National Housing Law Project Housing Law Bulletin

HUD Issues Revisions to Tenant Certifications
and Rent Recalculations

At the end of Fiscal Year 1995, HUD issued a revised version of Chapter 3 of its Handbook 4350.3.¹ The rewritten chapter covers rent calculations for the project-based Section 8 programs as well as for the Section 221(d)(3), Section 236 and Rent Supplement programs. It provides information on what does and does not count as income, which adjustments are allowed and when they may be taken, and what the rules are on verification and consent to the release of information by third parties. In addition, interspersed throughout the chapter are numerous helpful examples and regulatory references. The new chapter is useful because it contains more information than the regulations. It is important to obtain a copy of this revised chapter because housing managers will be using it instead of the statute or the regulations.²

Some New Answers to Old Questions

What Income Is and Whose Income Counts

For the most part the chapter explains the HUD regulations on income at 24 C.F.R. §§ 215, 236 and 813 (1995), including the changes made on April 5, 1995,³ but it also amplifies some points that may help in particular cases. For example, the chapter explains that the earned income of an emancipated minor is counted if she is head of the household, co-head or spouse, but not if she is living in another person's household.⁴ The unearned income of children who are temporarily away from home, for example, in foster care or at school, is counted.⁵ If custody of a child is held jointly, the family that does not get to take the dependent deduction for the child also does not have to include that child's unearned income.⁶ Income of a guest is not counted.⁷ To make things simpler, Figure 3-1 in the chapter presents a chart outlining the types of income of different categories of people that are and are not counted.

The rewritten Chapter 3 should also help somewhat with the tricky questions about non-recurring income and gifts. Exhibit 3-5, which identifies items to be included in income and others to be excluded, specifies that groceries, meals on wheels and school lunches are not income. But regularly received, recurring monetary contributions or gifts are included. That exhibit also clarifies that all student financial assistance is now excluded, regardless of how it is spent. Another point of difficulty in the past was what to count as income when an agency is reducing a grant because of a prior overpayment. This new chapter makes it clear that when an AFDC, SSI, Social Security or Unemployment Insurance payment is being reduced for a prior overpayment, the housing manager is to count only the amount that is actually provided after the adjustment.⁸

A significant portion of the chapter is dedicated to explaining how assets and income from assets are to be treated. Many of these points will not be of much significance for legal services clients, because they will rarely have assets. However, a few should be helpful. For example, the chapter now explains that assets received as a result of a judgment or a settlement and placed in an irrevocable trust for the benefit of a family member are not treated as family assets and the income they produce is not included as family income unless it is distributed to a family member. Those settlement trusts are also not considered as having been disposed of for less than their fair market value.⁹ Again, assets held by a family member in her name, but used for others outside the family are not considered assets of the family. Exhibit 3-4 gives an example of a father, who does not live in subsidized housing, putting his daughter's name on his bank account so she could write checks for him in an emergency. That same exhibit explains that assets to which a person cannot secure access, for example, a house owned by a battered spouse, cannot be counted.

Income Adjustments: What They Are and When They May Be Taken

With adjustments to income, the revised Chapter 3 primarily describes HUD regulations on adjustments at 24 C.F.R. §§ 215.1, 236.2 and 813.102 (1995). In doing so, however, it does come up with some helpful details. It explains, for example, that foster children, unborn children and children whose custody is being sought but who have not yet joined the family do not count as dependents; but children who are temporarily in foster care do count, as do joint-custody children, at least for one of the families holding custody.¹⁰ The childcare deduction also applies to the childcare costs of a foster child.¹¹

There is a helpful chart for identifying medical expenses that are deductible for households headed by people who are elderly or who have a disability.¹² The text also explains that there is no regulatory definition of medical expenses, but that, as a general matter, expenses associated with the diagnosis or treatment of a disease are covered.¹³ Some of the included items one might not think of are non-prescription medicines, transportation to and from treatment, braces, dentures, eyeglasses and additional utility costs of an oxygen machine.

Verification and Release of Information by Third Parties

The new chapter explains the changes made to the use of consents for the release of information during the revisions to HUD Forms 9886 and 9887 as a result of the 1992 statutory changes. In summary, the chapter begins with the proposition that HUD requires written verification of income and other eligibility information from the source when possible. If such written third-party verification is not possible, the chapter allows the manager to use oral third-party verification as the first alternative. If any third-party verification would take longer than four weeks, or would be virtually impossible to obtain, documents submitted by the tenant may be used. A tenant's certification is acceptable if no other form of verification can be obtained.¹⁴ Appendix 4 contains a list of the acceptable sources and methods of verification for different types of income, adjustments and other eligibility factors.

Because HUD places so much emphasis upon third-party verification and requires managers to contact the third parties directly, instead of having the tenants make the contacts,¹⁵ the tenants have to sign documents consenting to third parties' releasing information about them. HUD's 1991 issuance of a form for tenants to sign consenting to the release of information caused great controversy in the past because it was so broadly drafted.¹⁶ In 1992, Congress stepped in and required a narrowly drawn form.¹⁷ HUD, in response, issued a more narrowly drawn form labeled Form 9887. The rewritten Chapter 3 explains how that form and other consent forms are to be used.

The new Form 9887, found in Appendix 3, must be signed by all tenants.¹⁸ It is used by HUD, but not by private managers, to get information from the Internal Revenue Service, the Social Security Administration and state wage information collection agencies (SWICAs), i.e., the state unemployment insurance agencies. The managers can create their own release forms to secure information they need from relevant sources.¹⁹ Those forms, however, must conform to HUD's rules, adopted in response to Congress' 1992 legislation, that are set out in the new Chapter 3 at ¶ 3-36 and Appendix 4. In addition, HUD provides a model form in Appendix 5 for managers to follow. When managers ask the tenants to sign these forms, they also have to give the tenants a fact sheet and another HUD form, Form 9887-A, which explain to the tenants what the forms are being used for and what the tenants' rights are.²⁰

The HUD rules on these release forms are intended to implement the 1992 statutory requirement that they be narrowly drawn to reach only information that is relevant to eligibility and subsidy level and restricted as to time. Appendix 4 lists examples of particular facts that are relevant and that may be asked about, as well as acceptable sources of verification. The forms must comply with state privacy laws.²¹ Forms 9887 and 9887-A expire 15 months after they are signed. The release forms drafted by the owners are effective only for a 90-day period, but they may be reactivated for the remaining annual recertification period if the owner receives some information indicating that information provided by the tenant may be incorrect.²² The information to be released may not be more than 12 months old, except that information up to five years old may be secured if data matches or other sources create reason to believe that the tenant has supplied incorrect information. In no case may the information be from a period when the tenant was not receiving assistance.²³

There are several rules intended to guard against misuse of information collected about tenants. Owners and management employees who intentionally secure or disclose information about a tenant for improper purposes may be convicted of a misdemeanor and subjected to a fine of up to $5,000. The adversely affected tenant is granted a cause of action for damages and other relief against anyone who intentionally or negligently misuses the information.²⁴ Management employees who have access to the release forms and the information obtained pursuant to them have to sign Form 9887-A which informs them of the potential criminal and civil liability.²⁵ Owners are responsible for setting up a system for maintaining the records that ensures their confidentiality.²⁶

If a tenant refuses to sign one of the consent forms, that refusal may be grounds for terminating the subsidy or for eviction. In extenuating circumstances, the owner may grant an extension of time to individuals who are not able to sign the consent forms on time.²⁷ If the owner receives information through a release form that is inconsistent with information the tenant has provided, the owner must independently verify the correct income, the fact that the tenant had access to that income and the time periods during which the income was received. In addition, the owner must then follow the normal procedures required by the Handbook for terminating assistance.²⁸ These include giving the tenant notice and an opportunity to be heard.²⁹

Other Topics Covered

3-5 Owner and Tenant Certifications ("the 59 Certification")

3-6 Recordkeeping

3-10 Whose Income Is Counted and Whose Income Is Not Counted

3-11 Calculation Methodologies

3-12 Valuing Assets

3-14 Assets Converted to Trusts

3-15 Imputed Income From Assets

Fig. 3-3 Counting Income from Assets

3-16 Assets Disposed of for Less Than Fair Market Value

3-17 Income of Temporarily Absent Family Members

3-19 Lump Sum Receipts

3-20 Delayed Period Receipts (Deferred Periodic Receipts)

Fig. 3-4 Distinguishing Between Delayed Periodic Receipts and Lump Sum Receipts

3-22 Alimony and Child Support

3-24 Definition of Adjusted Income

3-25 Allowance for Dependents

3-26 Allowance for Child Care Expenses

3-27 Allowance for Handicap/Disability Assistance Expenses

3-28 Allowance for Medical Expense

Fig. 3-5 Examples of Medical Expenses

3-30 Requirements to Verify Information

3-31 Acceptable Methods of Verifying Information

3-32 Effective Term of Verifications

3-33 Suggested Verification Procedures

3-34 Required Execution of Verification Consents

3-35 Information to Applicants and Tenants About the Consents

3-36 Requirements for Consents for the Release of Information

3-37 Owner Actions When an Applicant or Tenant Fails to Sign

3-38 Inconsistent Information Obtained Through Verifications

Ex. 3-4 Assets

Ex. 3-5 Annual Income

App. 3 Applicant's/Tenant's Consent to the Release of Information

App. 4 Acceptable Forms of Verification

App. 5B Sample Verification Consent

App. 6 Verification of Handicap or Disability

1. HUD, OCCUPANCY REQUIREMENTS OF HUD MULTIFAMILY HOUSING PROGRAMS, Handbook 4350.3, CHG-27 (Sept. 29, 1995), Ch. 3, Certifying Tenant Eligibility and Calculating Tenant Rents in Multifamily Subsidized Projects.
2. The revisions are available electronically from the following sources: (1) HUDCLIPs, HUD's client information bulletin board; and (2) HandsNet: \Legal Services\Substantive Law\Housing. To participate in HUD Clips, call 301-251-5395. You may also order a hard copy by calling (800) 767-7468 or faxing (202) 708-2313 and asking for Change 27 to HUD Handbook 4350.3. Some of the forms in the appendices, however, are not included in the electronic versions.
3. 24 C.F.R. §§ 215.21, 236.3, 813.106, 905.2 and 913.106, as amended at 60 Fed. Reg. 17,388 (Apr. 5, 1995); see Changed HUD Rules on Calculating Income and Rent, 25 HOUS. L. BULL. 144 (Aug. 1995).
4. HUD Handbook 4350.3, supra note , ¶ 3-10(a)(1)(a).
5. Id. at ¶ 3-10(a)(2).
6. Id. at ¶ 3-10(a)(2).
7. Id. at ¶ 3-10(b)(2).
8. Id. at ¶ 3-11(f).
9. Id. at ¶¶ 3-14(b) and 3-16(d)(1).
10. Id. at ¶ 3-25.
11. Id. at Fig. 3-6.
12. Id. at Fig. 3-5.
13. Id. at ¶ 3-28(e).
14. Id. at ¶ 3-31.
15. Id. at ¶ 3-31(a)(2).
16. HUD Form 9886 (Apr. 1991).
17. 42 U.S.C.A. § 3544(e) (West Supp. 1995).
18. HUD Handbook 4350.3, supra note , ¶ 3-34.
19. Id. at ¶ 3-34(c).
20. Id. at ¶ 3-35.
21. Id. at ¶ 3-36(a).
22. Id. at ¶ 3-36(d).
23. Id. at ¶ 3-36(a).
24. Id. at ¶ 3-36(g) and Form 9887.
25. Id. at ¶ 3-34(b) and Form 9887-A.
26. Id. at ¶ 3-39(c).
27. Id. at ¶ 3-37.
28. Id. at ¶ 3-38.
29. Id. at ¶ 5-18.