HUD Updates REAC Inspection Rules

On Aug. 12, HUD issued a new Real Estate Assessment Center Compilation Bulletin that supersedes all previous editions and any preceding separate guidance. The bulletin provides updated guidance to Real Estate Assessment Center (REAC) inspectors, answers some of the most common questions received from inspectors in the field, and clarifies certain areas of the inspection protocol to further ensure that physical inspections are objective and conducted in accordance with the Uniform Physical Condition Standards (UPCS) and HUD’s inspection protocol.

We’ve listed the major changes that apply to all sites that are subject to HUD REAC inspections. While these are some of the major changes that owners and managers should be aware of, anyone responsible for preparing sites for physical inspections that are subject to UPCS should obtain a copy of the HUD Bulletin and review it for all changes.

Commercial or Leased Space

Commercial leased space is defined as an area of a building or separate building that is being rented to a specific third-party business or organization and is not being used as a residential unit.

On all properties, with the exception of Project-based Section 8 Multifamily Housing sites with no active loan, commercial or leased space must be inspected and the deficiencies observed recorded in the appropriate Common Areas. Components and other equipment represented as being owned by the lessee (such as ovens, freezers, shelves, etc.) need not be inspected for proper operation. All Health and Safety deficiencies on items owned by the lessee must be recorded.

For Project-based Section 8 Multifamily Housing sites with no active loan, commercial leased space will not be inspected. All other nonresidential spaces in a sample building must be inspected. Inspectors do not include a building in the profile if it contains only commercial leased spaces and there are no other areas of the building that the Section 8 residents would utilize.

HUD-Insured Sites

For any property that has an active HUD-insured mortgage, the inspector is required to inspect the sample units based on the total number of units and to inspect the site, building exteriors, systems, and common areas.

Conducting Inspections

All components that exist on a site that are in place for active service must function as designed or they are evaluated as deficient under the UPCS protocol. The following protocol applies for items that the owner or manager has taken off-line or out of service and evidence of the previous item still exists:

• All items must be evaluated for Health and Safety deficiencies regardless of whether the inspectable item is in service or off-line.
• If there is any doubt that the building component is still in service or might be brought back on-line anytime in the future, the inspector must evaluate the component as inoperable. Components that haven’t been taken out of service must be evaluated for deficiencies under the UPCS protocol. An example of an item that would be noted as deficient is a trash chute that the owner or manager reports as abandoned, but one or more of the chute doors haven’t been permanently sealed shut.
• Building components that have been replaced and not removed because they’re too large and/or expensive to remove from a building won’t be evaluated as inoperable provided that the owner or manager has clearly tried to take the item permanently off-line. Examples would be trash chutes where all doors have been welded shut, large boilers in a building’s basement, and old service elevators that have been obviously disabled and are no longer in use.

Altered Units/Model Units

Altered units are also referred to as permanently off-line units. These units have been converted from a dwelling unit use to a non-dwelling unit use such as office, community, and police service spaces. These units are to be removed from the building’s actual unit count before generating the sample, and the altered spaces are considered as building “common space.”

Model units fit within this category. Sites may have a furnished and decorated unit used as a display model for leasing purposes. If the owner or manager states that this model unit is not for rent, it should be considered part of the building’s common area and inspected if that building is selected in the sample. If the owner or manager states that the model unit is available for rent if requested over another vacant unit, then it should be included in the unit count and treated as a vacant unit.

Electrical

Exposed bare wires are defined as: Non-insulated, high voltage (110V/220V or higher) conductors, connectors, and terminals. Fully insulated and capped conductors in an open junction box are not a defect. If exposed bare wire, un-insulated connectors, or open terminal connections are visible in an open junction box, the inspector will mark the condition as an Exigent Health and Safety defect.

Common Area Kitchens

The owner or manager must turn all ranges/stoves and ovens on and off during the inspection to allow the inspector to determine whether the appliance functions as intended and record any observed deficiencies. If a burner isn’t functioning on a gas stove, the site representative must be given an opportunity to check the pilot light and re-light it if it’s out. If all burners are operable after re-lighting the pilot, a deficiency is recorded. If a burner still doesn’t function after re-lighting or the site representative chooses not to check or light the pilot, the inspector will record a deficiency for an inoperable burner.

Call-for-Aid Systems within Units

Call-for-aid, as installed, must serve its intended function. For example, the bell sounds an alarm, the light turns on, and/or off-site personnel are notified when the system is activated. Call-for-aid systems won’t be evaluated for deficiencies if all pull stations have been removed from the residents’ units and all that remains is the light fixture over the unit’s door, door hardware that’s designed to release upon cord activation, and/or the old enunciator panel is still mounted on a wall in the lobby. If any part of the old system remains inside the unit, then the inspector must evaluate this situation as an inoperable call-for-aid system.

HVAC System within Units

Inspectors are required to inspect either the heat or the air conditioning system, but not both. They should inspect whichever is in season at the time of the inspection and verify that the system is functioning as intended.

Emergency Exits/Evaluating Unit Closets for Blocked Egress

A closet door is considered primary egress from the closet area. Any lock, chain, damaged hardware, or other device that prevents egress from a floor area, which includes all doors on all floors, is considered a blocked egress.

However, a padlock or any other locking mechanism used by the site to secure the unit mechanical closet won’t be recorded as a blocked egress. Additionally, similar locking mechanisms, whether installed by the resident or site, to secure the unit’s exterior storage closet or shed won’t be recorded as a blocked egress.

Flammable Materials

If an inspector observes flammable materials still in the original container such as aerosol cans, fingernail polish remover, butane lighter fluid, charcoal lighter fluid, paint thinner, etc., and they’re being stored in a safe place such as under a kitchen sink or in hall closet, then an inspector should not record improperly stored flammable materials.

If the above items are being stored in close proximity to an open flame or heat source such as a gas hot water heater, a gas HVAC unit, electric heaters, etc., then improperly stored flammable materials should be recorded. And if easily combustible items such as paper, plastics, boxes, clothes, etc. are being stored in close proximity to an open flame or heat source, then improperly stored flammable materials should be recorded.

If a unit has a storage room that’s accessible only from outside the unit and not accessible from within the unit, then flammable materials such as gasoline, propane, and kerosene can be stored in that storage room without it being improperly stored flammable materials. Propane tanks or gas power equipment stored outside of a building, but in close proximity to the building, should not be recorded as improperly stored flammable materials.