TRUMP ADMINISTRATION PROPOSES 2020 HUD BUDGET: Spending plan preserves rental subsidies; increases homeless assistance and healthy housing.

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WASHINGTON – The Trump Administration has announced its proposed Fiscal Year 2020 Budget for the U.S. Department of Housing and Urban Development (HUD), a $44.1 billion spending plan that expands resources to prevent/end homelessness; invests record funding to reduce lead and other home health and safety hazards; and preserves rental assistance to HUD-assisted households.

The President’s Budget continues a commitment to fiscal restraint, targeting lower value HUD programs for elimination or reduction, while seeking stable or increased funding into the highest impact programs that provide housing and support for vulnerable populations.

“This Budget advances our key priorities, including empowering HUD-assisted families to achieve self-sufficiency,” said HUD Secretary Ben Carson.  “For generations, the idea of the Federal Government providing housing assistance meant only one thing—helping to pay the rent so families can have a roof over their heads. But we must also think about how we can help families to access financial programs, educational opportunities, and higher paying jobs. In short, we must think beyond investing in bricks and mortar, and think about investing in people.”

ENDING HOMELESSNESS

The 2020 Budget continues the Federal goal to prevent and end homelessness by seeking nearly $2.6 billion to support thousands of local housing and service programs assisting those living in the nation’s sheltering system and on the streets. This represents a $215 million or 9 percent increase over the Administration’s 2019 budget request.

PROMOTING HEALTHY HOMES

To protect families and their young children from potentially dangerous lead-based paint and other home health and safety hazards, the Administration is seeking a combined $290 million for HUD’s Office of Lead Hazard Control and Healthy Homes. This request doubles the investment the Administration sought last year and represents a historic contribution to State and local governments as they work to remove lead hazards from homes occupied by low-income families with young children who are especially at-risk.

CONTINUING RENT ASSISTANCE

The Budget continues support for 4.7 million HUD-assisted households by increasing rental assistance to $37.9 billion, maintaining support to all current participating households. This request includes $22.2 billion for HUD’s Housing Choice Voucher Program which will allow local Public Housing Authorities (PHAs) to maintain support to approximately 2.2 million families nationwide and represents a 7.6 percent increase over the Administration’s 2019 request. The request also includes $12 billion to renew rental subsidies to privately owned multifamily housing developments through the Project-based Rental Assistance (PBRA)Program, a $874 million increase over the President’s 2019 budget.

The 2020 Budget proposes $644 million for the Housing for the Elderly (Section 202) and $157 million for the Housing for Persons with Disabilities (Section 811) programs. These requested amounts represent an increase of $43 million and $17 million respectively over the President’s 2019 budget request.

PURSUING RENT REFORM

The current rent structure in HUD’s rental assistance programs creates disincentives to employment; imposes large administrative burdens for Public Housing Authorities (PHAs), private owners, and tenants. The Administration believes this structure generates significant and increasing costs to the Federal Government and represents a one-size-fits-all approach that adequately consider local community needs. With the Making Affordable Housing Work Act (MAHWA), submitted to Congress in April 2018, HUD proposed to reform rental assistance to address these issues.

The Budget incorporates the proposed reforms, which promote work, simplify program administration, reduce Federal costs, and increase local choice. These reforms include increased tenant rent contributions for those able to work (not including elderly/disabled households); reduced frequency of income recertifications; and additional flexibilities for public housing authorities and property owners to develop alternative rent structures. In addition, the Budget proposes uniform work for work-able households, while exempting the elderly, the disabled, those caring for a disabled family member or small child, and pregnant women.

PUBLIC HOUSING

HUD estimates that the nation’s public housing stock is experiencing a backlog of billions of dollars in capital needs resulting in the loss of thousands of affordable units each year due to severe disrepair. The cumbersome regulatory structure of the Public Housing program limits local Public Housing Agencies’ (PHAs) ability to adequately address their significant needs.  The budget again proposes to merge the Public Housing Capital Fund into the Public Housing Operating Fund with reduced overall funding. This new combined Operating Fund will be given extra flexibilities to pay for capital improvement needs.  This better supports local needs by allowing increased flexibility for each PHA to make decisions that best serve their residents.

Meanwhile, HUD will work with local PHAs to shift public housing units to a more sustainable financing model and to allow State and local governments to take a more active role to support these functions. One of these more sustainable models is HUD Rental Assistance Demonstration (RAD).  Given the scarcity of federal funds and the substantial capital needs of the nation’s aging public housing stock, the Administration proposes removing the statutory limit on the number of public housing units that can participate in RADwhich, to date, has preserved more than 100,000 units of affordable housing that would otherwise have been lost permanently.

SUPPORTING HOMEOWNERSHIP AND FAIR HOUSING

The 2020 Budget continues to support homeownership through the FHA mortgage insurance programs, providing up to $400 billion in new single-family loan guarantee authority that includes critical funding to support targeted improvements to FHA’s aging information technology systems, some of which are based upon the outdated COBOL programming language. In addition, the budget requests up to $30 billion in new loan guarantee authority for FHA’s multifamily, hospital and healthcare mortgage insurance programs.

To further support homeownership opportunities, the Budget seeks $550 billion in new guarantee authority for Ginnie Mae, a part of HUD. Ginnie Mae makes affordable housing a reality for millions of low- and moderate-income households across America by channeling global capital into the nation’s housing markets.  Specifically, Ginnie Mae provides significant liquidity, allowing lenders to obtain a better price for their mortgage loans in the secondary mortgage market. The lenders can then use the proceeds to fund new mortgage loans.

As it did last year, the Administration is seeking $62.3 million to support HUD’s fair housing mission.

ELIMINATING/REDUCING INEFFECTIVE PROGRAMS

The Administration continues to seek the elimination of the Community Development Block Grant (CDBG) Program, shifting the activities the block grant program supports to the State and local level.  Since 1980, and most recently in 2013, HUD studies found that CDBG is not well targeted to the poorest communities and has not demonstrated a measurable impact on communities. Similarly, the Administration proposes through the Budget the elimination of HUD’s Choice Neighborhoods Initiative, HOME Investment Partnerships Program, and the Self-Help Homeownership Opportunity Program (SHOP), because State and local governments can better meet their communities’ needs.

HUD’s mission is to create strong, sustainable, inclusive communities and quality affordable homes for all.
More information about HUD and its programs is available on the Internet
at
www.hud.gov and https://espanol.hud.gov.

Rental Activity Safe Harbor Guidance Under New 199A Final Regulations

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by Michael Trainotti

On January 18, 2019, the Internal Revenue Service (“IRS”) issued final regulations and three related pieces of guidance, implementing the new qualified business income (“QBI”) deduction (“section 199A deduction”).  One part includes rental real estate activity and certain safe harbor guidelines to follow. The safe harbor, however, excludes triple net leases mentioned below. Lastly certain planning has been recently recommended by Alan Gassman, a nationally known tax expert and speaker, to tax advisors after the final regulations were issued regarding triple net leasing. 

With Today’s High Prices, Could it be Time to Sell and 1031 Exchange* into Better Value out of State?

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By Christopher Miller, MBA

I previously wrote an article titled “Would You Buy Your Property for What it is Worth?  If Not, Why Aren’t You Selling?”  I was looking at local apartment listings recently, and was shocked at the extraordinary values that I saw.  CAP rates in the 3% range, and GRM numbers above 20!  If you have a property that you are thinking of selling “someday,” perhaps today is a good time to cash in on these high values.  If you, understandably, don’t want to pay taxes on your gain and lose a large chunk of your principal; a 1031 Exchange is an option.  But what sort of property would you want to buy as your replacement property?  That is the topic of this month’s article.

Legal Corner

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By Stephen C. Duringer, Esq., The Duringer Law Group, PLCQuestion         Normally I love the smell of garlic, but enough is enough!  I’ve been receiving escalating complaints from my residents concerning a housing tenant on Section 8, who seems to use a bit too much garlic and curry when cooking meals.  The smell permeates the building and has been bothering the other residents.  Other than the garlic and curry complaints, she is a great tenant, don’t want to lose her, but I certainly can’t lose the other tenants!  What to do? 

Dear Maintenance Men:

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DearMaintenanceMen

Dear Maintenance Men:

I have heard the terms “Preventive Maintenance” for as long as I have owned apartments.  But, I’m not sure how it applies to me.  I own a small four-plex, I’m handy and just fix things as they come up.  Preventive maintenance just sounds like more work and expense to me and no doubt invented by a hardware store owner!

Tom

Don’t Let the Bed Bugs Bite

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Widget’s Way featuring Patti “Widget”

Bed bugs are a nationwide epidemic. Legislation has been recently amended in not just one but five civil codes to address the growing problems of bed bugs. They’re also known as the traveling bugs. We need to educate ourselves and everyone we know, because if it’s a nationwide problem it’s not a matter of if, but a matter of WHEN we all get affected by the bed bugs. They are considered vermin in the eyes of the court.

Bed bugs move similar to ants, they go where they want, when they want, they even move it about the same speed as an Ant. They’re not just in beds they’re everywhere they go through switch plate covers, common area walls.  The baby bedbugs are about the size of the letter E in Liberty on a copper penny. Bed bugs are attracted to the air that we breathe out CO2. They feed off of our blood. The feeding cycle is from about midnight to 5 am. The most common place that we stay still for the longest period of time is your bed. Eight hours of sleep only if we’re lucky right?

The most common places to get bed bugs are 

  • Hotels
  • Used furniture
  • New furniture
  • Moving vans
  • Movie theaters

A commonly asked question is why new furniture? If you have the new furniture delivered it could be the moving van that brings the new furniture that is infested as it also hauls away people’s old furniture.

When it comes to the rules 

  1. The number one thing to remember is Even if the tenant brings them in.
  2. As of July1, 2017 All new incoming tenants MUST sign a bed bug addendum. This notification must have specific language and be in 10 point font. Civil Code §1954.603
  3. All existing tenants must have bedbug notification on file by 1/1/2018.This notification must have specific language and be in 10 point font. Civil Code §1954.603
  4. The owner has a responsibility to remedy bed bug infestation upon notification.
  5. The tenant can withhold daily rent until it is remedied. As vermin bed bugs are considered a habitability issue.
  6. The owner must give written notification of Bed Bugs within 2 days of actual knowledge. When infestations are found in common areas the landlord must provide notice to all the tenants. Civil Code §1954.605
  7. You must use a bed bug certified exterminator.
  8. In the eyes of the court a landlord may not terminate tenancy for a period of six months after the notification of the bed bug infestation or it would be considered a retaliatory evection. Civil Code §1942.5 unless it is for nonpayment of rent or failure to comply with the exterminator. Landlords are required to give notice of intent to enter, and tenants are required to cooperate with inspection and requests for information to facilitate bed bug detection and treatment. Civil Code §1954.604
  9. A landlord cannot knowingly rent a unit with a bedbug infestation.Civil Code §1954.602
  10. A better business practice would be to have it certified bed bug free prior to tenancy, to protect you in the event they arise during tenancy. It may also be helpful when a judge is deciding who is responsible for the expenses.

Tips and trick:

Lint rollers pick up fuzz, hair and bed bugs. Use it at the movie theater before you sit down. Look at the tape if it’s got bugs stuck to it. Don’t sit there. Use at a hotel along the baseboards. Check under the rib of the mattress. Along your pant legs and even the bottom of your shoes can hold their eggs, so after you walk units with a suspected infestations use that lint roller. Don’t be a litter bug, but please don’t put the bug infested yucky tape in your purse either.

A Commonly asked question is; are the tenants responsible for the expenses of a bed bug infestation? That would be up to a judge in a court to decide. If anybody feels they have been the victim of any wrong doing, you can have your day in court. Small claims should do the trick, but always ask an attorney.

Patti “Widget” is the marketing director for Fast Evict.com Law Group. She has 22 years’ experience as a regional property manager. Patti teaches several training classes, and has published articles for various apartment associations.

Legal Corner

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By Stephen C. Duringer, Esq., The Duringer Law Group, PLC

Question          I just closed escrow on a small building and I’m trying to figure out who’s who.  I received the rental agreements, but the tenant information seems incomplete.  The applications, the few that I’ve found so far, are old and outdated.  I can’t seem to find any telephone numbers for the residents, and I’m not real sure that the names on the agreements are the same people who actually live in the units.  I’ve read your articles before and I know the importance of reviewing the files and doing thorough due diligence before closing escrow, but this deal just happened too fast.  Now that I’ve closed escrow, what can I do to clean up the records?

Dominate the Rent Market With These 5 Tips From Industry Experts

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By Appfolio

“Federal Reserve officials have outlined risks to the U.S. financial system, reports the Wall Street Journal. U.S. apartments are getting smaller, while rents are rising, according to MarketWatch.” National Real Estate Investor (November 29, 2018)

Zillow recently published their 2019 market forecast, and according to their analysis, property managers and landlords have a lot to smile about as we head into a new year. Thanks to rising interest rates and shrinking inventory, rent growth will pick up. Competition for affordable housing is expected to get even tighter, as people search for a home they can afford. While the summary sounds like a landlord’s dream-come-true, this is no time to get complacent. Dominating the rental market means planning for the best, and preparing for the worst. Here are five tips to help you think about changes your property might make to increase revenue without alienating renters who need budget-friendly housing.

Easy Tips & Tricks on the Five Phases of Tenancy

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Widget’s Way featuring Patti “Widget”

Application Process and Screening perspective tenants

Answer your phone “Property Management” when advertising a unit for rent. Deceiving applicants will simply hang up if they think a management company will be reviewing their application, instead of a private owner that they may be able to hide information or be deceiving.