GUIDANCE ON MONITORING OMHAR WATCH LIST PROPERTIES

**September 2001**

The following guidance is consistent with the Office of Housing's
general guidance on the assessment and analysis of "troubled and
potentially troubled" properties in the Multifamily Housing portfolio.
While OMHAR properties are labeled as "watch list," there are
similarities to troubled and potentially troubled indicators that should
be applied to these properties in the monitoring process.

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## ASSESSMENT

Using the Troubled Property Indicators listed below, Senior Project
Managers will be able to assess whether the Watch List property is
failing (physically and/or financially deteriorating).

A.  If the project is stable, that is experiencing no change since the
    rents were reduced, continue to monitor as usual.

B.  If the project is failing, move to action below.

## ACTION

## During the term of the Watch List Renewal Contract, take the following action if the property shows clear signs of physical, financial or managerial deterioration based on the indicated listed below.

## Notify OMHAR to re-contact the owner to suggest that the owner re-enter the program. Contact can take the form of a site visit, conference call or meeting with the owner. Wherever possible, the Senior Project Manager, HUB Director or his designee should be present during these discussions.

## If physical deterioration is evident, Housing may require an "on demand" physical inspection conducted by REAC prior to making any final decisions on a course of action to take.

## Require the owner to bring payables current within 30 days or re-enter OMHAR.

## If the owner fails or refuses to make payables current or re-enter OMHAR, the owner forfeits his rights to re-enter OMHAR at the end of the current renewal period.

## Owner failure or refusal to act will cause Housing to begin the tenant vouchering process and abate the Section 8 unless the owner re-enters OMHAR.

B.  At the end of the Watch List renewal period, take the following
    actions if the property shows clear signs of physical, financial or
    managerial deterioration based on the Indicators listed below.

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1.  Housing may decide not to offer the owner a renewal contract,
    particularly if the owner has forfeited his rights to re-enter
    OMHAR, and begin the tenant vouchering process.

2.  Housing may return the property to OMHAR without the consent or
    election of the owner.

3.  Housing may refer the property to the Departmental Enforcement
    Center.

4.  In all cases, Housing must seek the advice and counsel of OMHAR
    prior to making a final determination.

## TROUBLED PROPERTY INDICATORS

A.  **[High Risk Indicators]{.underline}**:There are certain indicators
    that are used to review and analyze "high risk" properties that
    could become troubled. These indicators can help Senior Project
    Managers assess the degree of risk involved for OMHAR Watch List
    properties as well. There are six general indicator groups:

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1.  Residents and Neighborhood

2.  Ownership

3.  Financial

4.  Physical

5.  Property Management

6.  Subsidy

###### Residents and Neighborhood Indicators

1.  Resident complaints about conditions at the property to HUD, local
    officials, news media, management agent, or owner.

2.  Police interviews and reports indicate serious crime and drug
    problems at the property and in the neighborhood.

3.  Reports from state and local government, private research firms, and
    the media that document problems in the neighborhood including:

    a.  Declining property value

    b.  High crime

    c.  High vacancy rates and property abandonment

    d.  Substandard commercial facilities and public transportation
        services.

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4.  Calls from the Mayor, other local officials, or neighborhood leaders
    about serious problems in the neighborhood and/or the property.

### [Ownership Indicators]{.underline}

### Abandoned or threatens to abandon property.

2.  Declared bankruptcy or threatens to declare bankruptcy.

3.  Principals are suspended or debarred.

4.  Not exercising oversight control of management entity.

5.  Lacks oversight and reporting systems to monitor project
    performance.

6.  Principals' relationship with identities-of-interest firms doing
    business with the property makes it difficult for owner to exercise
    independent oversight of expenditures and performance.

7.  Principals have interest in other properties subject to enforcement
    action, 2530 flags, and limited denials of participation.

8.  The owner of record is not in control of the property mortgages
    and/or land sales contracts. The Management Company is acting as the
    owner.

9.  Owner has not completed all requirements for a Transfer of Physical
    Assets (TPA).

10. Evidence that the for-profit, no-profit, or cooperative owner is not
    acting in accordance with their organizational documents, i.e.,
    corporate, partnership, or cooperative by-laws that govern the
    operation of the owner entity.

#### [FINANCIAL INDICATORS]{.underline}

1.  Mortgage payments are not current.

2.  Liens and judgments filed against property.

3.  High accounts payable.

4.  High accounts receivable.

5.  High vacancy costs -- in excess of 10% of gross potential.

6.  Improper withdrawal of project funds by owners.

7.  No New Cash Throw-off: profit or loss before depreciation minus
    payments to mortgage principal and reserve for replacement deposits
    equals a negative number.

8.  No Surplus Cash: available cash minus obligations of property equals
    a negative number.

9.  Negative cash in bank.

10. Inadequate internal controls for budgeting, financial performance
    reviews, purchasing, cash dispersal and accounts payable and
    receivables.

11. Financial statements contain negative findings and/or questioned
    costs.

12. Failure to consistently submit monthly accounting reports to HUD.

13. Failure to submit annual audited financial statements to HUD.

14. Missing financial statements.

15. Independent auditor opinion contains "qualified," "disclaimer," or
    "adverse" qualifications.

16. FASS non-compliance flags.

##### [Physical Indicators]{.underline}

1.  One or more major systems require replacement or major repair.

2.  Conditions that pose a serious health or safety threat to the
    residents. For example, EHS violations uncovered by PASS including
    but not limited to: unsafe electrical outlets and fixtures, sanitary
    sewer backups, trip hazards, gas leaks or inadequate heating.

3.  Common areas, buildings and units not secure -- inadequate fencing,
    lighting, building access controls, and apartment entry door lock
    systems.

4.  Resident repair requests not properly recorded or responded to in a
    timely manner.

5.  Unit and property inspections not conducted on at least an annual
    cycle, depending on the most recent PASS score.

6.  No preventative maintenance program.

7.  No capital improvements program.

8.  Inadequately funded reserve for replacement fund.

9.  Repair work is unprofessional -- either not completed, and/or
    completed with shoddy workmanship and materials.

10. Repairs or improvement funded with Drug Elimination Grants and
    Flexible Subsidy/Loans Grants not complete in accordance with the
    contracts.

11. Poor curb appeal: property grounds, exterior surfaces, parking lots
    and walkways in poor condition.

12. Complex lacks facilities required by resident population: play
    areas, laundry facilities, learning and day care centers.

13. HUD PASS scores have decreased over time.

####### Property Management

1.  Evidence that management is not properly screening incoming
    residents and/or taking eviction action against current
    lease-holders who violate their lease including:

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a.  Resident complaints and police reports of serious drug and crime
    activity at the property.

b.  No home visits, credit checks, or interviews before new residents
    are permitted to lease units.

c.  High incidence of resident caused damage in units and common areas
    and on grounds.

d.  High accounts receivable.

e.  High vacancy.

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2.  Inadequate or nonexistent staff and/or systems for:

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a.  Responding to resident requests and complaints.

b.  Waiting lists and marketing.

c.  Rent collection.

    i.  Move in, out, and make ready procedures for vacant units.

    ii. Cleaning common areas and grounds maintenance.

d.  Vendor selection and supervision.

e.  Staff recruitment, training and supervision.

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3.  Documented resident complaints that management staff does not act in
    a professional manner.

### [Subsidy]{.underline}

1.  Section 8 has been abated, redirected, suspended or terminated.

2.  Owner is:

    a.  Vouchering for units that do not meet the *Good Repair
        Standards.*

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    a.  Vouchering for units in excess of the number specified in the
        Watch List Renewal Contract.

    b.  Discriminating against potential and current residents based on
        race, color, creed, religion, sex, age, national origin or
        handicap.

    c.  Changing, suspending or terminating a family's housing
        assistance in violation of HUD regulations.

    d.  Terminating tenancies of families in violation of applicable
        State and local law and HUD regulations and procedures.

    e.  Denying permission to HUD or its duly authorized representatives
        for access to the premises for the purpose of audit and
        examination of all aspects of the Watch List Renewal Contract.

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3.  Owner is [not:]{.underline}

    a.  Marketing units in compliance with the project's Affirmative
        Fair Housing Market Plan.

    b.  Correctly determining applicants' eligibility for assistance.

    c.  Selecting, admitting and placing residents in units in
        accordance with HUD requirements.

    d.  Executing HUD approved leases with new residents.

    e.  Maintaining the units and related facilities in a manner that
        provides decent, safe and sanitary housing as defined by HUD.

    f.  Regularly cleaning and maintaining all common areas or equipment
        or making repairs with reasonable promptness.

    g.  Responding promptly to HUD's PASS findings by correcting cited
        problems within the time allotted.

    h.  Providing the utilities, services and equipment specified in the
        Watch List Renewal Contract.

    i.  Charging residents the correct rent.

    j.  Evaluating the accuracy of utility bills at least annually.

    k.  Completing resident income recertifications annually and
        adjusting family gross contributions in accordance with HUD
        regulations or administrative procedures.

    l.  Promptly following up with families that do not provide required
        recertifications and initiating HUD-prescribed enforcement
        actions.

    m.  Retaining all correspondence, documentation and materials
        required by the Watch List Renewal Contract.

    n.  Submitting to HUD an annual financial statement prepared by an
        independent auditor.