HUD Allowed Uses of Residual Receipts in Your Region
Recently Oregon’s U.S. Senators Ron Wyden and Jeff Merkley wrote a joint letter to HUD Secretary Shaun Donovan asking that he help Americans at this time of economic hardship by preserving affordable housing across the country through an innovative use of Residual Receipts.
Residual Receipts accounts are accumulated net earnings on projects which are subject to limited distribution requirements of their Section 8 contract or project regulatory agreement. HUD’s policy over the past decade has been to limit the use of these funds to three specific uses:
1. Reduce operating deficits when legitimate cash flow deficits exist, i.e., offset increased operating expenses instead of increasing rental rates.
2. Make mortgage payments when a mortgage default is actual or imminent.
3. Offset Section 8 Housing Assistance Payments Contract costs.
Funds not used for project purposes may be recaptured and returned to the US Treasury on expiration/termination of the project Section 8 contract and would no longer be a potential housing resource.
The HUD 4350.1 Project Servicing Handbook, as well as various forms of Section 8 contracts and regulatory agreements, provide for other uses of residual receipts for the general benefit of the project. Allowed uses of Residual Receipts have varied by HUD region and their use has been the subject of a number of Inspector General audits. With thousands of Section 8 Housing Assistance Payments contracts set to expire between now and 2013, Senators Wyden and Merkley urged Secretary Donovan to permit the use of Residual Receipts to help keep these units affordable. The letter further suggests the proposed use is within the Secretary’s discretion and would be an administrative change requiring no legislation.
In Oregon, a number of State Agency Financed Section 8 projects developed under Section 883 are limited distribution projects. These projects have Residual Receipts balances which total approximately $12 million. Some other states including Massachusetts have considerably more Residual Receipts tied up in project accounts. Putting these funds to use immediately would help finance the permanent preservation of thousands of subsidized units at little or no additional cost to the government.
We are very interested in learning more about HUD-allowed uses of Residual Receipts in other parts of the country, especially Section 883 State Agency financed Section 8 projects. If you know of a project which has accessed these funds for building improvements or for other “project purposes”, I would appreciate hearing about it. You can add your comments to this discussion or if you prefer call me at 503 501-5688.
Thank you, Rob.
Residual Receipts accounts are accumulated net earnings on projects which are subject to limited distribution requirements of their Section 8 contract or project regulatory agreement. HUD’s policy over the past decade has been to limit the use of these funds to three specific uses:
1. Reduce operating deficits when legitimate cash flow deficits exist, i.e., offset increased operating expenses instead of increasing rental rates.
2. Make mortgage payments when a mortgage default is actual or imminent.
3. Offset Section 8 Housing Assistance Payments Contract costs.
Funds not used for project purposes may be recaptured and returned to the US Treasury on expiration/termination of the project Section 8 contract and would no longer be a potential housing resource.
The HUD 4350.1 Project Servicing Handbook, as well as various forms of Section 8 contracts and regulatory agreements, provide for other uses of residual receipts for the general benefit of the project. Allowed uses of Residual Receipts have varied by HUD region and their use has been the subject of a number of Inspector General audits. With thousands of Section 8 Housing Assistance Payments contracts set to expire between now and 2013, Senators Wyden and Merkley urged Secretary Donovan to permit the use of Residual Receipts to help keep these units affordable. The letter further suggests the proposed use is within the Secretary’s discretion and would be an administrative change requiring no legislation.
In Oregon, a number of State Agency Financed Section 8 projects developed under Section 883 are limited distribution projects. These projects have Residual Receipts balances which total approximately $12 million. Some other states including Massachusetts have considerably more Residual Receipts tied up in project accounts. Putting these funds to use immediately would help finance the permanent preservation of thousands of subsidized units at little or no additional cost to the government.
We are very interested in learning more about HUD-allowed uses of Residual Receipts in other parts of the country, especially Section 883 State Agency financed Section 8 projects. If you know of a project which has accessed these funds for building improvements or for other “project purposes”, I would appreciate hearing about it. You can add your comments to this discussion or if you prefer call me at 503 501-5688.
Thank you, Rob.
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Replies to This Discussion
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Permalink Reply by Michael R. Carper on -
Rob
just joined the forum. We have had success gaining a release of residual receipts in a 202 for the purpose of replacing an elevator, about 3 years ago and to replace a failed boiler/heating system, about a year ago. In recent discussions with our Philadelphia office, we have been advised that they are "cracking down" on the use of residual receipts and going back to reading the letter of the law. Some of those discussions occurred before Donovan was named Secretary.
Mike -
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Permalink Reply by Bart Lloyd on -
HUD RI - with authorization from HUD central - allowed us to use residual receipts for rehab of a property in Providence. They required a showing that the project could not pay for the rehab out of its own resources, and we had to invest them in the project (i.e. -we could not loan them in - we had to characterize them as a gp capital contribution). Don't know whether our non-profit status factored in to the decision. The local office did support the request to HQ.
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Permalink Reply by Rob Prasch on -
Bart, I am very interested in hearing more about your projects especially given Rhode Island is one of the states where the HUD Iinspector General audited the use of residual receipts. As I understand it, in the audit the IG found the RI Housing and Mortgage Finance Corp inproperlly allowed residual receipts to be used for Preservation project transaction costs. It's encouraging that HUD is now allowing some use of Res Receipts for this type of deal. We've been working for several years on this here in Oregon and every time we make some progress it seems we end up with a step back.
Can you share a few more details about your project?
Was/is this property an FHA insured property? If so, what program, i.e. 236, 221 (d)(3) etc.?
What type of Section 8, i.e. LMSA, 883 state agency?
Was it a situation where the property was transfered to the current non-profit owner?
Was it a LIHTC deal?
What were the specific uses for the residual receipts which HUD approved?
Was the Providence MF Program Center involved with the audit of RIHMFC?
Feel free to give me a call to discuss if that would be easier: 503 501-5688. Thanks, Rob -
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Permalink Reply by Sam Falzone on -
In Vermont, we have often allowed the use of Residual Receipts in preservation transactions. In most cases, these involved acquisition/rehab of Section 8 NC/SR uninsured properties by nonprofits who were willing to commit to perpetual affordability using formal recorded VHFA Preservation Agreements.
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Permalink Reply by Rebecca Cohen on -
Just wanted to pick back up on this thread -- can anyone shed light on whether residual receipts can be/have been used to fund resident services in Section 8 properties? In particular, has anyone successfully used residual receipts to fund eviction prevention counseling?
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Permalink Reply by Thomas Amdur on
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Thanks for posting this. National Housing & Rehabilitation Association's Council For Energy Friendly Affordable Housing (CEFAH) has been working with HUD and Congress to expand the use of residual receipt account funds for Energy Retrofits. I'm very interested in learning if anyone has had any success with HUD in this arena. Rob, can you send me a copy of the Merkley/Wyden letter?
Thom Amdur
tamdur@housingonline.com -
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