How to Get Reimbursed for Damage Caused by Resident Negligence or Abuse

When households move out of a unit, they may leave behind damage that’s expensive to repair. For example, a household may damage the carpeting so badly, it must all be replaced. Although you can deduct this cost from the household’s security deposit, the security deposit may not be big enough to cover the full cost of the repairs. Or there may not be enough of it left—the household may have moved out owing back rent, so you may have already applied the security deposit to the unpaid rent.

                Fortunately, there’s a way you can recover the cost of repairing certain damage caused by a household. To do so, you must file what’s known as a “special claim for damages” with HUD. But for this claim to be successful, you must follow the rules set out in HUD Handbook 4350.3. And you must submit certain documents to your contract administrator or local HUD office to show that the claim meets the handbook’s requirements.

                We’ll tell you what you must do to comply with the handbook’s requirements for these damage claims, and the types of documents your contract administrator or local HUD office might require before approving a claim.

Damage Claim Basics

A special claim for damages is reimbursement to an owner for a former household’s failure to pay for the damages caused by the negligence or abuse of the former household.

                Which units qualify. HUD will pay damage claims only for Section 8, Section 202/8, Section 202 PAC/PRAC, and Section 811 PRAC subsidized households [Handbook 4350.3, par. 9-14(C)(1)].

                Covered damages. HUD will pay for damage to a unit that was caused by the household’s negligence and abuse [Handbook 4350.3, par. 9-14(C)(2)(d)]. HUD won’t pay for ordinary wear and tear or routine maintenance. For example, a contract administrator or local HUD office might approve a payment for a hole in the ceiling left after a household removed a permanent light fixture, but it might reject a claim for faded carpet.

                Keep in mind that contract administrators and local HUD offices may differ on what they consider normal wear and what they consider damage caused by a household’s negligence and abusive behavior. If you’re not sure if a particular type of damage is covered, ask your contract administrator or local HUD office for guidance.

                Amount HUD will pay. HUD caps the amount it will pay you per unit for a damage claim [Handbook 4350.3, par. 9-14(C)(3)(b)]. HUD will pay you no more than the unit’s contract rent when the household moved out of the unit. This is the amount that the household and HUD paid you each month as of the date the household moved out. But HUD will deduct the unit’s security deposit and interest earned on the security deposit from the contract rent, as well as any money you collected from the household or other sources to cover unpaid rent and damages [Handbook 4350.3, par. 9-14(C)(3)(b)].

                For example, let’s say the owner holds $65, which includes the security deposit and interest earned. The resident leaves owing $300 in unpaid rent and $200 in damages. The owner is unable to collect payment from the resident for rent or damages. The contract rent at the time of the move-out is $400. HUD will pay up to $335 (contract rent minus the security deposit and interest).

Submit Claim on Time

HUD requires that you submit damage claims within 180 days of the date the unit becomes available for occupancy by a new household [Handbook 4350.3, par. 9-14(C)(4)(a)]. To show the date the unit was ready for occupancy and that you met the deadline, your contract administrator or local HUD office might require you to include the following documentation when you submit your claim:

                Unit reconditioning log. This log normally records the move-in and move-out dates for a unit, the maintenance performed on the unit, the start and finish dates of that maintenance, and the date that the unit was ready for occupancy.

                Owner statement. Some contract administrators and local HUD offices will instead accept a letter from you saying when the unit was ready for occupancy.

                Since contract administrators and local HUD offices vary greatly in the documents they require with a damage claim, it’s best to consult your contract administrator or local HUD office for specifics. Some contract administrators and local offices will send you a checklist of required forms.

Submit HUD Forms

Submit damage claims to your contract administrator or local HUD office using one or both of the following HUD forms:

                HUD Form 52671-A. You must submit a HUD form 52671-A, “Section 8 Special Claims for Unpaid Rent/Damages,” for each unit for which you’re submitting a damage claim. So if you’re submitting damage claims for three units, you must fill out three forms, one for each unit. You can find this form at www.hud.gov/offices/adm/hudclips/forms/files/52671-a.pdf.

                The form asks for basic information relating to the claim, including the unit number, amount of security deposit, total amount of damage, and so on. It also has a section for unpaid rent claim information. So if you’re also requesting reimbursement for unpaid rent, include this amount on the form and submit backup documentation for it.

                When submitting the form, be sure to:

• Include the head of household’s name and correct unit number on the form;
• Submit originals (not photocopies of the form); and
• Sign and date the certification on the bottom left-hand corner of the form.

                HUD form 52670-A, Pt. 2. If you’re submitting damage claims for two or more units, your contract administrator or local HUD office may require you to submit HUD form 52670-A Pt. 2, “Special Claims Schedule.” You must submit this form if, in addition to a damage claim, you’re also submitting at least one vacancy claim. You can find this form at www.hud.gov/offices/adm/hudclips/forms/files/52670a-2.pdf.

                This form summarizes the types and amounts of all special claims you may be making. On this form, you list all the units that you’re submitting special claims for and all the types of claims you’re submitting for the units listed on the form. For example, you might list a damage claim and vacancy claim for one unit and list an unpaid rent claim for another unit. At the bottom of the form, you total the claims by claim type.

Meet Seven Key Requirements

HUD requires that your damage claim meet the following seven key requirements. We’ve also described some of the documents your contract administrator or local HUD office may require you to submit with your damage claim to prove you’ve met these requirements.

                1. Security deposit collected. HUD will reimburse a damage claim only if you collected the maximum allowable security deposit from the household that caused the damage [Handbook 4350.3, par. 9-14(C)(2)(a)]. That means you collected the amount that the handbook says in Figure 6-6 you should collect for your type of site. So if you agreed to accept the security deposit on an installment basis and the household hasn’t finished paying it, you can’t submit a claim for the unpaid amount. You may also have to document any interest the security deposit earned, and that you followed HUD’s rules when returning the security deposit.

                Your contract administrator or local HUD office may require you to submit some or all of the following documents:

                > Household’s original lease. The original lease lists the amount of the security deposit.

                > Letters or forms sent to household. The handbook requires that sites either return a household’s full security deposit and accrued interest within 30 days of when the household moves out, or provide the household with an itemized list of unpaid rent, damages to the unit, an estimated cost of repair, and a statement of the household’s rights under state and local laws [Handbook 4350.3, par. 6-18(C)].

                > Any site security deposit forms. Some sites use forms to keep track of security deposits. The form, such as a security disposition form, might record how much the household paid for a security deposit, when the household paid it, if the site owner or manager withheld part of it and why, and so on.

                > Security deposit receipts. These are receipts sites give households to acknowledge and record how much the household paid for a security deposit.

                > Ledger. A site might have a ledger that reflects how much a household paid toward its security deposit. Some contract administrators or local HUD offices may want to review the ledger if the household paid the security deposit in installments, says Linda Beeler, an expert in special claims.

                > 50059 at move-in. The 50059 form contains a household’s certification or recertification information. It will show the household’s original security deposit.

                > Interest documentation. This is documentation (for example, bank records) that records how much interest the household’s security deposit earned.

                2. Damage caused by household’s negligence and abuse. HUD reimburses only for damage that a household caused by its negligence or abuse [Handbook 4350.3, par. 9-14(C)(2)(d)]. As proof that the damage wasn’t normal wear and tear, your contract administrator or local HUD office might require:

                > Move-in and move-out inspection reports. A contract administrator or local HUD office might want to compare the two reports to make sure that the damage on your claim wasn’t there before the household moved in, says Beeler. And some contract administrators and local HUD offices deny claims for damage not listed on the move-out inspection report, she adds.

                > Copy of replacement policy. Some sites have a policy on when they paint units and replace carpets and appliances. A contract administrator or local HUD office might want to review this policy to make sure that you’re not asking for a repair that you normally perform when you get the unit ready for a new household.

                > Documentation of damaged item’s original value and/or date last replaced. This documentation might include the original purchase invoice for a damaged item such as an appliance or carpet, or a maintenance record showing when the item was last replaced.

                While your contract administrator or local HUD office most likely doesn’t require photographs of damage, it’s a good idea to submit them, especially if you’re requesting reimbursement for an item that’s often considered routine maintenance like cleaning the unit, recommends Beeler.

                3. Costs substantiated. Nearly all contract administrators and local HUD offices will require some proof of your repair costs. For example, they may require you to submit:

                > Invoices, receipts, and estimates. Invoices, receipts, and estimates show the cost of repairing the damage or buying replacements.

                > Work orders and maintenance records. Work orders and other maintenance records can show what repairs your site staff and outside contractors performed in a unit and the costs or enough information to gauge costs.

                > Published list of repair costs. Some sites have lists showing how much it costs to repair common types of damage to units and the costs of items that are frequently replaced, such as mini-blinds.

                4. Attempts made to collect debt. HUD will pay damage claims only if you’ve taken “reasonable steps” to collect the debt [Handbook 4350.3, par. 9-14(C)(2)(e)]. Contract administrators and local HUD offices differ on what steps they want you to take and what backup documentation they want of those steps. You may need to submit one or both of the following:

                > Demand letter. This is a letter you send to the household asking it to pay for the damage. Some contract administrators and local HUD offices want to see more than one demand letter. And some require you to send at least one demand letter by certified mail, return receipt requested.

                > Proof of referral to collection agency. This proof can take a number of forms. For example, you could provide a copy of your site’s contract with a collection agency listing the household account, or a signed receipt from the collection agency stating that you turned the debt over to the agency for collection and that it has begun collection efforts.

                5. Claim not covered by reserve for replacement. HUD won’t pay for a claim if you withdrew an amount for the same item from your reserve for replacement account [Handbook 4350.3, par. 9-14(C)(4)(a)]. For example, say you made a withdrawal to replace all refrigerators at your site. But right before you’re about to replace the refrigerators, a household leaves having destroyed the unit’s refrigerator. HUD rules don’t permit you to put in a damage claim for the refrigerator because you already withdrew money from the reserve for replacement account for a refrigerator for the unit, explains Beeler.

                6. Deductions permitted by state and local law. HUD will pay a damage claim only if your state and local law allow you to deduct amounts from the security deposit to repair damage to units [Handbook 4350.3, par. 9-14(C)(2)(c)]. Ask your attorney if the state where your site is located permits these deductions.

                7. Household has moved out. HUD reimburses for damage only if the household has moved out of the site. To prove this date, some contract administrators and local HUD offices require a print-out through TRACS of the household’s 50059 at move-out.

Get Response from HUD

Your contract administrator or local HUD office will review and process your claim within 30 calendar days of receipt of the claim [Handbook 4350.3, par. 9-14 (A)(1)]. In particular, it will confirm that you submitted the required documents and that your claim(s) meets HUD’s requirements. After that, your contract administrator or local HUD office will either:

                Approve your claim. Acceptable claims will be approved and Special Claim ID numbers assigned. A copy of the approved claim forms will be sent to the owner.

                Deny your claim. Unacceptable (for example, not allowed or unsupported) claims will be marked as denied and returned to the owner. If a claim is denied or reduced, the owner will be notified in writing of the reason(s) for denial or reduction, the right to appeal the decision, and the name and address of the person to whom the appeal should be made.

Submit Appeal

You can appeal the denial of all or part of your damage claim within 30 calendar days of when you get the response on your damage claim [Handbook 4350.3, par. 9-14(A)(3)].

                When you submit your appeal, say why you think the contract administrator or local HUD office mistakenly denied your claim. And submit proof to back up your explanation. For example, if your contract administrator or local HUD office denied your claim because you didn’t provide any invoices, provide them when you submit the appeal, Beeler explains. It’s also a good idea to ask for advice from the person who made the denial decision about documentation you can provide that might help your appeal, she advises.

Insider Source

Linda Beeler: Loss Mitigation Specialist, Kentucky Housing Corp., 1231 Louisville Rd., Frankfort, KY 40601; www.kyhousing.org.