or not certifying or recertifying residents by the required date

Using a calendar is a critical aspect of successfully managing a tax credit community. Dates dictate when a unit can be occupied and when a tenant must be certified or recertified. Often, state housing credit agencies will find that an owner has moved a tenant into a unit before the unit has a certificate of occupancy, and is thus ready to be “placed in service.” Moving a tenant into a unit prior to PIS means that an owner cannot count this unit toward the applicable fraction until the next recertification date, a penalty that can cost an owner a significant sum of money. If a tenant income certification is not completed for each tenant annually, the unit will not be qualified for the tax credit program as of the date the recertification is due. To prevent both of these common errors, an owner should ensure that management has copies of the 8609 form for each building showing the PIS date. Management will need to develop a tracking system to ensure that tenants are not moved in prior to the PIS date. A tracking system also helps management recertify tenants on time. Without such a system, the potential for mistakes is present at all times. Many managers recertify all tenants on one date and may even recertify tenants prior to a recertification date to put all residents on one schedule, making the date of recertification easier to track. Successful project managers communicate early with residents about recertification requirements and find ways to make the process easy.

2. Not properly using the Depart-ment of Housing and Urban Development (HUD) Handbook 4350.3 to calculate the income of a tenant

During a monitoring visit, the state agency will often question a manager’s methods for calculating the income of tenants. If the method used does not follow the rules and guidelines outlined in Handbook 4350.3, it usually cannot be used to calculate income. By researching each source of income and how to calculate it, managers can easily avoid these mistakes. Understanding when to use the review-of-documents method outlined in the 4350.3, and knowing the paperwork needed to calculate income properly, should be the key responsibilities of an owner or manager. The wrong calculation of even one penny of income for a tenant could lead to a loss of tax credits for a unit.

The income calculation is an aspect of a tax credit manager’s job in which training is critical. Several national organizations offer training that covers the 4350.3 extensively. These courses are economical when compared to the cost of lost credits.

3. Allowing building transfers without certifying the tenant as a new move-in

The practice of moving tenants from building to building without certifying them as new move-ins is prohibited by most state agencies. Moving a tenant without a certification may result in an unqualified unit at the time of the transfer. In a case where a building-to-building transfer is completed with no certification, and the tenant is found to be over income when the next recertification is completed, the unit may be considered unqualified. Since this tenant would be considered a new move-in, the Available Unit Rule may be violated, which will jeopardize credits being claimed for other units. By using a spreadsheet, database or other tracking mechanism, a manager can easily monitor the transfer status of a tenant and ensure that a certification is completed when necessary. Many owners and management companies avoid these situations by simply avoiding unit transfers with a policy that prohibits them. This type of policy can cause some tension between managers and tenants, but it is a conservative approach to protecting the tax credits.

Though many state agencies view such transfers as noncompliance, exceptions are often made when the transferring tenant has a special need, such as a requirement for a handicapped-accessible unit. Before denying a tenant request to transfer between buildings, the manager should check with the state agency to ensure all possibilities have been explored.

4. Vacant units

Vacant units are, unfortunately, a fact of life at many apartment communities. The vacancy alone is not an out-of-compliance issue, but the decisions of the manager and owner can impact compliance. By not actively marketing vacant units or putting off maintenance or repair work for a vacant unit (delaying its marketability) and claiming credits on the unit, owners can be sure the housing credit agency will begin questioning the status of these units. The owner and/or manager will have to provide documentation showing marketing methods for the unit and show that credits were not claimed for that unit, if the units were not ready to be leased. Instituting a reporting system for vacancies and developing a log of marketing efforts will help managers and owners avoid a loss of credits should there be a number of vacancies. A clear “turn” policy is also helpful. Managers should know what actions are expected when there are vacant units and have access to the resources that can get units in good shape and on the market.

5. Poor condition of files and/or physical condition of property

There is nothing like a disorganized file or the poor physical condition of a community to signal trouble. Files that are not organized will make it difficult for the property manager and state housing agency monitors to find information. If a monitor cannot find the necessary documentation to show that a unit is qualified, that unit will often be recorded as an unqualified unit. Implementing a standard file structure is critical to avoiding this problem. Consistency is a key aspect to the structure – each document should have its place in the file. Housing agency monitors will be able to complete their work faster when they can find what they need. The community manager will also be able to more efficiently complete recertifications and respond to reviews when the files are in good order.

Poor physical conditions at the community mean that the units may not be suitable for occupancy. A manager responsible for handling so many tasks on a daily basis may not see the importance of files that are in order or understand the necessity of ordering repair work quickly. By keeping files orderly and the community clean and well maintained, the owner is taking additional steps to ensure the credits are protected.

6. Leasing to students

On the surface, students would seem to make great tenants – the parents pay the rent. Unfortunately, the tax credit program does not accommodate renting to students. Even encouraging a household of students to have only one student attend school part time is not a solution. The best protection for a tax credit community is to conservatively apply the student rule. Training is a key safeguard as well. Staff at the apartment community should understand the rule and the owner’s expectations to preserve the tax credits. Rental applications and other tenant documents should also completely cover student status.

Kelly Taylor is communications manager in the Ohio Housing Finance Agency (OHFA) Office of Communications, Marketing, and Legislative Affairs. Previously, Taylor served as a manager in the Office of Program Compliance, where she was responsible for the recertification waiver process, owner certifications and compliance reporting. Brian Carnahan is assistant director of the OHFA Office of Program Compliance, where he oversees the monitoring of tax credit, Sec. 8 and HOME-funded projects.