How to Execute a Repayment Agreement Properly

HUD expects owners to enforce program requirements set forth in the HUD Handbook and the HUD model lease. In fact, HUD requires owners to investigate and research discrepancies and possible errors to promote income and rent integrity [HUD Handbook 4350.3, par. 8-18(A)]. Likewise, HUD expects residents to comply with the program requirements as established in the lease, such as timely reporting of changes in family income or other factors that affect the calculation of the family’s annual income. When residents fail to report these changes in a timely manner, HUD encourages owners to work with residents by taking corrective actions, such as entering repayment agreements, to resolve program or lease issues when possible. We’ll go over the repayment process and requirements of the repayment agreement. We’ll also give you a Model Agreement: Use Repayment Agreement to Correct Resident’s Underreported or Unreported Income, which you can adapt for use at your site.

Resident’s Obligation to Repay

Residents are obligated to reimburse the owner if they’re charged less rent than required by HUD’s rent formula due to underreporting or unreported income. Residents must repay the difference between the rent that should’ve been paid and the rent that was charged [HUD Handbook 4350.3, par. 8-21(A)(1)].

Residents acknowledged their obligation to make such reimbursements in Paragraph 18 of the HUD Model Lease for Subsidized Programs, in paragraph 14 of the Section 202/8 and 202/162 PAC lease, and in paragraph 12 of the Section 202/811 PRAC lease. 

However, residents aren’t required to reimburse the owner for undercharges caused solely by the owner’s failure to follow HUD’s procedures for computing rent or assistance payments [HUD Handbook 4350.3, par. 8-21(A)].

Notifying the Resident

If the owner suspects that a resident has provided inaccurate information that affects the resident’s rent or eligibility, the owner is required to investigate and document the resident’s statements and any conflicting information the owner has received [HUD Handbook 4350.3, par. 8-18(C)]. To research questionable information, an owner may:

• Confront the tenant with the tenant’s information and any conflicting information;
• Obtain additional information from other persons or agencies; and
• Take other actions to verify either the tenant’s information or the conflicting information.  

After gathering the documentation, the owner must notify the resident in writing of the error and identify what information is believed to be incorrect [HUD Handbook 4350.3, par. 8-18(D)(1)]. The written notice must:

• Provide an explanation of the error.
• Identify what information is believed to be incorrect.
• Notify the resident that he or she has an opportunity to meet with the owner to discuss the allegations within 10 days from the date of the letter. Inform the resident that failure to meet with the owner to discuss the allegations may result in the resident’s termination of tenancy.
• For residents with a disability, the notice must be in a form accessible to the resident, and the meeting must be held in a location accessible to the resident.  

Meeting with the Resident

When the owner meets with the resident, the owner will discuss with the resident the result of the investigation. A designated representative for the owner who hasn’t been involved in any manner with the review of the allegedly false information will chair the meeting [HUD Handbook 4350.3, par. 8-18(D)(2)(b)].

The resident may contest the findings in the same manner as applies to other information and findings relating to eligibility factors. Within 10 days of the meeting date, the owner must provide a written final decision to the resident based solely on the facts presented and discussed at the meeting. The decision must state the basis for the determination [HUD Handbook 4350.3, par. 8-18(D)(2)(c)].  

Calculating the Amount Owed

If it’s determined that the unreported or underreporting of income is an unintentional program violation, the owner must go back to the time the unreported or underreporting of income started and calculate the difference between the amount of rent the resident should have paid and the amount of rent the resident was charged. However, the time period can’t exceed the five-year limitation during which the resident was receiving assistance described on forms HUD -9887 and HUD-9887-A [HUD Handbook 4350.3, par. 8-21(A)(5)].

The owner must notify the resident of any amount due and his or her obligation to reimburse the owner. A record of this calculation must be provided to the resident and must be retained in the resident’s file. 

The owner must have the form HUD-50059(s) on file that was in effect during the period(s) that the resident had unreported or underreported income, along with any supporting documentation, in order to calculate the amount the resident must reimburse to the owner [HUD Handbook 4350.3, par. 8-21(A)(6)]. The form HUD-50059(s) is the document whereby the resident(s) certifies to the accuracy of the income included on the form. If the owner doesn’t have this historical information, the owner can’t go back to the resident for unreported or underreported income.

The owner must also correct certifications and/or retroactively process certifications that should have been processed if the resident would have reported the accurate information at the proper time(s) [HUD Handbook 4350.3, par. 8-24(B)]. If the owner discovers prior certifications that involve unreported or underreported income, corrections to those certifications and/or retroactive certifications must be created to reflect accurately the income that was earned by the household during the prior certification time period. Income for this time period must be verified before creating corrections and/or retroactive certifications. The information contained within the third-party verification must apply to the certification time period. 

When processing a correction to a certification, the original certification must be in the resident file along with the corrected certification. The corrected certification must be signed and dated by both the resident and the owner/agent along with proper supporting documentation.

Resident Repayment Options

Residents may repay amounts due in a lump-sum payment, by entering into a repayment agreement with the owner, or a combination of the two [HUD Handbook 4350.3, par. 8-22(A)]. The resident and owner must both agree on the terms of the repayment agreement.

Residents have the right to consult with HUD’s Housing Counseling Agency in their area to assist them in working with the owner to reach agreeable terms for the repayment agreement [HUD Handbook 4350.3, par. 8-23(A)]. The Housing Counseling Agency website has a listing of agencies for each state. The website can be found at www.hud.gov/findacounselor.

Monthly Payment

The resident’s monthly payment must be what the resident can afford to pay based on the family’s income [HUD Handbook 4350.3, par. 8-23(A)(1)]. The monthly payment plus the amount of the resident’s total tenant payment (TTP) at the time the repayment agreement is executed shouldn’t exceed 40 percent of the family’s monthly adjusted income. The monthly payment may exceed 40 percent of the family’s monthly adjusted income if the family agrees to the amount stated in the repayment agreement.  

There are no regulations that authorize owners to charge a minimum monthly amount. The monthly payment may change throughout the course of the repayment time period due to changes in the family’s income.

Repayment Time Period

The repayment time period depends on the amount owed by the resident and the amount of the monthly payments. There are no regulations that authorize owners to limit the amount of time the resident has to pay off the debt.

Repayment Agreement

Although HUD hasn’t yet produced its own official repayment agreement form, the information required to be contained within the agreement is in the HUD Handbook, Paragraph 8-23(B):

• The total retroactive rent amount owed, the amount of lump sum paid at time of execution of the agreement, if applicable, and the monthly payment amount. 
• A reference to the paragraphs in the lease with which the resident is in noncompliance and whereby the resident may be subject to termination of the lease.
• A clause stating that the terms of the agreement will be renegotiated if there’s a decrease or increase in the family’s income of $200 or more per month. 
• A statement that the monthly retroactive rent repayment amount is in addition to the family’s monthly rent payment and is payable to the owner. 
• A statement that late and missed payments constitute default of the repayment agreement and may result in termination of assistance and/or tenancy. 
• Dated signatures of the resident and the owner. HUD recommends that the owner have the head of household and, if applicable, the family member who had the unreported or underreported income sign the repayment agreement.

Our Model Agreement accounts for all these elements. It’s important to note that when entering the total amount due on repayment agreements, owners must not apply a resident’s monthly rent payment towards the repayment amount owed that would result in an accumulation of late rent payments. The monthly payment due on the repayment agreement is in addition to the resident’s monthly rent payment. 

Allowable Amount Owners May Retain

Owners may retain a portion of the repayments they actually collect from the residents who have improperly reported their income at the time of certification or recertification to help defray the cost of pursuing these cases [HUD Handbook 4350.3, par. 8-21(B)(2)].

Owners may only retain an amount to cover their actual costs, which is the lesser of: 

• Their actual costs; or
• 20 percent of the amount received from the resident.

Amounts retained by owner/agents must be deposited into the site’s operating account to offset the expenses incurred for these cases. Owners must keep records of the receipt and disbursement of all amounts collected from the resident for audit purposes [HUD Handbook 4350.3, par. 8-22(B)(2)(C)]. At a minimum, the owner must record: 

• Date and amount(s) received from the resident; 
• Expenses incurred (examples of types of expenses incurred include staff time for verifying the unreported income; meeting with resident; drafting repayment agreements; generating and sending monthly invoices to resident; generating manual voucher adjustments; collection agency fees, if applicable; and meeting state requirements); 
• Amount(s) retained; and 
• Voucher date(s) and amount(s) of reimbursement made to HUD.