How to Request Releases from Site's Residual Receipts Account
HUD requires many owners of nonprofit and limited-dividend sites with HUD-insured and HUD-held mortgages, including Section 202 program sites, to set up residual receipts accounts. Generally, all sites owned by nonprofit mortgagors and all Section 236 and 221(d)(3) projects owned by limited distribution (LD) mortgagors as well as Section 8 New Construction/Substantial Rehabilitation projects subject to the 1979/80 revised Section 8 regulations are required to establish a residual receipts account. These accounts are for revenue left over after all site expenses and owner distributions have been paid or set aside. Once you deposit this surplus money in the residual receipts account, you can’t withdraw it without HUD’s prior written approval.
There may come a time when you need to ask HUD to let you withdraw money from the residual receipts account to help you cover operating expense deficits that your rental revenue won’t cover. Your residual receipts may be a source of funds to make up for a cash shortfall.
To start the approval process for a residual receipts withdrawal, send a letter to your local HUD office. In the letter explain why you need to spend residual receipts—and why you deserve HUD permission to withdraw money from the account. We’ve put together a Model Letter to show you how to do this.
What Uses Are Permitted
The HUD Handbook 4350.1 describes residual receipts as a “versatile source of capital” for funding site operations. The Handbook lists two permissible uses for residual receipts that apply to all sites. HUD should approve withdrawals from the residual receipts account for these uses:
- Reducing operating expense deficits when cash shortfalls occur; and
- Making mortgage payments when a mortgage default has occurred or is about to occur.
The Handbook also lists several other uses for residual receipts that apply only to sites whose contract with HUD was signed before 1979. These include paying costs for renovations needed to make the site accessible to disabled residents, testing for or abating lead paint, and upgrading the site with amenities such as a sprinkler system or smoke detectors. These sites can also request permission to use the money to repay loans or to make owner distributions that have accrued but not been paid [HUD Handbook 4350.1, par. 25-9].
Request Withdrawal Approval from Local HUD Office
If you want to withdraw residual receipts, request approval from the asset management staff at your local HUD office. To make sure your request gets attention, submit the request in writing and follow up with a phone call.
Editor’s Note: On June 19, HUD issued Residual Receipts Authority—Section 202/811 Project Rental Assistance Contracts (PRAC). This memorandum changed the policy for residual receipts for Section 202 and Section 811 capital advance projects. It essentially sweeps up residual receipts exceeding $250 per unit to be returned to HUD to supplement future program appropriations and reduce the amount of new funds that Congress must appropriate. According to the memorandum, HUD will continue to consider approving requests for releases from the account in accordance with HUD Handbook 4350.1, Chapter 25. The guidance is effective for all PRAC contracts with a renewal date or expiration date of July 19, 2015, or later.
What to Tell HUD
The Handbook doesn’t specify what to include in a request to withdraw money from the residual receipts account. To get approval, your request should cover the following points.
Explain why you need the money. Detail for HUD staffers the purpose of the withdrawal and why your operating revenue isn’t adequate to cover the costs. If you’re requesting money to cover operating expenses because you’re no longer eligible for a rent increase, emphasize that your costs have increased since your current rents went into effect. Specify the types of costs that have increased. And attach a budget that shows your expense projections for the next 12 months. You can use the HUD Budget form (Form HUD-92547-A) found on HUD’s website.
Emphasize your good management. If you have a good record with HUD, be sure to emphasize it in your letter. Take credit for having generated residual receipts in the past. And make it clear that you don’t have any unresolved problems stemming from management reviews or audits. If staffers believe that the site needs to use residual receipts because you’ve done a bad management job, they may well turn down your request.
Point out consequences if request is denied. Make sure HUD staffers understand that your site will face serious consequences if they deny your request. Point out that even though you’re reluctant, you’d need to reduce management services unless funds are made available.
Offer to meet with staffers and provide documentation. HUD staffers may want to meet with you to discuss your request. For instance, they may want to discuss the overall financial outlook for your site. Or they may want to see additional documentation to justify the amount you’re requesting. Tell HUD staffers that you’re available to meet with them and willing to provide any further documentation they need.
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