MSHDA - Office of Housing Voucher Programs Policy and Procedures Manual

Chapter VI: Initial Contracts

Effective: January 2009

Introduction

This chapter explains procedures for the completion of initial rental assistance contracts between the applicant and MSHDA.

Section A: Required Initial Verifications

At the time of initial contract, the applicant must fill out the Household, Income, Asset, and Expense Declaration (MSHDA 1890) for each adult member in the household.

1. Authorization for Release of Information/Privacy Act Notice (HUD 9886). All adults must sign form.
2. Applicant/Tenant Authorization, Certification, and Consent (MSHDA 158) form.
3. Income, Asset, Deduction verification forms as appropriate and necessary with signature authorizing permission of the third parties to release information for income verification purposes.

Verifications for all income, assets, and deductions must be obtained using the third party verification (TPV) system hierarchy. The HUD EIV system is not available to use for initial verifications for applicants because there is no data base established to compare data against. After an initial contract has been completed, HAs must pull an EIV Tenant Income Data (TID) Report at the end of the first six-month period to check for unreported income. See Chapter IV, Income Verifications; and Appendix for more information on the third party verification process. See Chapter III, Section F, for more information on Release of Information forms. Families who require a live-in aide must document and verify the need for the live-in aide and a completed Certification of Live-In Aide Status (MSHDA 15) must be on file. See Chapter III, Section B-12 for more information.

Section B: Family Locates Unit

Upon receipt of a voucher, the Housing Choice Voucher (HCV) applicant must locate their own rental unit. Per the U. S. Department of Housing and Urban Development’s (HUD’s) requirements, the Housing Agent (HA) encourages the applicant not to reside in an area concentrated with poverty or minority populations, but does not direct (i.e. steer or pressure) the applicant in choosing housing. HA’s are required to maintain a ‘Landlord Referral List’ for each county they administer vouchers in to assist clients in their search for safe, decent, and sanitary housing. Refer to Chapter III, Section H for additional information.

The Applicant must submit the Rental Unit Information form (MSHDA 51b) to their HA by the end of the voucher issuance period. Receipt of this form indicates the landlord and tenant have agreed to rental assistance in the subject unit. Refer to Chapter VII, Rent Reasonableness.

Section C: Eligibility of Unit

The proposed unit:

1. Must be a rental (no purchase or intent to purchase).
2. Must not be occupied by the owner.
3. Must not be leased by a prohibited owner.
   1. Prohibited owner relationships include: parent, child, grandparent, grandchild, sister, or brother of any member of the tenant household.
   2. MSHDA is prohibited from approving contracts when the owner is a relative of the tenant, unless MSHDA determines that approving the unit will provide reasonable accommodation for a family member who is a person with disabilities. In these cases, a completed MSHDA16 showing the need for the accommodation and an accompanying letter from either the tenant or family member explaining how the specific unit owned by the tenant’s family member provides the required reasonable accommodation or how the family member owning the unit will provide services for the identified family member with the disability must be on file for the disabled family member. Refer to Chapter XVII. Reasonable Accommodation.
4. Must meet HUD’s Housing Quality Standards (HQS) requirements.
5. Must be the family’s only residence. Multiple subsidies are not allowed.
6. Can be of any structure type.
7. Can be a manufactured home if renting both the home and the lot (i.e. lot rent only is not allowed).
8. Can be a co-operative.
   1. MSHDA may approve a family living in cooperative housing if it is determined that assistance under the program will help maintain affordability of the cooperative unit for low-income families.
   2. All HCV Program regulations apply (i.e. HQS, Payment Standard [PS]).
   3. The HAP for a cooperative housing unit equals the lower of the PS minus the TTP or the monthly carrying charge for the unit, plus any utility allowance, minus the TTP.
   4. The monthly carrying charge includes the member's share of the cooperative debt service, operating expenses, and necessary payments to cooperative reserve funds. The carrying charge does not include down-payments or other payments to purchase the cooperative unit or to amortize a loan made to the family for this purpose.
   5. The rent for a cooperative housing unit must be reasonable, based on rents for comparable unassisted units.
   6. The Contract Rent to the owner equals the monthly carrying charge under the occupancy agreement/lease between the member (tenant) and the cooperative.
   7. HUD allows a Cooperative Occupancy Agreement to be used in lieu of a Lease Agreement. If the development refuses to execute a new lease for an initial contract, the complex must prepare and sign an Addendum to the original Occupancy Agreement which updates the effective date and rent amount OR change and initial the original Occupancy Agreement.
   8. Initial membership fees are considered the security deposit.

Section D: Landlord Screening/Selection of Tenant

• The landlord must perform their own screening of the applicant as to suitability for tenancy.
• The Rental Unit Information form (MSHDA-51b) informs prospective landlords of:
  1. The family’s current address; and
  2. The name and address of the family’s most recent previous landlords (i.e. one current and one previous - only required if known and available).

Section E: Landlord Registration Requirements and Procedures

• Upon receipt of the MSHDA 51b, the HA should check the Elite database to determine if the prospective landlord has registered with the State of Michigan as a vendor (payee).
• If an “Entity Alert” associated with the landlord entry appears, review the “Alert” to see if you can proceed with contracting with that landlord. An “Entity Alert” will advise if a landlord is prohibited from participating in the program.
• If the prospective landlord does not appear in the Elite system:
  1. HA sends the MSHDA 219 to the prospective landlord to fill out for MSHDA records. A Payee Registration Packet (MSHDA 219) is required for identification of Tax ID number and remittance address for the tenant file.
  2. HA sends the Online Registration Pamphlet which provides instructions for registering online and for directions on signing up for EFT. If the Landlord cannot register online, please notify the assigned MSHDA staff for Payee Registrations.
• When the HA receives the MSHDA 219, the HA will send the MSHDA 219 to the assigned MSHDA 219 Processor in the Lansing office. The MSHDA 219 Processor will verify that the Landlord is in MAIN and will enter their information into Elite. Errors will be assessed to an HA's transactions in Elite if the documents submitted are not correct and complete.
• All landlords can register as a State of Michigan vendor via the Contract and Payment Express (C&PE) website www.mi.gov/cpexpress regardless of whether or not they want to receive the payments via mail or EFT. If the landlord has a reasonable accommodation and cannot register online, please follow normal MSHDA-219/W-9 procedures as stated in Chapter XI: Landlord Issues..

  Note: The W9 is not required if the Landlord is registered for Electronic Funds Transfer (EFT).

Section F: Owner Disapproval and Restrictions

Participation in the program is not an option for every owner. MSHDA must disapprove certain owners. Refer to Chapter XI, Landlord Issues, for specific information.

Section G: Affordability (40%) Cap

• Negotiate/clarify rent amount if necessary. The Tenant’s rent portion must not exceed 40% of their monthly adjusted income for rent and utilities. Perform the Affordability Test (applicable if gross rent exceeds payment standard) using the Affordability Worksheet, (MSHDA 248).
• The HA must manually or electronically calculate the limit using the worksheet after all income verifications have been received to assure compliance with the 40% rule. If the gross rent is less than or equal to the PS, the affordability cap does not apply. If the gross rent is greater than the PS, then the cap does apply.
• Calculate the limit by dividing the adjusted annual income divided by 12 (round) times 0.4. If the 40% cap is greater than or equal to the TTP, then the unit is affordable for family.
• If the Gross Rent is greater than the Payment Standard for the subject county, submit the MSHDA 248 with other paperwork when the case is submitted for approval.

  Note: Exempt or Disallowed Income cannot be included in the calculation.

• Affordability cap does not apply to Affordable Assistance Housing Program (AAHP) participants. See Chapter XIX.

Section H: Rent Reasonableness

At the time the MSHDA 51b is received and prior to tenancy approval, the HA makes a rent reasonableness determination by comparing the rent being charged by the owner to rents for comparable unassisted units in the area, and to rents being charged by the owner for comparable, unassisted units on the premises. Refer to Chapter VII, Rent Reasonableness for specific information.

Section I: Inspections

• A MSHDA 51b must be received and reviewed before inspecting a unit. Review this form for the rent amount, utility provider, etc.
• All units must satisfy Housing Quality Standards (HQS) in order to qualify for assistance. These requirements must be satisfied on or before the voucher assistance effective date. The HQS inspection process involves:
  1. Scheduling an inspection with the landlord and the applicant (MSHDA 104 [OPTIONAL]);
  2. Inspecting the unit and noting the deficiencies;
  3. Forwarding the Landlord and Tenant Deficiency Notice if applicable (MSHDA 105);
  4. Scheduling a re-inspection when repairs are completed (MSHDA104 [OPTIONAL]).
• If required, negotiate rent/utilities for rent reasonableness or affordability.

Section J: Lease Requirements

• Obtain Lease
• The Owner must provide an executed Lease Agreement.

1. Required Items on Lease

Required Items on Lease

1. Owner name
2. Tenant Name
3. Address of unit including an apartment number
4. Term of the lease. The lease begin date must be present with a specific end date or specified (i.e. one year or twelve months) stated.
5. Renewal provisions. If none stated, assume month-to-month.
6. Utilities and appliances provided by the owner and tenant
7. Rent amount
8. Tenancy Addendum must be attached (or the entire Tenancy Addendum document included in the lease)
9. Signatures
   1. The Lease Agreement cannot be altered in any way unless all parties initial the change. 'Strike outs' are only allowed if properly initialed by all parties
   2. Signed by Landlord and Tenant
   3. The HA never signs or initials the Lease.

2. Lease Term

• The HUD regulations state in 982.451(a)(2): The term of the HAP Contract is the same as the term of the lease. The 'Initial' Lease term is for at least one year. It may be one year plus a few days to allow lease and HAP Contract to end on the last day of a month.
• The initial Lease/HAP Contract always begins (i.e. effective date) on or after the date the unit passed the HQS inspection. The initial Lease/HAP Contract beginning and ending dates must match. For example, a lease may state a beginning and ending date. However, if lease states “the term is for one year (or twelve months) commencing on September 10, 2008,“ the implied end date is 9/9/09. The HAP Contract should reflect the initial lease term begins on 9/10/08 and the implied lease end date is 9/9/09.
• In Elite, enter/change the "Projected Effective Date of Next Reexamination" to reflect the month/day/year after the end date of the initial lease term.
• The HCV program allows the landlord to increase the Contract Rent on the anniversary date of the initial lease term.
• The MSHDA 34 and Elite information must match for payment purposes. Write the MSHDA 34 and enter data in Elite for the one year period plus the extra days so payment ends on the last day of the month that the lease expires. Re-examination date will be the first day of the following month.
• For example, a Lease and HAP contract begin on March 18, 2006 and end on March 17, 2007. Effective date in Elite would be March 18, 2006. The MSHDA 34 (Adjustment Notice specifying payment dates) should be written to cover March 18, 2006 to March 31, 2007. The Re-examination (anniversary) date in Elite will be April 1, 2007.
• The Lease Agreement language identifies renewal provisions (If none, assume month-to-month). The lease term remains in effect until the tenant or owner legally terminate the agreement.
• The term of the lease ends if any of the following occurs:
  1. The tenant terminates the lease with a 30-day notice (after initial lease term);
  2. The owner terminates the lease with proper documentation;
  3. The owner and tenant mutually agree to terminate the lease;
  4. MSHDA terminates the assistance for the family. If MSHDA terminates the assistance for any reason, the lease and corresponding HAP Contract terminate;
  5. MSHDA terminates the HAP Contract (via a Contract Termination Notice/MSHDA 95 and Application Denial/Program Termination/MSHDA 1634b);
  6. MSHDA may terminate the Contract for reasons including (a) tenant moves without proper notice; (b) tenant or owner fails to correct HQS deficiencies; (c) owner contract violations, fraud, debarment, etc.

  Note: The participant is allowed to move after the initial lease term has expired.

3. Lease Terms of Less Than One Year for any Subsidized Development and Cooperative Housing

Pursuant to HUD regulations [CFR 982.309(a)], MSHDA may approve a shorter initial lease term if both of the following conditions apply:

1. A shorter term would improve housing opportunities for the tenant, and
2. Shorter terms are the prevailing market practice.

MSHDA has determined the above conditions apply to subsidized and cooperative housing. Therefore, initial (i.e. first year) lease/contract terms of less than one year are allowed for subsidized and cooperative housing. Note: Do not utilize this practice if the landlord will sign a one-year agreement and postpone the increase in Contract Rent until the anniversary date associated with the tenant (versus development). For example, a subsidized or cooperative housing anniversary date (rent increase date) is normally January 1 of each year. A HCV tenant moves in on May 1. If the landlord refuses to enter into a one-year agreement, in order to coordinate with the rent increase date of the Subsidized/Cooperative housing, the initial lease contract term can be May 1 through December 31.

The following conditions apply to initial lease/contract terms of less than one year:

• The minimum initial lease term is one month.
• Part D of the MSHDA 51b must contain a ‘yes’ in the subsidized unit box OR a HA notation of 'cooperative' housing' (whichever is applicable).
• The landlord’s lease and the HAP Contract (HUD 52641 - Part A #5) dates must reflect the initial lease/contract term dates of less than one year.
• The Case Data Summary (MSHDA 1344-E) comment area must contain a notation confirming 'subsidized/cooperative housing' (whichever is applicable).
• The participant must be informed that their portion of rent will (most likely) increase (due to the Contract Rent increase) at the end of the initial lease term (i.e. in less than one year) and a new lease may be required.
• An annual re-examination for the participant effective as of the initial lease term end date (i.e. development anniversary date) is required. A HQS inspection is required and new income verifications may also be necessary.

4. Lease Terms of Less than One Year due to Applicant being already in Place

When an applicant receives the opportunity for a HCV (name just pulled from the waiting list) and has just recently signed a one-year lease but the landlord refuses to sign a new lease to coincide with a one-year HAP Contract, the HA should discuss with the landlord the benefits of a new lease and HAP Contract; i.e., remind the landlord that the new lease term will benefit the tenant by preventing the hardship of moving, HAP Contract ensures payment to the landlord. If the landlord agrees to a new 12-month lease, the landlord and tenant must strike out the begin date of the existing lease and insert the new lease effective date (date HAP contract begins) and both parties must initial the portion of the lease document where it states the lease dates were changed.

If the landlord refuses to enter into a new 12-month lease and HAP Contract, the applicant must move.

5. Lease Term Promotions of More than One Year

When an applicant finds a unit where the owner is offering a promotion of a month of free rent to new tenants who enter into a 12-month lease, the one-month of free rent must be prorated over a 12-month period thus lowering the contract rent so no overpayment of the HAP results. For example, if the one free month of rent amounts to $600, the owner would recalculate the monthly contract rent for a 12-month period, factoring in the $600 in free rent. The monthly contract rent for the 12 months would become $550 rather than $600.

Section 202, Section 236 (Insured and Non-Insured), Section 221(d)3, and Section 515 Rural Development Complexes

• When executing a new Contract at a subsidized development (i.e., listed above), the HA and landlord determines whether to execute the initial lease/contract term for:
  1. One year with an interim re-examination required when the Contract rent increases; or (this method could require multiple interims with the same effective date)
  2. Less than one year to coincide with the development anniversary date (this method could require multiple annual re-examinations with the same effective date).

SEMAP does not allow for late transactions. Regardless of potential delays, the HA must complete transactions by the cut-off date. For SEMAP purposes, a late interim is less detrimental than a late re-examination.

The HA advises the participants who reside (or wish to reside) in a subsidized development, the Contract rent (and possibly their rent portion) may increase during the initial lease term. The HA notifies the family of the most recent Contract Rent increase effective date so they can plan accordingly. Basic (not market) rent equals the Contract Rent.

Print and forward a Family Report (HUD 50058) to the development upon request.

Refer to Exhibit 2 for a description of eligible subsidized rent increase development programs.

6. Separate Agreements

• Owners and families may execute separate agreements for services, appliances (other than range and refrigerator) and other items that are not included in the lease if the agreement is in writing and approved by MSHDA. The HAP Contract prohibits families and owners from agreeing on side payments for additional rent, or for items normally included in the rent of unassisted families, or for items not shown on the approved lease.
• The family is not liable under the lease for unpaid charges for items covered by separate agreements and nonpayment of these agreements cannot be cause for eviction.
• Any appliances, services, or other items which are routinely provided to unassisted families as part of the lease (such as air conditioning, dishwasher, or garage) or are permanently installed in the unit, must be included in the lease. In a separate agreement, the family must have the option of not utilizing the service, appliance, or other item (i.e. carport).
• If the family and owner have come to a written agreement on the amount of allowable charges for a specific item, so long as those charges are reasonable and not a substitute for higher rent, they are allowed.
• All agreements for special items or services must be attached to the lease approved by MSHDA. If agreements are entered into at a later date, they must be approved by MSHDA and attached to the lease.

7. Conflicts of Interest

MSHDA cannot approve HAP Contracts when any of the following persons have a current interest or will have an interest in the unit for one year thereafter:

• A current or former member or officer of MSHDA (except a participant commissioner);
• An employee of MSHDA or any contractor, subcontractor, or agent of MSHDA who formulates policy or influences decisions related to the program;
• Any public official, member of a governing body, or State or local legislator who exercises functions or responsibilities related to the programs; or
• A member of the U.S. Congress. The HUD Field Office may waive the conflict of interest requirements (except for members of Congress) for good cause.

8. Tenant Capacity to Sign

At least one family member must have the legal capacity as defined by State law to enter into a lease agreement (i.e. at least 18 years of age or a legally declared an emancipated minor).

Minors who are not ‘emancipated’ may not be a party to the Lease agreement.

• ‘Emancipation’ occurs by operation of the law or a court order. Documentation is required to confirm the status of an emancipated minor. Documentation is commonly called a declaration, judgment, or order and demonstrates that the emancipation has been approved by a judge or other court official.

Operation of law occurs when (1) a person reaches 18 years of age; or (2) during the period when a minor is on active duty with the armed forces of the United States.

Court order pursuant to a petition filed by a minor with the probate court. The court may issue an ‘Emancipation Order’ if it determines that emancipation is in the best interest of the minor. A copy of the Order is required to confirm that the minor is emancipated.

Note: The act of marriage does not emancipate a minor.

9. Relative Prohibition

Legislation prohibits the use of Vouchers in units owned by a prohibited relative of the tenant unless approving the unit would provide ‘reasonable accommodation” for a disabled family member. A MSHDA 16 or other disability documentation must be on file for the disabled family member.

• Prohibited Relatives include parent, child, grandparent, grandchild, sister, or brother of any member of the participant family.

A certification that the owner is not related to the family is included on the MSHDA 51b.

10. Security Deposits

• State law establishes a security deposit limit; it is current one and one-half month's rent. Although State law allows this amount, the most common security deposit amount is one month’s rent.
• An owner cannot require a greater security deposit from a HCV tenant than from an unassisted tenant for a similar unit.
• When a tenant vacates the unit, the owner may use all or part of the security deposit, including interest on the deposit, in accordance with State and local law.
• The HA will review the lease to verify that the deposit for a new move-in does not exceed state law.

11. Zero HAP

An initial HAP Contract cannot be executed if it results in a zero HAP payment(i.e. MSHDA payment equals zero).

Section K: Changes in Family Size/Income Prior to Effective Date

Changes that occur during the period between the issuance of a voucher and lease-up may affect the family’s eligibility or portion of the rental payment. These changes may affect 40% affordability rule, income eligibility, and/or eligible unit size. The HA must reconfirm the family composition and income at the execution of the HAP Contract. If circumstances have changed, the HA must re-verify and recalculate the family’s Total Tenant Payment (TTP). If the family does not report a change in circumstances, new verifications are not required before signing the HAP contract.

Section L: Executing Initial HAP Contract

1. Complete Part A of the HAP Contract

Contract Information (HUD 52641, Pages 1 and 2)

1. Obtain the landlord and HA signatures. Original signatures are required. FAXed copies of signatures are not accepted.
2. List the full names of all approved household members (including the head of household) in item 4. If a live-in aide is required as a member of the household, the words “Live-in Aide” must be entered under Item 4, Household.

The HA must make every effort to have the HAP Contract fully executed prior to the effective date of the initial lease term.

• If the HAP Contract cannot be executed by the begin date of the initial lease term, it must be executed no later than 60 calendar days from the beginning of the lease term.
• No HAP payment may be made to the owner until the HAP Contract has been executed.
• If the HAP Contract is executed during the 60-calendar day period from the beginning of the lease term, HAP payments will be made to the owner to cover the portion of the lease term before the execution of the HAP Contract (a maximum of 60 days.)
• The HAP Contract MAY NOT be executed (and/or dated) after the 60 days from the effective date of the initial lease term under any circumstances. Any HAP Contract executed after the 60 day period is null and void and no payments may be paid to the owner.

Once executed, the HAP Contract cannot be changed or altered in any way unless all parties initial the change. ‘Strike outs’ are acceptable only if properly initialed by all parties.

• The Contract Rent cannot be changed for the duration of the initial contract.

2. Adjustment Notification (MSHDA-34)

• Because the Contract and Lease do not identify the amount of the tenant rent, an Adjustment Notification (MSHDA-34) must be prepared that identifies the payment breakdown.
• If applicable, pro-rated payment amounts may be identified in the MSHDA Optional Use Only section of the form.
• Pro-rated amounts are calculated by dividing the actual number of days in the pro-rated month and multiplying by the number of days of the pro-ration.
• When calculating the pro-ration, round the final amount to the nearest dollar (i.e. 1-49 DOWN, 50-99 UP) before issuing a payment, overpayment notice, or an abatement.
• HUD mandates the 30-day pro-ration method for public housing and confirms the actual days as the best method to calculate the rent pro-ration for HCV vouchers. For example: HAP equals $500, and the assistance effective date is March 15. The March HAP equals $500 (HAP) divided by 31 (number of days in March), which equals 16.1290 (round to fourth decimal) multiplied by 17 days (effective date plus remaining days in March) which equals $274.19 rounded DOWN to $274.

3. Part B and C of HAP Contract (HUD-52641)

Body of Contract (Part B), Pages 3-7 and Tenancy Addendum (Part C), Pages 8-10.

1. Once the owner and unit are approved, the HUD-issued HAP Contract for the HCV Program (HUD-52641) may be executed. This contract must be executed between MSHDA and the owner for units newly occupied by families with a HCV.
2. The term of the contract runs concurrently with the lease term. The HAP contract terminates if the lease terminates. The Lease dates for item 5 on the HAP Contract must match the Lease begin and end dates.
3. The entire HAP Contract (Parts A-C) must be submitted with every file.

4. Tenancy Addendum (HUD 52641-A)

The Tenancy Addendum (HUD 52641A) is considered part of the Lease. It must be attached to the tenant's copy of the Lease and included with every MSHDA file submission.

5. Lead Based Paint Disclosure Addendum (MSHDA-1637b)

The Disclosure of Information on Lead-Based Paint and its Hazards is a required attachment to new and move transactions for units constructed prior to 1978.

6. Submit File Material

Organize the file in proper order. See MSHDA 284 Forms Reference Submission Chart. Agents should copy all documents for future reference. Forward all original documents to MSHDA for review and payment authorization. Complete the Case Data Summary and submit it on top of all file material.

Section M: Landlord Unit information in Elite

Enter owner/unit information into Elite per Elite User Guides.

Determine if the new landlord is delinquent by following these steps:

1. Access Elite - Accounts Receivable (Financial Processing)
2. If an account balance is listed in the upper right hand corner of the screen, landlord is delinquent. Inform the Delinquency Accounts Coordinator so that future payments can be applied toward the outstanding debt.

Section N: Tenant/Landlord Late Fees

Tenant Late Fees

• The late fee amount is negotiated by and between the tenant and landlord.
• The Lease executed between the tenant and landlord must identify the amount of the late fee and the date the tenant rent is considered late.
• The normally-acceptable late charge amount is $25; however, the late fee can exceed $25 if identified in the Lease (which is signed by both the tenant and the landlord).

Landlord Late Fees

• The HAP Contract identifies that the landlord is entitled (under certain circumstances) to a MSHDA-paid late fee. (Refer to Chapter XI, for specific information.)

Section O: Portability Option

Applicants who resided (or worked) in Michigan at the time of their HCV application may be eligible to port their voucher assistance to another state. (Refer to Chapter XVI, Portability for specific eligibility requirements and procedures).

Section P: Project-Based Assistance

The purpose of project-based assistance is to induce owners to make standard housing available to low income families at rents within the MSHDA Office of Housing Voucher Programs Fair Market Rents. MSHDA may choose to provide up to 20% of the overall HCV allocation from their tenant-based assistance program funds to project-based assistance. Every tenancy assisted in the project-based voucher program is a regular tenancy under the voucher program. See Chapter XXII Project-Based Vouchers.

Section Q: Applicable Forms List