Watch for Four Common Household File Mistakes as HUD Resumes MORs

As a site owner or manager, you must keep files containing required documents for each household. But it’s easy to make mistakes. And these mistakes can cause you to lose points on a management and occupancy review (MOR).

MORs were temporarily suspended in 2011 as a result of a lengthy and complicated lawsuit relating to HUD’s attempt to change how it procures its PBCA contracts. At the time, HUD was sued by a half dozen contractors, and contract modifications were frozen in the 42 states under appeal. Ultimately, the U.S. Supreme Court refused to hear the HUD’s appeal, and the U.S. Court of Appeals for the Federal Circuit ordered HUD to use the more complex and tightly restricted competitive bidding process known as procurement.

Now, HUD has announced that it’s in the process of reinstating the practice of conducting MORs. HUD anticipates that the competitive bidding process won’t be finalized until this summer. In the meantime, MOR property inspections will be conducted by the 42 existing Project-Based Contract Administrators as part of their amended interim contracts with HUD.

As a result of the reinstatement of MORs, it’s important to review your household files and fix any mistakes you find. Fixing mistakes may help you avoid a finding on your MOR and can help you favorably impress contract administrators and local HUD offices. But note that even after you’ve fixed a mistake, a contract administrator or local HUD office could still issue a finding on your MOR based on the mistake’s having been made in the first place. We’ll give you a Model Memo: Document Your Efforts to Fix Household File Mistakes, which you can use to document the steps you took to fix mistakes in your household files.

Mistake #1: Lease Not Signed by Household Member Who Should Have Signed It

HUD requires household heads, co-heads, spouses, and other members of the household who are 18 years or older to sign the lease and any HUD-issued and owner lease addenda [Handbook 4350.3, par. 6-5(B)(2)]. In general, these household members should sign the lease at or before move-in. Your household file should contain the lease, signed by all the household members who are required to sign it. If you discover, when reviewing your files, that a household member who should have signed the lease didn’t, you must fix this mistake.

How to fix. When you discover that you’re missing a signature on the lease, you must have the household member sign the lease. It’s usually okay to have the household member sign the copy of the lease that the other household members have already signed. But because the handbook doesn’t specify this, ask your contract administrator or local HUD office whether they agree it’s okay. Also, ask your attorney to confirm that state and local law allows the household member to sign the lease after the other household members have done so.

When the household member signs the lease, tell him to note on the signature page the actual date he signed the lease. Don’t ask him to date the lease when the other household members signed it. If you ask him to do this, he may feel that he can ask you to bend a rule for him in the future.

Mistake #2: Missing Proof that Household Got ‘Resident Rights and Responsibilities’ Brochure

HUD requires that you give “applicants and tenants” the “Resident Rights and Responsibilities” brochure at move-in and annually at recertification [Handbook 4350.3, par. 5-15(C)(2)]. The handbook doesn’t specify exactly whom, however. To be safe, give the brochure to household heads, co-heads, spouses, and all members of the household who are 18 years or older. Also give it to minor household members when they turn 18 years old and to new adult household members who join existing households.

To avoid a possible MOR finding, your household file should contain proof that the household members actually got copies of the brochure. The handbook doesn’t specify what type of proof you need, so our experts suggest that you ask the household members to whom you gave the brochure to sign a certification saying they got copies of the brochure.

But because the handbook doesn’t spell this out, it’s best to ask your contract administrator or local HUD office how they want you to document that you gave household members the brochure. If your household file doesn’t contain proof that you gave a brochure to the household members at the last recertification—or at move-in if that was the last time you certified the household—you should fix this mistake.

How to fix. Give the household members a new copy of the brochure, and get proof that you did so. To do this, you should ask each household member to sign a certification acknowledging receipt of the brochure. Or, if your contract administrator or local HUD office gave you a different method to use to document that you gave the brochure to the household member, follow that instruction for getting the proof you need.

If you discover that you didn’t give a household a copy of the brochure more than a year ago—say you gave the household a copy of the brochure at the last recertification, but not at the previous one—ask your contract administrator or local HUD office what you should do. Some may advise you not to take any action. Be sure to get their response in writing. That way, you’ll have documentation for why you did or didn’t take action.

Mistake #3: Missing Race and Ethnic Data Reporting Form

You should give household heads, co-heads, spouses, and all other members of the household who are 18 years or older a copy of HUD’s “Race and Ethnicity Data Reporting Form” (HUD-27061-H) when they apply to live at your site or when they move in [HUD Handbook 4350.3, par. 4-14(A)(4)]. Also give the form to parents or guardians of minor members of the household and new adult household members who join existing households. On this form, household members certify their race and ethnicity.

Household members can elect to either fill out this form or not. If they fill out the form and return it to you, place it in the household file. If an applicant or household member doesn’t complete the entire form, don’t complete the form for him. Instead, just place the partially completed form in the file. If the applicant or household member doesn’t want to complete it all, you may document this in the file. Here are two ways to do this:

1. Have the household member sign the blank form, and then put the blank form in the file; or
2. Make a notation on the form. Indicate the date and time you offered the form to the household member, and note that the household member elected not to fill out the form. Then sign and date the form.

Editor’s Note: As part of the on-site review of the MOR, inspectors will take a look at file samples. They’ll look to see that the tenant files are organized and properly maintained. Along with the Race and Ethnicity Data Reporting Form and the Residents Rights and Responsibilities Brochure, your tenant files should contain signed acknowledgements and/or copies as required of the following documents indicating receipt by the tenant:

• HUD-9887 Fact Sheet
• Lead-Based Paint Disclosure, if applicable
• EIV & You Brochure
• Fact Sheet: How Your Rent Is Determined

Mistake #4: Wrong HUD Model Lease Used

HUD requires that you use one of its model leases for all your assisted residents. You can check HUD Handbook, Paragraph 6-5 and Figure 6-2 for which HUD model leases you should use for the various HUD programs. But while reviewing the household’s file, you may discover that a household signed the wrong type of HUD lease for your site’s program. This is a mistake you must fix.

How to fix. Ask the household to sign the correct type of lease. When doing this, you should probably follow HUD’s rules on implementing lease changes found at HUD Handbook 4350.3, Paragraph 6-12(B) and Paragraph 6-12(D). The rules require notifying the household members of the amendment by giving them a copy of the amended lease or a lease addendum containing the amendment, along with a letter explaining that they can either accept the lease amendment or move out of their unit.

But because the handbook isn’t clear, you should check with your contract administrator or local HUD office. Also check with your attorney because state and local law may have specific notice requirements for changing leases. After getting their advice, document what you did and why. You could do this in a memo to the file.

Also, be careful when setting the lease term for the new lease—that is, the correct HUD model lease. In general, you should credit the household for the time it lived at your site under the old lease. But because lease terms are program-specific and the requirements may vary depending on the facts in a specific situation, talk with your contract administrator, local HUD office, and attorney when setting a lease term in these situations.

Use Memo to File to Document Your Efforts

All in all, the handbook doesn’t spell out how to fix household file mistakes. And your local contract administrator and local HUD office may want you to fix a mistake in a specific way. Follow and document their advice.

If you find a mistake in a household file, fixing the mistake is just half the job. You should also draft a memo to the file telling contract administrators and local HUD offices who review the file what you did. This will show that you have good quality control over your household files and proactively correct problems in them. Like our Model Memo, your memo to the file should cover these points:

• The date you found the mistake;
• The nature of the mistake;
• What you did to fix it;
• Any guidance you received from a local HUD office or contract administrator about how to fix the mistake; and
• How you plan to prevent the mistake from recurring.

If a prior management company made the mistake, your memo should include the date your company took over responsibility for the site and its files. That will help prevent your company from being tainted by a prior management company’s mistakes.