New HOTMA Guidance Allows Asset Limit Discretion for Existing Households

And the TSP compliance deadline has been extended to May 31.

When it was originally released last September, HUD’s HOTMA implementation guidance was in the form of a joint Office of Housing and Office of Public and Indian Housing Notice (Notice H 2023-10). The notice was intended to provide direction to public housing agencies (PHAs) and multifamily housing owners on the implementation of the many program changes brought about by the Housing Opportunity Through Modernization Act of 2016 (HOTMA) Sections 102 and 104.

HUD recently released an updated version of its HOTMA implementation guidance. One big change is that HUD’s new guidance now allows discretionary enforcement at resident recertification of HOTMA-imposed asset limits to current residents. HUD is requiring owners to include a written non-enforcement policy in the site’s tenant selection plan (TSP) to be able to decline enforcing the new asset limits at recertification for current residents.  

With the newly updated implementation guidance, HUD has also announced that it’s postponing the interim HOTMA compliance date for owners to update their TSPs to be HOTMA-compliant (Notice H 2024–04). The original deadline was March 31; it has now been extended to May 31, 2024. The full compliance date for HOTMA remains Jan. 1, 2025.

Delaying the TSP compliance deadline gives owners the opportunity to review and implement the new asset limit implementation guidance made available by HUD less than 60 days prior to the previously established deadline. We’ll go over the new asset limit enforcement options and highlight some of the technical corrections and clarifications throughout the updated implementation guidance notice.

Changes to Section 8 Asset Restrictions for Existing Residents

Under HOTMA, HUD introduced Section 8 asset limits or restrictions that make applicants and residents ineligible for assistance if:

• The net cash value of all included assets exceeds $100,000 (adjusted annually for inflation); and/or
• Any family member owns real property suitable for occupancy that the member has the right to reside in and sell the real property (certain exceptions apply).

In other words, once an owner implements HOTMA, when reviewing applicant eligibility, the owner must deny admission and assistance to applicants who own real property suitable for occupancy and/or applicants whose net cash value of included assets exceed $100,000. The asset restrictions apply to Section 8 (Project Based Rental Assistance) and Section 202/8 housing. The asset restrictions do not apply to 202 SPRAC, 202/811 PRAC, 202 PAC, or 811 PRA housing.

With the revised HUD Notice 2023-10, HUD has altered previous guidance by making the application of asset restrictions to existing residents optional. Due to this implementation guidance update, owners who have already advised residents that they may no longer be eligible for housing assistance based on HUD's previous guidance, and who have determined that they won’t enforce the Section 8 asset restrictions for existing residents, should contact those residents and advise them of the change to HUD’s guidance.

For existing residents, owners have discretion with respect to the application of the asset restrictions at annual recertification or interim recertification. Owners may adopt a written policy of total non-enforcement, enforcement, or limited enforcement.

Total enforcement. Owners may choose to fully enforce the asset limitation exactly as written in the statute. This is the asset restriction that includes the real property rule and the $100,000 net family assets cap.

Total non-enforcement. Owners also can choose to establish a written policy to not enforce the asset limitation for all residents at annual and interim reexamination.

Limited enforcement, option to cure. With this option, owners can choose to establish a written policy to not enforce the asset limitation for all families, for up to six months after the effective date of a family’s annual or interim reexamination. Households are given the opportunity to cure noncompliance with the asset limitation during this period. Limited non-enforcement policies must address the time frame for curing noncompliance. Owners may choose to adopt policies to allow any number of months, up to six months, to cure noncompliance with the asset limitation. And owners who establish limited enforcement policies may not delay initiation of termination of assistance beyond six months after the effective date of the annual or interim reexamination.

Exception policies. For the annual and interim reexamination, HUD says owners may establish in written policy exceptions to the asset limitation based on family type and may take into consideration such factors as age, disability, income, the ability of the family to find suitable alternative housing, and whether supportive services are being provided. Owners may establish total non-enforcement for excepted families, or they may establish limited enforcement for excepted families to give those families the opportunity to cure noncompliance with the asset limitation for a period up to six months.

Exception policies must conform with applicable fair housing statutes and regulations, and owners who establish exception policies with a limited enforcement period may not delay initiation of termination of assistance beyond six months after the effective date of the annual or interim reexamination.

According to HUD, owners may establish both limited non-enforcement and exception policies. It’s important to note that the above discretion with asset restrictions is not applicable to eligibility determinations for new admissions or initial certifications of assistance. And owners must include their asset limitation policy for applicants and existing residents in the TSP no later than May 31, 2024. But the new TSPs are not to be implemented until site software is updated.

In an email sent from HUD’s Office of Multifamily Housing Programs announcing the publication of the revised joint notice, HUD has stated that owner enforcement of the asset limitation is permitted only to the extent that tenants subject to the limitation have signed the new HUD-approved Model Lease. The Office of Multifamily Housing Programs said it will make these HUD-approved Model Leases available as soon as possible.

Calculating Income at Annual Reexamination

In the updated guidance, HUD added clarifying language to the three-step process for calculating income.

Step 1 involves determining the annual income for the previous 12-month period as defined. If there have been no changes to income beyond this calculation, then this is the amount that will be used to determine the family’s rental assistance. To determine prior-year income, the owner reviews the EIV Income Report (must be pulled within 120 days of the effective date of the annual reexamination to be considered current); the income reported on the most recent reexamination HUD–50058/HUD–50059; and what the household certified to on the owner’s current annual reexamination paperwork for prior-year income, if available.

Step 2 takes into consideration any interim reexamination of family income completed since the last annual reexamination. With the update, HUD added that an owner may use the verification obtained during an interim certification for an annual recertification if there have been no other changes to annual income since the interim certification.

In Step 3, if there were changes in annual income not processed by the owner since the last reexamination, the owner would use current income. HUD replaced the word “paycheck” with “pay stub.” Paychecks don’t provide needed information and aren’t acceptable as verification, while paystubs with year-to-date amount provide the necessary information. In an example in the updated notice, “four current and consecutive paystubs” used to project annual wages since there was a discrepancy between what the household reported and the EIV report was changed to “two current and consecutive paystubs" to conform with other provisions of the notice.

Annual Income Clarification

Annual income includes all amounts received from all sources by each member of the family who’s 18 years of age or older, the head of household, or spouse of the head of household, in addition to unearned income received by or on behalf of each dependent who’s under 18 years of age. And annual income doesn’t include amounts specifically excluded by federal law. (In the last issue of the Insider, we covered HUD’s updated list of federally mandated income exclusions here.)

With this update, HUD added clarifying language to address how owners must consider certain amounts that are taken out of a person’s wages or benefits before the family receives them. When a family member’s wages or benefits are garnished, levied, or withheld to pay restitution, child support, tax debt, student loan debt, or other applicable debts, owners must use the gross amount of the income, before the reduction, to determine a family’s annual income. This is in contrast to child support or alimony, where only income received is counted as income and not the amounts the family is entitled to receive based on any court or agency order.

Federal Tax Refunds, Refundable Tax Credits

HUD has updated the method for subtracting federal tax refunds and refundable tax credits from assets to accurately reflect HOTMA's statutory and regulatory requirements. All amounts received by a household in the form of federal tax refunds or refundable tax credits are excluded from a family’s net family assets for a period of 12 months after receipt by the family.

Taxpayers have several options for receiving their tax refunds: via paper check or direct deposit into a checking or savings account; via TreasuryDirect to buy savings bonds; via direct deposit into a traditional, Roth, or Simplified Employee Pension Plan IRA; or via purchase of savings bonds, a Health Savings Account, an Archer Medical Savings Account, or a Coverdell Education Savings Account. Refundable tax credits, such as the Earned Income Tax Credit (EITC), are determined as part of an overall tax return submission to the Internal Revenue Service (IRS).

The notice originally stated that the tax refund was to be subtracted from the asset account into which the tax refund amount was deposited. To align with HOTMA, the tax refund must instead be subtracted from the total value of net family assets. HUD deleted the reference to a tax refund or refundable tax credit that’s deposited into an excluded asset. The tax refund/credit amount must be subtracted from total net family assets, regardless of where the amount is deposited.

Income Exclusion Clarification

Non-recurring income that has a discrete end date and won’t be repeated beyond the coming year during the family’s upcoming annual reexamination period will be excluded from a family’s annual income as non-recurring income. HUD has clarified that non-recurring, non-monetary in-kind donations from friends and family may be excluded as non-recurring income. In-kind donations are items such as food and clothing. To be excluded, these must be truly non-recurring and will be counted if they will recur, even if they are sporadic.

HUD also clarifies that “any workers’ compensation payments, regardless of the length or frequency of the payments,” are always excluded from annual income. This changes the former guidance that counted worker’s compensation if it was going to last a full 12 months after the effective date of a certification.