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HUD Announces Major Changes to Physical Inspection Protocol

HUD’s Real Estate Assessment Center (“REAC”) recently announced two major changes to the physical inspection process for public housing and privately owned subsidized multifamily properties already subject to a REAC physical inspection): reducing advanced notice of inspections to just fourteen (14) days and giving owners who refuse inspection a score of zero (0).  The new guidance will go into effect on March 22, 2019.


Until now, owners received varying notice schedules from a few days to up to four months – allowing for proper communication with HUD staff and their contractors, completion of ongoing construction work and notification to tenants and staff preparations for the inspection. 


The second major change will also impact owners’ ability to request a rescheduling of an inspection.  Owners that seek a rescheduling will receive a score of zero, to be held in abeyance while REAC sets its schedule.  The Notice provides that owner rescheduling requests outside of the notification window for circumstances such as a major renovation or fire must be approved by HUD prior to the inspection.  If the owner again declines, cancels, or refuses the inspection, the score of zero will be recorded and the owner will be subject to all penalties and remedies associated with a score of zero.  A failing score has serious repercussions, may carry financial penalties and impacts an owner’s ability to do additional deals with HUD and receive funding for renovations and repairs at the property. 


These changes are part of a broader effort by HUD, announced in 2018, to overhaul the REAC inspection process.  Additional changes from HUD are expected, including a pilot of a new inspection model that emphasizes unit condition and functionality.  The pilot is expected to place greater emphasis on safety and health conditions, followed up by function and operability, and lastly condition and appearance.  HUD may also bring in additional input from local government to promote shared oversight and expand inspections to include annual owner self-certifications of inspections of 100% of units.  HUD also announced a series of listening sessions to solicit feedback on the new rules, including stops in Philadelphia, Fort Worth, Atlanta, Detroit and Seattle in March.


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