OIG: HUD Should Improve Oversight of Sites with Low Inspection Scores

HUD’s Office of Inspector General (OIG) audited HUD’s oversight of multifamily housing properties with failing Real Estate Assessment Center (REAC) scores or life-threatening exigent health and safety (EHS) deficiencies. The objective of the audit was to determine whether HUD had effective oversight of multifamily housing properties to ensure that sites were maintained in decent, safe, and sanitary condition as required by HUD regulations.

HUD’s Inspection Process

In 1998, HUD established the Uniform Physical Condition Standards (UPCS) to achieve consistency in physical condition standards for HUD housing and standardize the inspections to be undertaken to determine compliance with these standards. HUD’s REAC coordinates the procurement of UPCS inspections for Office of Multifamily Housing Programs-assisted and -insured properties. The physical inspections result in an overall score ranging from 0 to 100. HUD considers a physical inspection score of less than 60 to be a failing score.

Life-threatening exigent health and safety (EHS) and fire safety deficiencies identified during an inspection require immediate resolution. Upon completion of a physical inspection of a multifamily housing property, REAC will provide the owner, on the date of the physical inspection, a written notice of the items classified as life-threatening EHS deficiencies, including fire safety deficiencies, such as missing or inoperable smoke detectors. The owner must mitigate all life-threatening EHS and fire safety deficiencies immediately. Further, the owner must certify and provide reasonable evidence to HUD that the life-threatening deficiencies have been resolved within three business days of the date of the inspection.

For each failed REAC inspection and EHS default, within 15 days of the inspection report release date, HUD must issue a Notice of Violation or Notice of Default (NOV or NOD) to the property owner. In part, each NOV or NOD must advise the owner of the violations or defaults and provide a reasonable cure period to correct the deficiencies and to take other actions identified below.

In 2023, REAC was replaced by HUD’s new physical inspection standards and scoring protocol, NSPIRE, but the actions HUD is to take based on how a property scores have not changed under the new framework.

Audit Findings

HUD’s OIG found the effectiveness of HUD’s oversight of physical conditions in multifamily housing properties could be improved. According to the audit, HUD didn’t consistently issue NOVs or NODs to multifamily owners in a timely manner. This occurred because HUD didn’t have sufficient procedures and controls in place to ensure that NOVs were issued in accordance with its requirements. For the 45 percent of the sampled properties reviewed, HUD didn’t meet its own requirement to issue NOVs or NODs to owners that they failed to remedy inspection findings within 15 days.

Cure periods delayed. Although HUD’s Office of Multifamily Asset Management and Portfolio Oversight set policy that required NOVs or NODs to be issued within 15 days of the inspection report release date, it didn’t monitor whether its regional centers and satellite offices complied with this requirement. And as a result of HUD’s not issuing notices in a timely manner, the report found that this delayed the start of the cure period for the owners to correct identified deficiencies, which increased the risk that residents were subjected to substandard living conditions for a longer period.

Owner certifications delayed. In addition, owner certifications were delayed by HUD’s late issuance of notices. The NOVs and NODs generally provide the owner a cure period of 60 days to conduct a survey of the entire property, correct all of the deficiencies identified in the owner’s survey and REAC inspection report, and certify to HUD that all deficiencies have been corrected. By issuing notices of violation and default more than 15 calendar days after the inspection report release dates, HUD delayed the date on which owners must certify that the deficiencies have been corrected. As a result, the report says the risk that residents were subjected to substandard living conditions for a longer period was increased.

The OIG also found that HUD staff didn’t collect adequate documentation from site owners consistently to ensure that the owners remedied health and safety threats in a timely way. According to the report, this resulted in HUD repeatedly failing to report to Congress accurate and timely information about the physical condition of assisted multifamily housing properties that received a failing REAC inspection score.

OIG Recommendations

OIG recommends that the director of Multifamily Asset Management and Portfolio Oversight develop and implement adequate procedures and controls to ensure that staff issues notices of violation and default within 15 calendar days of the inspection report release date and the Office of Multifamily Asset Management and Portfolio Oversight is made aware when notices are issued late and takes action as appropriate to ensure that future notices are issued in a timely manner.

Further, OIG recommends the director include more specific language regarding owner surveys in future NOVs and NODs; develop and implement adequate procedures and controls to ensure that owner surveys, certifications, and other relevant records are maintained and retrievable from an easily accessible location and that staff members with the appropriate level of authority approve extensions to cure periods in notices of violation and default when necessary; and assess and streamline the processes for preparing, reviewing, and approving the reports as appropriate to ensure that the reports are submitted to Congress on or before the required due date.

• HUD OIG Audit: 2024-CH-0001