HB-2-3560 

CHAPTER 9: AGENCY MONITORING 

[7 CFR part 3560, subpart H] 

9.1 INTRODUCTION 

When borrowers accept Agency loan and grant funds, they agree to operate the property 

in accordance with program objectives and comply with program requirements established by the 

Agency. To ensure that borrowers meet these responsibilities, the Agency monitors borrower 

performance and takes action as needed to see that borrowers fulfill their responsibilities. The 

previous chapters have described the program requirements for multi-family housing projects 

and the Agency’s procedures for implementing these requirements. This chapter describes the 

Agency’s procedures for monitoring multi-family housing projects to ensure that these 

requirements are met. 

Section 1 of this chapter provides an overview of Agency monitoring activities. Section 

2 describes the procedures for Servicing Offices’ monitoring activities. Section 3 discusses 

monitoring farm labor housing projects for compliance with program requirements. Section 4 

provides an overview of State Office oversight of servicing activities. Section 5 provides for 

National Office initiatives and oversight. 

9.2 AGENCY MONITORING OBJECTIVES AND PRIORITIES 

A. Monitoring Objectives 

The Agency will monitor project operations to: 

 Ensure the project is managed in accordance with the goals and objectives of the 

Multi-Family Housing program; 

 Preserve the value of the property; 

 Ensure that the property is maintained in accordance with Agency requirements for 

providing housing that is decent, safe, sanitary, and affordable; 

 Ensure that the project is operated at actual, necessary, and reasonable costs; 

 Detect waste, fraud, and abuse; 

 Verify compliance with occupancy requirements; and 

 Ensure compliance with affirmative fair housing marketing requirements; Title VI of 

the Civil Rights Act of 1964; Title VIII of the Civil Rights Act of 1968, as amended; 

Section 504 of the Rehabilitation Act of 1973; the Age Discrimination Act of 1975; 

the Americans with Disabilities Act of 1990; the Violence Against Women Act of 

2013 other applicable Federal, state, and local laws; and Agency requirements related 

to occupancy and tenant eligibility. 

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B. Monitoring Priorities 

The Agency will monitor the performance of all borrowers. However, to make the 

best use of its available resources, the Agency will give priority in its monitoring efforts 

to borrowers with projects that have the greatest risk of poor performance or compliance 

violations. By focusing more attention on projects experiencing problems, the Agency 

can maximize the effect of its monitoring activities. Agency monitoring efforts involve 

three levels of activities: 

 Routine monitoring. For projects with limited risk of performance or compliance 

problems, Loan Servicers will conduct routine monitoring. This level of monitoring 

involves regular checks of project compliance through reviews of regular borrower 

submissions and periodic on-site visits. 

 Intensive monitoring. For projects with a higher risk of performance or compliance 

problems, Loan Servicers will conduct intensive monitoring. This level of 

monitoring involves not only regular checks of project compliance, but also more 

frequent borrower reporting and on-site visits by Agency staff. 

 Quality control. While Loan Servicers conduct routine and intensive monitoring, 

State Offices are responsible for oversight of Field Office monitoring efforts. The 

National Office will establish a set of goals for Field Office performance. The State 

Office must use Multi-Family Housing Information System (MFIS), Automated 

Multi-Family Housing Accounting System (AMAS), and other monitoring reports to 

ensure that Field Offices are meeting these goals. Additional State Office oversight 

of Field Office performance is conducted through the State Internal Review (SIR) 

process. 

9.3 BORROWER RESPONSIBILITIES 

Borrowers are responsible for cooperating fully with the Agency staff performing 

monitoring activities. The Agency will notify borrowers in writing of any deficiencies or 

compliance violations identified during its review. Borrower must address these deficiencies 

within the correction period established by the Agency and described in the notice. 

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SECTION 1: OVERVIEW OF AGENCY MONITORING 

9.4 AGENCY MONITORING REVIEWS 

A. Key Parties in the Monitoring Process 

Monitoring involves a range of staff from the Agency and throughout the department. 

Borrowers, their management agents, and tenants also need to be active participants in 

the monitoring process. Exhibit 9-1 lists the key parties in the monitoring process. 

Exhibit 9-1 

Key Participants in the Monitoring Process 

USDA Staff Other Parties 

 Loan Servicer 

 Architectural/Engineering staff 

 Environmental staff 

 Civil Rights staff 

 Office of General Counsel (OGC) 

 Borrower 

 Management agent 

 Manager (On-site or Off-site) 

 Supervisor 

 Project staff (e.g., leasing, maintenance) 

 Tenants 

1. USDA Staff 

Effective monitoring of borrower performance requires a coordinated effort on the 

part of Agency staff from several areas. While Loan Servicers hold primary 

responsibility for monitoring borrowers and their projects, staff from other offices will 

often assist in performing monitoring reviews. For example, the State Architect/Engineer 

will often need to assist in performing physical inspections when Loan Servicers have 

specific concerns about a project. When performing reviews of the central office of a 

management agent with properties in several states, Loan Servicers will need to 

coordinate with their counterparts from the respective states. Finally, if monitoring 

activities identify significant deficiencies, Loan Servicers will often need to obtain the 

advice of staff from OGC. 

2. Borrowers, Management Staff, and Tenants 

While the Agency holds responsibility for performing monitoring activities, effective 

monitoring also requires the cooperation of borrowers and their agents. Their 

involvement during monitoring reviews is needed to provide access to records and to 

answer questions about project operations and procedures. Further, when deficiencies are 

discovered, borrowers, as well as the management agent, need to be informed so that 

prompt action can be taken to correct the problem. Borrowers notified of deficiencies are 

responsible for ensuring that the problems are corrected and for keeping the Agency 

informed about actions taken to address the problems. 

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Tenants are important participants in the monitoring process because they can provide 

valuable information about project operations. 

B. Monitoring Methods and Activities 

The Agency uses two basic types of monitoring methods: 

 Desk reviews. These reviews involve examining project reports submitted by the 

borrower. Generally, Loan Servicers perform these reviews.

 On-site reviews. These reviews are conducted at the project and involve the 

inspection of both project conditions and records. Loan Servicers will often draw on 

the technical expertise of other staff to assist in performing these reviews. 

The specific reviews that fall into each category are summarized in Exhibit 9-2. Each 

of these reviews is described in greater detail in subsequent sections of this chapter. 

Exhibit 9-2 

Agency Monitoring Reviews 

Desk Reviews On-site Reviews 

Quarterly/Monthly reports 

Annual project financial report 

Occupancy trends/vacancy turnover 

Unused rental assistance 

Agency internal quality control 

Tenant subsidy review

Post-occupancy review 

Annual physical reviews 

Triennial Supervisory Visit includes: 

 On-Site review 

 Occupancy review 

 Management review 

 Full Physical Inspection 

 Compliance review 

 

C. Key Documents and Sources of Information 

The Agency relies on a range of sources to perform its monitoring activities. These 

sources are summarized in Exhibit 9-3. 

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Exhibit 9-3 

Key Sources of Information for Agency Monitoring 

Agency Records Project Records Other Sources 

Project Case File 

Loan agreement/resolution 

Interest credit agreement 

Rental assistance agreement 

Affirmative Fair Housing 

Marketing Plan 

Lease 

Management certification 

Management plan 

Form RD 3560-52, Promissory Note

Annual financial statements 

Borrower organizational 

documents 

Plans and Specifications 

Automated Systems 

AMAS 

MFIS 

Notice of Payment Due Report 

Project budgets/Utility 

 Allowance 

Annual financial report 

Financial records 

Tenant files (eligibility 

documentation) 

Marketing records and 

applications 

Waiting lists 

Maintenance records 

Occupancy policies 

Occupancy rules 

Tenant Certifications 

VAWA Documents 

On-site visits by Agency staff 

Reports from other Agency staff 

Tenant reports/complaints 

Reports/Information from local 

officials 

Reports/Information from 

community members 

Compliance monitoring and 

inspection reports received 

from other financing or 

subsidy sources involved with 

the property 

1. Agency Records 

The project case file and other Agency records provide information about the specific 

responsibilities of the borrower and also the operation of the project. As discussed in 

previous chapters, program requirements vary depending on the type of project and the 

type of financing the borrower received. The case file documents indicate the type of 

project and the specific terms of the Agency’s financing. For example, these documents 

specify the replacement reserve requirements and the owner’s return on investment. The 

case file also contains the management certification and management plan, which provide 

key information about project operations. 

Agency records include the automated systems used to administer the program. 

AMAS and MFIS contain information that aid in monitoring projects. 

 Official records contain legal evidence of all transactions between the Agency and the 

persons with whom it conducts business. For information about the required contents and 

organization of the borrower case file, see RD Instruction 2033-A. 

2. Project Records 

Project records are documents that provide information about the on-going operation 

of the project. Notice of Payment Due Report (Form RD 3560-29), Multiple Family 

Housing Project Budget/Utility Allowance (Form RD 3560-7), and Tenant Certification 

(Form RD 3560-8) are examples. Loan Servicers examine these records during 

monitoring reviews to evaluate project performance and compliance. 

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3. Other Sources 

In addition to site visits conducted by Loan Servicers or other staff to observe project 

operations, the Agency also draws on other sources to inform monitoring activities. 

Substantiated reports by tenants or community members noting inadequate conditions or 

improper practices are examples. Reports of performance problems in other states 

involving the same borrower or agent are also a source of concern. This type of 

information does not necessarily confirm that a problem is present, but indicates a need 

for further review of a project’s operations. 

9.5 PLANNING MONITORING ACTIVITIES 

Planning monitoring activities involves scheduling routine reviews and 

determining the extent to which in-depth monitoring needs to be conducted. Loan 

Servicers and State Office staff should review annually their plan to monitor their 

portfolio. Exhibit 9-2 indicates the reviews that are performed routinely and those 

classified as in-depth reviews. 

A. Routine Monitoring 

Each year, Loan Servicers must schedule routine monitoring reviews and designate 

the staff that will perform these functions. These activities—together with the regular 

program administration activities performed by Loan Servicers—ensure that all projects 

receive a basic level of oversight each year to check for evidence of deficiencies or 

potential problems. 

In scheduling these activities, Loan Servicers need to ensure that the appropriate staff 

is available to perform these reviews. Annual physical reviews should be planned to 

coincide wherever possible with other activities that take staff to the vicinity of the 

projects. In cases where access to individual units is required for inspection, the 

borrower will be required to provide adequate notice to the tenants. 

B. In-Depth Monitoring 

When planning monitoring activities for the year, Loan Servicers must determine 

which projects warrant in-depth reviews and the types of reviews needed. In-depth 

reviews are done periodically to check for continued project compliance. These reviews 

are also performed more frequently for projects experiencing distress or when there is 

clear evidence of compliance concerns. 

Loan Servicers may schedule these reviews to take place at any time during the year. 

They may also need to be scheduled on short notice during the year in response to 

evidence of problems. When scheduling these reviews, Loan Servicers will need to 

coordinate with the other staff participating in the review (e.g., architectural staff). 

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9.6 PERFORMING MONITORING REVIEWS 

A. Desk Reviews 

Desk reviews are usually performed solely by the Loan Servicer and require little 

coordination with other staff. Performing these reviews generally involves three basic 

steps: 

 Preparing and reviewing background material. Loan Servicers should gather the 

project case file and assemble past reports and other relevant records. In addition to 

reviewing these documents, Loan Servicers should review the relevant screens in 

AMAS and MFIS to gain an up-to-date understanding of the project’s status and 

potential concerns. 

 Examining the borrower’s monthly and quarterly reports. Loan Servicers then 

review the borrower’s monthly or quarterly reports following the specific instructions 

in Section 2 of this chapter or using the instructions that accompany the Agency’s 

review form. Loan Servicers must make every effort to complete the review within 

the established time period. If additional information is needed to complete the 

review, Loan Servicers should promptly contact the borrower to request additional 

information. 

 Notifying borrower of any findings. If the review reveals deficiencies or 

compliance violations, the borrower must be promptly notified. The notice must 

describe the deficiencies and a period for corrective action. If a third party is 

involved in financing or providing subsidy to the property and a formal arrangement 

exists with this third party, the Agency will provide a copy of the notice to the third 

party source to share information concerning the Agency’s findings. 

Refer to Chapter 4 of this Handbook for details concerning financial reports. 

B. On-site Reviews 

On-site reviews take more preparation and planning than desk reviews. Loan 

Servicers must follow the four steps below when performing on-site reviews. The actions 

at each step will vary depending on the type of review. The specific actions for 

individual reviews are discussed in Section 2 of this chapter. 

1. Preparing for the Visit 

Loan Servicers should notify the borrower at least 2 weeks prior to a visit. The notice 

should specify the types of preparations (if any) that the borrower must complete to assist 

with the review. The Agency retains the authority to visit the project without prior notice 

to observe conditions and operations and to conduct on-site reviews without the presence 

of the borrower or the borrower’s agent. 

The Loan Servicer should also coordinate with other staff who will participate in the 

review to clarify assignments and responsibilities. In cases where access to individual 

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units is required for inspection, the borrower will be required to provide adequate notice 

to the tenants. 

The Loan Servicer should also review the relevant Agency records and project reports 

to learn the project’s current status and identify potential issues that should receive 

special attention during the review. Finally, the Loan Servicer should fill in the 

background information items on the monitoring instrument or reporting form. 

2. Conducting the Visit 

When conducting an on-site visit, Loan Servicers should conduct an entrance 

interview with the manager and borrower, if available. During this meeting, the Loan 

Servicers should explain the purpose of the review, describe the major activities, and 

indicate the type of cooperation that will be needed from project staff. 

When conducting the review, Loan Servicers should follow the procedures described 

in Section 2 of this chapter and the instructions that accompany the monitoring tool. 

Loan Servicers must carefully record their observations to ensure that problems are not 

missed or incorrectly identified. 

Upon completing the review, the Loan Servicers should briefly consolidate their 

results and meet with the manager or borrower to present the initial findings from the 

review. The Loan Servicer should highlight any findings and/or violations at this 

meeting. 

3. Notifying the Borrower 

The Loan Servicers must prepare a written description of the review results for the 

project case file. They must also issue a letter to the borrower summarizing the 

conclusions of the review and indicate any follow-up actions the borrower is required to 

take. 

This letter is sent to the borrower within 30 days of the site visit or inspection. This 

letter requests the borrower to respond with procedures and time frames for correcting the 

noted deficiencies within 30 days. The purpose of the letter is to: 

 Notify the borrower of review findings; and 

 Provide time frames for resolving deficiencies. 

As is the case with desk reviews, if a third party is involved in financing or providing 

subsidy to the property and a formal arrangement exists with this third party, the Agency 

will provide a copy of the notice to the third party source to share information concerning 

the Agency’s findings. 

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4. Follow-Up Activities 

If a review identifies deficiencies that require borrower action, the Agency needs to 

conduct follow-up actions as appropriate to ensure that the deficiencies are corrected. 

For information about findings and default situations, see HB-3-3560, Chapter 10. A 

copy of the letter is placed in the borrower's case file and must be entered on MFIS. 

9.7 PROJECT CLASSIFICATION 

The project classification system allows the Agency to focus on those projects that Loan 

Servicers consider truly at risk. The following paragraphs provide a brief description of how the 

Agency views the classification of the portfolio. 

Loans may be reclassified in MFIS as findings and violations are determined or as project 

conditions improve. 

CLASS D PROJECTS 

Class D projects are in default and may be taken into inventory, be lost to the program, or 

cause the displacement of tenants. Defaults can be monetary or non-monetary. For information 

about monetary and non-monetary defaults, please refer to HB-3-3560, Chapter 10. 

Projects in non-monetary default are those where a Loan Servicer has notified the 

borrower of a violation using the Agency’s three processing letter process, as described in this 

chapter, and the borrower has not addressed the violation to the Loan Servicer’s satisfaction 

within 60 days of the first servicing letter. The Loan Servicer, State Office, and National Office 

should be aware that the project is in jeopardy and should be available to provide further 

servicing assistance. 

CLASS C PROJECTS 

Class C projects are projects with identified findings or violations, which are not 

associated to a workout plan and/or transition plan. They include projects with violations where 

Handbook Letter 301 (3560) has been issued but 60 days have not passed. It is important to note 

that while the presence of a finding or violation is a normal occurrence in portfolio management, 

Loan Servicers will be concerned when findings and violations are carried for an extended period 

of time with no indication of resolution efforts. Projects under this classification for an extended 

period of time will alert Loan Servicers to one or more of the following: 

1. There may be workload or staffing issues related to resolving problems; 

2. Findings may need to be elevated to violations to facilitate effective servicing; and 

3. Assistance from the State Office or the National Office may be necessary to address the 

problem 

CLASS B PROJECTS 

A Class B designation indicates that the Agency has taken servicing steps and the 

borrower is cooperating to resolve identified findings or violations by associating a work-out 

plan and/or transition plan. 

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CLASS A PROJECTS 

Class A projects have no unresolved findings or violations. 

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SECTION 2: SERVICE OFFICE MONITORING 

9.8 POST-OCCUPANCY REVIEW (90-DAY VISIT) 

A. Purpose of the Review 

The post-occupancy review verifies borrower compliance with program requirements 

for project occupancy during initial lease-up and looks at whether the procedures 

described in the Management Plan and Affirmative Fair Housing Marketing Plan are 

being followed. Specifically, the review examines how borrowers: 

 Seek eligible tenants; 

 Determine tenant eligibility; 

 Determine the appropriate rent; 

 Set up appropriate accounts; and 

 Use initial operating capital 

B. Key Areas Examined 

The Loan Servicer examines the borrower's rent-up activities as detailed below.

 Project records. These include the actions that the borrower takes to attract qualified 

tenants, determine tenant eligibility, and determine correct rental rate. The project's 

management plan and Affirmative Fair Housing Market Plan contain the borrower's 

procedures for tenant selection and for determining the rental rate. 

 Tenant files. The borrower must maintain files for each tenant. Tenant files must 

include such information as income verification, the lease, and documentation 

showing how tenant eligibility was established and how the rental rate was 

determined. 

To complete the review, the Loan Servicer will also need the project's waiting list (if 

applicable) and budget. These documents will be used to determine if the borrower is 

in compliance with the occupancy requirements set forth in Chapter 6 and the 

approved unit rental rates established in the project budget. 

C. Timing 

The post-occupancy review is conducted within 90 days after project operations begin 

or a transfer closes. 

D. Key Staff 

Loan Servicers perform the post-occupancy review. 

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E. Preparing for the Review 

The Loan Servicer should complete the following steps before going to the project 

site to perform the review: 

 Step 1. Determine if outstanding issues, areas of concern, or indicators of 

noncompliance exist by reviewing the borrower case file and MFIS. 

 Step 2. Notify borrower, in writing, of upcoming review. The borrower should 

receive Handbook Letter 202 (3560), Notification Letter for Supervisory Visit at least 

2 weeks prior to the review date to ensure that the necessary records and staff are 

available. Modify the letter as needed for the Post Occupancy Review. The borrower 

will, in turn, notify the tenants of the scheduled inspection. 

 Step 3. Obtain the Multi-Family Housing Project Supervisory Visit form from MFIS. 

F. Completing the Review 

The Loan Servicer should use the worksheet for the Multi-Family Housing On-Site 

Review and the Worksheet for MFH Individual Tenant File Review portions of the 

Multi-Family Housing Project Supervisory Visit form for guidance. The borrower will 

have available the documentation requested by the staff member. The borrower may 

choose to be present during the review. The borrower's choice not to be present does not 

preclude the staff person from performing the review. 

To complete the Post-Occupancy Review, the Loan Servicer must complete the 

following steps: 

 Review the Management Plan and Affirmative Fair Housing Marketing Plan. This 

documentation is evidence that the borrower was aware of the procedures that were to 

be followed during initial rent-up. 

Review tenant files, waiting lists (if applicable), and budget. The tenant files 

reviewed should include a sample of accepted and rejected applicants. 

 The reviewer must determine the following: 

 If requested documentation is present and adequate to perform the review; 

 Borrower's compliance with established procedures for marketing the project, 

qualifying tenants, determining rents, using waiting lists, and rejecting applicants. 

 Summarize the occupancy review by completing the On-Site section of Part III of the 

Multi-Family Housing Project Supervisory Visit form. 

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G. Exit Conference 

 Conduct an exit interview with the borrower to discuss the results of the review, 

possible cause of deficiencies, and required solutions. 

H. MFIS 

 Enter the results of the post-occupancy review in MFIS. 

I. Follow-Up 

If the review reveals deficiencies and/or compliance violations, prepare a letter to the 

borrower describing the deficiencies and a period for corrective action. If the borrower 

does not respond within the established timeframes, Handbook Letter 301 (3560), as 

described in Chapter 10 of HB-3-3560, is to be sent within 15 days from the deadline 

initially given. 

9.9 ANNUAL PHYSICAL INSPECTION 

A. Purpose 

Maintaining the physical condition of the secured property is the borrower's 

responsibility. The Agency Loan Servicers monitor the physical condition of the project 

to ensure that the property maintains its value and that tenants have housing that is 

decent, safe, and sanitary. 

B. Key Areas Examined 

The Loan Servicer will inspect the project's grounds, exteriors, common areas, and 

occupied and vacant units following the methodology described in Section 9.9 F. A full 

physical inspection must be performed when the results of this review indicate that the 

project is not being maintained in accordance with the physical standards for the 

program. 

C. Timing 

Annual inspections are required for all properties with outstanding physical findings 

identified in MFIS unless a full physical inspection and supervisory visit are due. 

However, the Loan Servicer may schedule an annual inspection at any time if warranted. 

D. Key Staff 

Trained and experienced Loan Servicing staff, assisted by the State Architect as 

needed performs the annual physical inspection. An experienced Loan Servicer should 

accompany inexperienced staff during their first two visits to the property. 

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State Officials are authorized at their discretion to accept third party inspection results 

for annual inspections. The borrower or the borrower’s representatives (including tax 

credit syndicators) are not considered a third party for this purpose. Examples of 

acceptable third parties are Department of Housing and Urban Development (HUD), 

Freddie Mac, Fannie Mae, tax credit agencies and housing finance agencies. Loan 

Servicers must continue to populate MFIS with this inspection data. 

E. Preparing for the Review 

The Loan Servicer should complete the following steps before going to the project 

site to perform the review: 

 Step 1. Determine if outstanding issues, areas of concern, or indicators of 

noncompliance with Agency requirements exist by reviewing the borrower case file, 

previous physical reviews, most recent inspection report, tenant complaints (if 

applicable), and MFIS. 

 Step 2. Notify borrower, in writing, of up-coming inspection. The borrower must 

receive Handbook Letter 202 (3560), Notification Letter for Supervisory Visit at least 

2 weeks prior to the review date to ensure that the necessary records and staff are 

available. Modify the letter as needed for the annual physical inspection. The 

borrower will, in turn, notify the tenants of the scheduled inspection. 

 Step 3. Obtain the Multi-Family Housing Project Supervisory Visit form from MFIS. 

F. Completing the Review 

The Loan Servicer should use the Worksheet for MFH Exterior Physical Standards 

and the Worksheet for MFH Interior Physical Standards. The Loan Servicer will 

complete the following steps: 

 Examine the project's grounds, exteriors, and common areas. The number of 

occupied units to be examined is the greater of 5 percent of all occupied units or at 

least two units. If the project has vacancies, the greater of 5 percent of vacant units or 

at least 2 vacant units must also be inspected. For example, a 48 unit project with 3 

vacant units would require 2 occupied units and 2 vacant units to be inspected for a 

total of 4 units. 

No. of Units to be Inspected

Occupied Units + Vacant Units 

Occupied Units Vacant Units 

>5% or at least 2 >5% or at least 2

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 Review the extent of borrower compliance with the physical accessibility 

requirements. Review the ability of the project’s current budgeting and capital 

planning to implement any improvements identified by the borrower’s transition plan. 

For information on transition plans, see Chapter 3. 

 Complete all parts of Form RD 3560-11, Multi-Family Housing Physical Inspection 

Report. 

 Photograph any deficiencies noted during the examination. 

Findings and Violations: The reviewer reports a finding or violation on Form RD 

3560-11 as those items that were previously identified as a deficiency or a weakness. 

A “finding” is a failure to meet physical standards that indicate a widespread 

occurrence or pattern of a physical problem that should be corrected through 

routine procedures. 

A “violation” is a finding that is elevated either by its severity or the Agency’s 

inability to obtain a resolution from routine servicing methods. A violation should 

be recorded only if the Loan Servicer intends to pursue the problem through the 

three-servicing-letter process. Elevating a finding to a violation will have an 

effect on the classification. 

 Conduct an exit conference with the borrower. The exit conference allows the 

borrower to ask questions and to prepare an appropriate response to the findings 

and/or violations noted in the report. In this meeting the Loan Servicer and the 

borrower can discuss the requirements and time frames for resolving each finding 

and/or violation. Identify any Health and Safety Issues, which must be resolved 

within 10 days. 

G. MFIS

Enter the results of the annual physical inspection into MFIS. 

H. Follow-Up 

If the inspection reveals deficiencies or compliance violations, prepare a letter to the 

borrower describing the deficiencies and a period for corrective action. Issues of health 

and safety are to be resolved within 10 days. If the borrower does not respond within the 

established time frames, Handbook Letter 301 (3560) is to be sent within 15 days from 

the deadline initially given. The letter requires that health and safety issues be resolved 

within 10 days. 

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9.10 TRIENNIAL SUPERVISORY VISIT 

A. Purpose 

A Supervisory Visit consists of three components – a full physical inspection, an onsite review and a compliance review. 

Adequate maintenance is a crucial element in providing housing that is decent, safe, 

and sanitary, and ensuring that environmental and accessibility requirements are met. 

The Agency regularly conducts full physical inspections of its properties to ensure that 

they meet established program standards. 

The purpose of the on-site review component is to determine the borrower’s 

continued compliance with the management requirements, financial requirements and 

occupancy requirements for the project. This review also includes an examination of unit 

rents to ensure that they are being charged in accordance with the approved budget. 

The purpose of the compliance review is for Agency staff to review the borrower’s 

compliance with the Affirmative Fair Housing Marketing Plan and/or the Equal 

Opportunity requirements of Title VI of the Civil Rights Act of 1964, the Civil Rights 

Act of 1968 as amended by the Fair Housing Amendments Act of 1988, Section 504 of 

the Rehabilitation Act of 1973, and the Age Discrimination Act of 1975. 

B. Key Areas Examined 

The Loan Servicer will inspect the project's grounds, exteriors, common areas, and a 

sample of dwelling units following the methodology described in Section 9.10 F. 

The Loan Servicer reviews the borrower’s occupancy procedures, rent charge 

calculations, the project’s financial systems and controls, along with its maintenance and 

preventive maintenance programs. 

When conducting a compliance review at a project and at the office of the borrower 

or management agent office, the Loan Servicer will focus on the following areas: 

 Marketing procedures; 

 Rental policies; 

 Waiting list; 

 Project and unit accessibility; 

 Eviction policy; and 

 Other operating policies, as relevant. 

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C. Timing 

Supervisory Visits must be conducted at least once every 3 years, after the initial Post 

Occupancy Review, completed prior to the end of the fiscal year and should be conducted 

more frequently for projects with management that is unfamiliar with Agency 

requirements, or for projects experiencing occupancy or operational difficulties. 

D. Key Staff 

Trained and experienced field staff, assisted by the State Architect as needed, perform 

supervisory visits. An experienced Loan Servicer should accompany inexperienced staff 

during their first two visits to the property. 

To conduct a compliance review, the Loan Servicer must go through training and 

obtain a special certification; therefore, only certified State Office or Field Office Loan 

Servicers can complete the Civil Rights and Fair Housing review requirements. 

E. Preparing for the Supervisory Visit 

The Loan Servicer should complete the following steps before going to the project 

site, or the office of the borrower or management agent to perform the Supervisory Visit: 

 Step 1. Notify the borrower, in writing, of the upcoming Supervisory Visit. The 

borrower should receive Handbook Letter 202 (3560) “Notification Letter for 

Supervisory Visit,” within 2 weeks of the visit to ensure the necessary records and 

staff is available. Since access to individual units will be required for inspection, the 

borrower or management agent must provide adequate notice to the tenants. If the 

Servicing Office chooses to do the tenant file review prior to the visit, request the 

files be sent at this time. 

 Step 2. Obtain Multi-Family Housing Project Supervisory Visit form from MFIS. 

 Step 3. Desk Review. Review MFIS and the borrower’s case file to determine if 

outstanding issues, areas of concern, or indicators of noncompliance with Agency 

requirements and Civil Rights laws exist. The following documents should be 

included in this review: 

 Physical inspection reports 

 Tenants complaints (if applicable) 

 Current Management Plan 

 Borrower’s operating regulations (e.g. grounds for eviction) 

 Affirmative Fair Housing Marketing Plan 

 Work Out Plan (if applicable) 

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 Quarterly/monthly reports 

 Current Annual Budget 

 Current Balance Sheet 

 Current Notice of Payment Due Report

 MFIS Report FRM 2000 (Desk Review) 

F. Completing the Review 

Physical Inspection: 

The Loan Servicer should use the Worksheet for MFH Exterior Physical 

Standards and the Worksheet for MFH Interior Physical Standards and Tenant 

Interviews portions of the Multi-Family Housing Project Supervisory Visit form 

from MFIS for guidance. 

To complete the review, the Loan Servicer will: 

 Examine the project's grounds, exteriors, common areas, and interior units. The 

number of units to be examined will be as follows: 

 Number of revenue producing units Number of occupied units to be inspected 

 0-5 Units All 

 6-30 Units 6 Units 

 31-74 Units 10 Units 

 75 or more Units 15 Units 

Plus if the project has vacancies, the greater of 5 percent of vacant units or at least 

2 vacant units must also be inspected. For example a 48 unit project with 3 

vacant units would require 10 occupied units and 2 vacant units to be inspected 

for a total of 12 units. 

 Complete all parts of the Form RD 3560-11.

 Review the extent of borrower compliance with the physical accessibility 

requirements of civil rights laws. Review the ability of the project’s current 

budgeting and capital planning to implement any improvements identified by the 

borrower’s transition plan. 

 Photograph any deficiencies noted during the examination. 

On-Site Review: 

The Loan Servicer should complete the On-Site Review portion of the Multi-Family 

Housing Project Supervisory Visit form from MFIS. 

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To perform the on-site review, the Loan Servicer must complete the following 

 steps:

 Review project records including marketing materials, applications, and waiting 

lists. The Loan Servicer should determine whether the marketing materials 

indicate that the project is complying with the Affirmative Fair Housing 

Marketing Plan. The Loan Servicer should also determine whether the 

applications and waiting list records indicate that the borrower is complying with 

tenant selection requirements. 

 Review tenant files, which should include such information as income verifications, 

back-up documentation, the leases, and documentation showing how the rental rates 

were determined. The sample files should include accepted and rejected applicants. 

Use Worksheet for MFH Individual Tenant File Review portion of the Multi-Family 

Housing Project Supervisory Visit form from MFIS to record your review. MFIS will 

select tenant files using the File Selection Criteria defined below: 

(a) MFIS will determine the number of files to be reviewed. 

Number of revenue producing units Number of files to be reviewed 

 0-5 Units All 

 6-30 Units 6 Files 

 31-74 Units 10 Files 

 75 or more Units 15 Files 

(b) MFIS will identify the risk factors. 

Gross income < $3000 

Medical Deductions 

Initial Certification 

Move-out 

Eviction 

Most recent recertification 

(c) If there are an insufficient number of files using the risk factors then MFIS will 

randomly select the remaining files. 

 For HUD Section 8 and Housing Choice vouchers, Tenant Subsidy Codes 2 & 6, 

a tenant file review is NOT required by the Agency. 

The reviewer must determine whether: 

 The borrower is maintaining adequate documentation; and 

 The borrower is complying with program requirements for marketing the 

project, qualifying tenants, determining rents, using waiting lists, and rejecting 

applicants. 

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 If discrepancies are observed and determined to be trends in the tenant file 

reviews, a full review of all tenant files will be required within 90 days to 

determine further servicing such as collection of unauthorized assistance or 

obtain proper verifications. 

 Review borrower compliance with management requirements, financial 

requirements and occupancy requirements for the project. 

The Loan Servicer will review the following: 

 Site Staff 

 Maintenance Systems 

 Capital Planning and cash flow 

 Cash Controls 

 Cost Controls 

 Insurance and Reserve Accounts 

 Identity of Interest 

 Occupancy Review 

 Tenant/Management Relations 

 Violence Against Women Act (Attachment 6-K, Section R) 

The Loan Servicer must complete the On-Site Review section of the Multi-Family 

Housing Project Supervisory Visit form. 

Compliance Review: 

To perform the compliance review, the Loan Servicer will: 

 Review the management plan to determine project management’s method of 

informing tenants and applicants regarding requests for reasonable accommodations. 

 Review the lease agreement, application, and other documentation used by the 

borrower to determine if policies and procedures represent barriers to occupancy 

 If a tenant is an ineligible occupant of a fully accessible unit, determine if there is an 

executed lease attachment that requires the tenant to move if an individual needing 

the handicapped features applies for occupancy 

 Visually inspect the project to determine if there are physical barriers, and compare it 

to the self-evaluation and transition plan to determine if those barriers are addressed 

in the plan and are scheduled to be removed. 

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 Where transition plans are scheduled to remove barriers over more than a one-year 

period, review the transition plan and the most recently approved budget to ensure 

that borrower budgeting and the project’s financial condition is supportive of the 

transition plan as written. Transition plans should include the potential cost of 

removing identified barriers. 

 Interview tenants to determine if the borrower has provided information and made 

reasonable accommodations upon request by the tenant 

 Interview tenants in the fully accessible units to determine if the tenant has need of 

the accessibility features of the unit and is an eligible occupant 

G. Exit Conference 

Upon completing the supervisory visit, the Loan Servicer should conduct an exit 

conference with the borrower to address findings, cause of findings, and possible 

resolutions. Advise borrower of any Health and Safety Issues, which must be addressed 

within 10 days. 

H. MFIS

Enter the results of the inspection into MFIS.

I. Borrower Notification of Review Results 

The Loan Servicer must prepare a written description of the review results for the 

project case file. They must also issue a letter to the borrower summarizing the 

conclusions of the supervisory visit and indicate specific follow-up actions the borrower 

is required to take. In addition, the results of the supervisory visit should be forwarded to 

other RD offices working with this borrower or agent. 

This letter is sent to the borrower within 30 days of the supervisory visit. This letter 

requests the borrower to respond with procedures and time frames for correcting the 

noted deficiencies within 30 days. However, if the noted findings involve issues of 

health and safety, the borrower is required to resolve those specific issues within 10 days 

of the letter. 

If the results of a physical inspection indicate a finding or violation pertaining to 

“Common Area Accessibility,” “Fully Accessible Units,” or other relevant physical or 

accessibility standards, the Loan Servicer should include the specific language in 

communications with the borrower as shown in Exhibit 9-4. 

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Exhibit 9-4 

Sample Language – Civil Rights Violations 

Detected During Physical Inspections 

“Recent Agency monitoring of the subject project indicates that you are not currently 

meeting your responsibilities under applicable Civil Rights laws. Since project 

operating or reserve account funds may be required to address this situation, we 

request that you advise the Agency of how you intend to comply with the law. In 

addition to any penalties, liabilities, or loss of tax credits that may result from legal 

action brought against you by third parties, continued noncompliance may result in 

your ineligibility to receive further loan funds from the Agency. You failed to meet 

the following MFH physical standard(s): 

1. Common Area Accessibility (Specify) 

2. Fully Accessible Units (Specify) 

3. Other (Specify).”

If the results of the supervisory visit indicate noncompliance with other Civil Rights 

laws the Loan Servicer should also include the specific language regarding 

noncompliance as shown in Exhibit 9-5. 

Exhibit 9-5 

Sample Language to Use When Compliance 

Reviews Uncover Violations to Civil Rights Laws 

“Recent Agency monitoring of the subject project indicates that you are not 

currently meeting your responsibilities under applicable Civil Rights laws. 

Since project operating or reserve account funds may be required to address 

this situation, we request that you advise the Agency of how you intend to 

comply with the law. In addition to any penalties, liabilities, or loss of tax 

credits that may result from legal action brought against you by third parties, 

continued noncompliance may result in your ineligibility to receive further 

loan funds from the Agency. You are in noncompliance with the following: 

(Specify).” 

J. Follow Up

If the borrower does not respond within the established timeframes, Handbook Letter 

301 (3560) in Chapter 10 of HB-3-3560 is to be sent to the borrower within 15 days from 

the deadlines initially given. 

If a third party is involved in financing or providing subsidy to the property and a 

formal arrangement exists with this third party, the Agency will provide a copy of the 

notice to the third party source to share information concerning the Agency’s findings. 

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Servicing Offices must notify the State Civil Rights Coordinator/Manager (SCRC/M) 

if borrowers fail to bring themselves into compliance with Civil Rights Laws or fail to 

submit an acceptable transition plan. The State Director will forward the issue of 

noncompliance to the National Office Civil Rights Staff. The National Office Civil 

Rights Staff will notify the State Director if further review and processing of the finding 

will either resolve the finding or require that it be forwarded to the National Office Civil 

Rights Staff or the Justice Department to resolve the noncompliance issue. The SCRC/M 

will notify the State Office and the Servicing Office of the disposition of the finding of 

noncompliance. The SCRC/M will notify the State Office and the Servicing Office of the 

disposition of the finding of noncompliance. 

 

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SECTION 3: AGENCY MONITORING FOR LABOR HOUSING PROJECTS

9.11 OFF-FARM LABOR HOUSING 

Off-Farm Labor Housing projects should be monitored in accordance with the 

requirements established in this chapter for other multi-family housing projects. 

9.12 ON-FARM LABOR HOUSING 

On-Farm Labor Housing projects should be reviewed by the Agency at least once every 

three years. The Loan Servicer should complete the Supervisory Visit Worksheets from MFIS. 

During the monitoring visit, Loan Servicers should review: 

A. Eligibility Documentation 

Borrowers should properly document that each resident is eligible to live in the OnFarm Labor Housing unit. At a minimum the borrower should have an executed lease or 

employment contract with each tenant and each tenant should meet the eligibility 

requirements established for On-Farm Labor Housing tenants in Section 9 of Chapter 6 of 

this Handbook. 

B. Financial Information 

The borrower must document that the on-farm labor housing unit(s) are being 

operating in a nonprofit manner. At a minimum the borrower should develop an 

operating budget that demonstrates revenues equal expenses and the borrower is not 

receiving a return from the property. 

C. Operating Plan 

The review of the operating plan should also ensure that the property is being 

managed in a nonprofit manner and that tenant requests and grievances are being handled 

in a timely manner and in accordance with the management plan. 

D. Loan Agreement 

The review of the loan agreement should ensure that the borrower is in compliance 

with the agreement made to the Agency to provide adequate housing to the employees in 

the borrower’s employment and not to charge rent, unless otherwise approved by the 

Agency. 

E. Security Deposits 

If the borrower has charged security deposits to the tenants, then the review should 

ensure that security deposits are being managed in accordance with state and/or local law. 

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F. Payment of Taxes and Insurance 

The review of taxes and insurance should ensure that taxes are being paid in a timely 

manner and at the very minimum to ensure that the borrower has adequate insurance in 

place to cover replacement of the property in the event of a loss.

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SECTION 4: STATE OFFICE OVERSIGHT OF SERVICING 

ACTIVITIES 

Once the Servicing Office has conducted routine oversight and reviewed its portfolio, the 

State Office has a responsibility for additional oversight in a broad sense. The goals and 

responsibilities of State Offices are described below. 

The State Office must use MFIS as the database for maintaining and analyzing project 

financial information as well as recording and tracking project supervisory activity and servicing 

efforts. 

9.13 PORTFOLIO MANAGEMENT GOALS 

Proper asset management of the Agency’s multi-family housing portfolio begins with a 

thorough evaluation of the entire portfolio to obtain a clear understanding of existing and 

potential problems. Close monitoring, timely follow-up, and a consistent administration of the 

regulations will be beneficial in the resolution of problems and will contribute to the stability of 

the program. 

Staff, at all levels, need to be to be better prepared to address the challenges relating to 

their portfolio. Staff must be provided with training, resources, and support to meet these 

challenges. The mission and goals, and plan of action for effective loan servicing and portfolio 

management are described below. For tracking adherence to these goals, State Offices should 

look at the appropriate MFIS or AMAS report unless specified otherwise. 

1. RECEIVERSHIP PROPERTIES. Reduce Receivership Periods to No More Than 

12 Months 

(Measurement Tool: MFIS TRK 2000 – Servicing Effort Tracking Report) 

The oversight process of a property held in receivership by the Agency requires close 

monitoring and supervision by the National Office, State Office, and Servicing Office. 

This will include the review of property financial records such as monthly reports, yearend reports, and annual audits. Additionally, the staff is responsible for review and 

approval of the payment of certain expenses, such as management fee, taxes and 

insurance. 

Receivership properties may have special needs and may need to be serviced within 

the parameters of a workout plan. Others will require sales and/or other liquidation plans. 

To transition out of the receivership, it will be necessary to focus efforts on obtaining 

new substitute general partners, transfers of ownership, or to liquidate accounts. 

States should input servicing data into the comment section of MFIS to provide 

updated status. 

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2. INVENTORY PROPERTIES: Reduce Inventory Property Holding Periods to No 

More Than 12 Months 

(Measurement Tool: States will input comments to update the status of inventory 

properties in MFIS on a monthly basis. The National Office will review the status of 

inventory properties by compiling AMAS Reports and then reviewing MFIS TRK 2000.) 

State Offices must review their inventory property portfolio and take necessary 

actions to effectively dispose of these properties. To accomplish this, all efforts should be 

given to marketing the properties, including reducing the price, sealed bids, or sale as a 

non-program property. All inventory properties should be managed and made ready for 

sale in the most expeditious manner using the authorities in 7 CFR part 3560, subpart K. 

The National Office should be contacted for assistance in the sale of a property 

experiencing marketing difficulties. 

3. DELINQUENT LOANS: Maintain a Delinquency Rate of Two Percent or Less 

(Measurement Tool: AMAS RC 545 Report)

All states with delinquency rates that exceed two percent are required to work with 

borrowers and take appropriate servicing actions to reduce their delinquency rates to two 

percent or less. 

Borrowers who are consistently delinquent require aggressive servicing and 

counseling regarding late payments. If long-term delinquency is the result of pending 

litigation for liquidation, appropriate officials should be notified and encouraged to 

expedite such litigation. When states are experiencing difficulties with litigation officials 

or when the loan is part of a long-term work-out agreement, the National Office should 

be contacted for assistance. 

A number of long-term delinquencies are the result of inactive accounts with loan 

balances remaining after the asset is liquidated (i.e., foreclosure, sale, or transfer for less 

than the debt, compromise offer, bankruptcy, etc.). These accounts need to be settled due 

to their negative impact on the overall multi-family housing delinquency rate. State 

Offices are to immediately request assistance of OGC, the Assistant U.S. Attorney, 

and/or the National Office when accounts in this category are determined to exist. 

Any state with average delinquency rates above the two percent national average will 

be closely monitored and contacted by the National Office to determine what efforts are 

being made to reduce the delinquency, and to identify whether assistance or training is 

needed. Delinquency status reports may be required from those states identified as having 

problems. Similarly, any states exhibiting a trend in increasing delinquencies may be 

required to submit an explanation or a plan of action. Any instances of Servicing Offices 

holding payments and not processing them in a timely manner must be discontinued 

immediately. All payments are to be processed when received. 

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4. OPERATING BUDGETS/UTILITY ALLOWANCES: Take Appropriate Action 

on All Budgets/ Utility Allowances Prior to the Beginning of a Project’s Fiscal Year 

(Measurement Tool: MFIS TRK 3000 – Tracking Step Summary Report) 

Budgets are to be reviewed and approved on MFIS prior to the start of the borrower’s 

fiscal year. If not received or if unacceptable, a finding and a follow up date must be 

entered in MFIS. Loan Servicers must take action on all budgets within 60 days of 

receipt. 

5. ANNUAL FINANCIAL REVIEWS: Complete All Year-End Financial Reviews 

Within the Required Time Frame 

(Measurement Tool: MFIS TRK 3000 – Tracking Step Summary Report)

The “Actuals” listed on Form RD 3560-7 and Form RD 3560-10, and the engagement 

are to be reviewed and any findings entered on MFIS within 60 days of receipt. The 

borrower is to be notified of the results of the review and MFIS is to be updated 

accordingly. If financial information is not received or is unacceptable, a finding and a 

follow-up date must be entered in MFIS. 

6. ANNUAL PHYSICAL INSPECTIONS: Complete All Required Annual Physical 

Inspections. 

(Measurement Tool: MFIS TRK 3000 – Tracking Step Summary Report) 

The purpose of the annual physical inspection is to determine whether or not there are 

problems that may require immediate attention. In addition, a determination should be 

made if the exterior and common areas are accessible as required by applicable Federal 

law. All findings and follow-ups must be entered into MFIS. 

7. SUPERVISORY VISITS: Complete All Required Supervisory Visits and 

Compliance Reviews. 

(Measurement Tool: MFIS TRK 3000 – Tracking Step Summary Report) 

The Supervisory Visit is the Agency’s primary tool to complete in-depth analysis of 

the borrower operations with regard to Management Plan/Agreement, Fair Housing, 

tenant eligibility, file review, budget compliance, building security and maintenance. The 

borrower is to be notified of findings and deficiencies and given a timetable to correct all 

problems. Any summary level findings must be entered into MFIS. 

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8. STATE OFFICE OVERSIGHT OF MFIS DATA: State Office responsibility is to 

select and review 5 percent of projects receiving the Supervisory Visit during the 

year and to ensure that all the data elements in MFIS have been input. 

State Office staff must continuously monitor supervisory activities and borrower 

status to ensure that each project is receiving timely and effective supervision. MFIS 

will be used to accomplish these monitoring responsibilities. 

When used correctly, MFIS enables the Agency to effectively manage the multifamily housing portfolio and ensure the proper use of Federal housing resources. Staff at 

National, State, and Servicing Office levels has immediate access to portfolio information 

in order to make better program management decisions, and more effectively deploy 

limited resources. With the implementation of MFIS, the ability to review portfolio 

activity now extends to borrowers and management agents as well as servicing office 

jurisdictions. 

State and Servicing Offices are required to input the current status of all servicing 

actions into MFIS. The State Office must monitor the MFIS activities of Servicing 

Offices to ensure that data are accurate, consistent, timely, and complete and that 

regulatory authorities are effectively used to manage the portfolio and determine that 

Agency resources are effectively used to obtain compliance. 

At least quarterly, State Offices must print out and review the MFIS project 

classification report. For projects classified with a D or C, State Offices must review the 

project’s supervisory and servicing status on MFIS. 

National Office will issue monthly reports on status of portfolio and semi-annual 

reports on the state’s accomplishment on servicing goals. 

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SECTION 5: NATIONAL OFFICE INITIATIVES AND OVERSIGHT 

9.14 WAGE AND BENEFIT MATCHING 

States are required to obtain wage and benefit matching agreements with State 

Departments of Labor (SDOL) and to fully implement and utilize income matching of tenants 

applying for assistance and rental subsidies under the Multi-Family Housing programs. 

State Office staff will: 

 Execute a Memorandum of Understanding (MOU) or other appropriate agreement with 

the state agency charged with administering information required to be kept by the US 

Department of Labor (DOL) on wage earnings and benefits. The purpose of the MOU is 

to improve the controls over income certifications and subsidy payment accuracy by 

providing an independent source for verifying incomes of participants. Before entering 

into such agreements, states are reminded that the advice and consent of the Office of the 

General Counsel (OGC) must be obtained. 

 Aggressively pursue implementation of MOUs. If assistance is needed to overcome 

implementation barriers such as statutory prohibitions, automation issues, or a lack of 

cooperation from the state agency, the Deputy Administrator for Multi-Family Housing 

Programs should be contacted. 

 Approve computer-matching arrangements. The administrative oversight required for a 

fully interactive wage and benefit-matching system involves considerable resources to 

meet the stringent administrative oversight required by law. 

1. Where two or more Agency automated systems are to be linked to merge data, the 

advice and consent of the Deputy Administrator, Multi-Family Housing must be 

obtained prior to implementation of such a system. (Example: Rural 

Development may arrange to access a State Wage and Benefit Information 

Collection Agency's database and pull up information on Agency hardware 

platforms. Rural Development can then manually compare the results on 

computer screen or printout with Agency data.) 

2. When the data from two or more agencies is being merged to facilitate efficient 

comparison between incomes and benefits reported via use of automated software 

routines comparing database records, approval by the Department of Agriculture's 

Data Integrity Board is required. In addition, publication of the action in the 

Federal Register and notification to Congress is required. 

 Determine when and how often to conduct wage and benefit matches. State Offices will 

establish routines to require and ensure that wage matches are performed each year on at 

least 10 percent of all initial and subsequent tenant certifications of those households 

earning income, for those residents scheduled to be interviewed prior to conducting 

supervisory visits, and for projects where the supervisory visits reveal significant 

discrepancies. (Normally, wage and benefit matches will not exceed a 20 percent level.) 

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Other incidences when wage and benefit matches may be obtained, but are not required, 

are for tenant households who are moving into projects for the first time, for tenants or 

applicants claiming zero or unreasonably low incomes, and for existing tenants where the 

management agent or the servicing official deems wage matching appropriate. 

 Wage and benefit matching for MFH programs includes Labor Housing residents whose 

eligibility or receipt of subsidy is determined in whole or in part on wage and benefit 

data. 

 Establish notification routines for initiating MFH wage and benefit matching. States may 

use the notices to borrowers, management agents, and residents, set out in Appendix 4 of 

this Handbook, as guides in implementing the wage and benefit matching system for 

MFH programs. 

 Identify illegal or improper assistance and service suspected or confirmed abuses in the 

MFH program. If the DOL verification and investigation reveals that a tenant has 

submitted inaccurate or false information regarding household income, the servicing staff 

is required to notify the borrower of the findings. The borrower must attempt to correct 

the tenant certification and/or seek restitution of any improperly received rental 

assistance. See Appendix 4 of this Chapter for guidance in notifying the borrower of any 

discrepancies discovered. The borrower will provide the tenant a notice of lease violation 

and an opportunity for repayment. If the tenant refuses or is unable to repay, the 

borrower will initiate eviction proceedings. If the tenant moves out of the unit without 

repaying, the borrower will provide the Agency all relevant tenant records so the Agency 

can begin the process of recouping the improper assistance through the use of US 

Treasury offsets 

State Offices can contact the Deputy Chief Financial Office, Program Reporting Branch 

of the St. Louis Office to request assistance in further servicing and collection processing. 

 The Agency will confirm that the benefits received under the current tenant certification 

period are accurate. The Agency does not intend to require past tenant certifications to be 

reviewed for accuracy by wage and benefit matching unless there is evidence of 

substantial abuse and the amount of the past-unauthorized assistance exceeds $500. In 

addition, any recovery efforts must not begin without first having been assured that 

tenants have had the opportunity to review the accuracy of the information and appeal 

any disagreements in accordance with the provisions of CFR 3560.160. 

Report Quarterly to the National Office on State’s progress in obtaining MOUs. 

States listed in Attachment 9-A that do not have MOUs in place (except those where 

State Law prohibits wage matching) must submit quarterly progress reports on actions taken to 

implement an MOU by memorandum or e-mail to the National Office, Multi-Family Housing 

Portfolio Management Division (MFHPMD). 

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 9.15 UNUSED RENTAL ASSISTANCE 

It is the intent of the National Office to recapture all available unused rental assistance 

into an Administrator’s Rental Assistance (RA) Reserve account. This account will be used at 

the Administrator’s discretion. The intent behind establishment of the Reserve is maximum 

utilization of available RA. State Directors are responsible for identifying unused RA, 

establishing when unused RA should be withheld from the Administrator’s Reserve pending 

specific events, and how unused RA held in reserve will be transferred according to priorities 

established by the Administrator. The effective use of Rental Assistance is a major goal of Rural 

Development. 

A. Unused Rental Assistance Reports 

State Directors must report semi-annually on the status of the RA units unused for 6 

months or more in their State using Attachment 9-B, “Report of Status of Unused RA units.” 

The basis for this information comes from MFIS Report PRJS 4200, “Occupancy Trend.” In 

addition to vacancies, the report identifies unused RA units as of the 1st day of the reporting 

period. 

When identifying RA units being unused for six months, evaluations need to be made to 

determine if RA units are unused because of tenant turnover. This is particularly true in the case 

of one or two RA units appearing eligible for possible transfer. MFIS Report PRJS 4200, 

“Occupancy Trend” identifies the possible number of RA units available for transfer. This 

number is the fewest unused RA units for the past six month period. A review of the current 

month’s occupancy is necessary to determine if there are any applicants/tenants who may need 

the RA unit in the next month. 

A review of MFIS Report PRJ2000, “Project Worksheet” and PRJS 4200, “Occupancy 

Trend” is needed to determine the impact of unused RA by the following situations: 

1. Tenants vacating 

2. Tenants moving in 

3. Tenants paying overage 

4. Percentage of occupancy 

5. Number of vacant units 

After the review and analysis of the reports, the property should be contacted if there is 

any uncertainty about the cause of the RA unit being unused. 

 Regulation 3560.257(c) requires that “...borrowers must assign available rental 

assistance units as soon as...units become available”. If there is substantial traffic in and out of 

the property, analyze closely to see if the RA that was unused was again re-used in subsequent 

months within the 6-month period. 

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 Pay particular attention to this in cases where there is substantial activity and one or two 

units are identified as unused. This is the effect of “turnover”: RA can appear to be unused 

where there is substantial tenant traffic, when in fact it may be an overlap of unused RA units. 

 Part A – Unused RA and unused RA withheld from the Administrator’s Reserve 

to be used within the next 6 months. All units identified as available for the 

Administrator’s Reserve should be immediately available for transfer upon 

submission of the report. 

 Part B – Properties where Unused RA is intended to be used in Part A. States 

must identify the proposed disposition of unused RA according to categories 

listed in the Report and the following guidance below: 

 Part C – State Director’s intended use from the Administrator’s Reserve. 

Reports are due no later than 30 days after April and October (e.g. the Status 

Report as of April 1 is due May 1). 

B. Evaluation of Report 

The National Office will review the Status report within 30 days of receipt. If the 

National Office determines that State Offices are not aggressively utilizing the unused RA, the 

Administrator may determine the placement of unused RA units, including transfer to rent 

overburdened tenants or to the Administrator’s RA Reserve account. If units are to be 

transferred to the Reserve, the National Office will advise the State Office so that all required 

administrative actions can be undertaken to affect the transfer. If unused units will not be 

transferred to the Reserve, the National Office will advise the State Office so that all unused 

units can be effectively utilized. 

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SECTION 6: SPECIAL PROCEDURES FOR DECLARED DISASTERS

In the event of a natural or man-made disaster declared by the President of the United 

States, the Agency may authorize certain actions to be undertaken or certain regulatory 

provisions that may be waived for MFH borrowers who make their housing available for disaster 

evacuees. 

9.16 PRESIDENTIALLY-DECLARED DISASTERS 

In the event of a disaster, the Federal Emergency Management Agency (FEMA) 

identifies counties affected by the disaster and makes available money or direct assistance to 

individuals whose property has been damaged or destroyed and whose losses are not covered by 

insurance. 

The Agency has developed Special Actions and Waivers that may be implemented in the 

event of such disasters for tenants who are residents of the affected counties and owners of Rural 

Development-financed properties located in the affected counties. For disasters that impact at 

least 500,000 people, special disaster-related Servicing Actions will be put into effect as outlined 

below. 

A. Definition of Evacuees

For purposes of the Section 515 and Section 514 loan programs, “disaster evacuees” are 

defined as residents of counties included in the declared disaster area identified by FEMA. In 

order to qualify as a recipient of Rural Development multi-family housing assistance and receive 

the benefits identified below (Special Actions and Waivers), a disaster evacuee must present 

evidence to the property manager of having resided in the affected county. This evidence may 

be a driver’s license, utility bill, mortgage statement, lease, etc., or the property manager may 

verify the address, date of birth etc., from a credit agency. 

By definition, a resident in a Rural Development financed property located in a disaster 

county is a “disaster evacuee” and may be entitled to benefits from Special Actions identified 

below. For example, an existing tenant may suffer a job loss due to the disaster, which could 

result in receipt of emergency rent assistance provided by another governmental agency. 

B. Use of Rural Development Rental Assistance Program 

A disaster evacuee who is receiving rent assistance from any governmental agency is not 

eligible to receive benefits from the Rural Development Rental Assistance Program. If the 

evacuee is not receiving rent assistance from another government agency, the property manager 

should apply the standard eligibility tests for the evacuee to receive Rural Development Rental 

Assistance. If the manager is unable to obtain verifications of income or employment because of 

the disaster, no Rental Assistance can be provided. 

 

9-35 

(02-24-05) SPECIAL PN 

Revised (08-07-09) PN 431 
HB-2-3560 

9.17 SPECIAL ACTIONS AND WAIVERS 

 Regardless of the size of the affected population, State Directors have authority to 

implement the following procedures without National Office approval: 

1. Applicants may receive a Letter of Priority Entitlement (LOPE) issued by USDA Rural 

Development or may provide the property owners with documentation of being registered 

with the FEMA in lieu of a LOPE letter. 

2. If an applicant does rent a Rural Development-financed property, the FEMA registration 

number must be entered into Multi-Family Information System (MFIS). Within 90 days, field staff will need to conduct a random sampling of tenant files to assure that the FEMA 

data was input into MFIS correctly. 

3. Allow for imputed income from assets due to homeownership affected by the disaster. 

4. Zero income applicants will be allowed to reside in apartment units; rental assistance (if 

available) will be made available to the applicant. 

5. Collection of security deposit per 7 CFR 3560.204 may be waived, if requested by the 

owner of the property. 

6. Owners of elderly designated properties may rent to age ineligible applicants for 6 

months from the date of the State Director decision. 

7. Annual lease required per 7 CFR 3560.156 (b)(2) is waived and leases may be issued on 

a month-to-month basis. 

Special Actions and Waivers that may be provided by the Agency and the Servicing 

Requirements that must be implemented by Servicing Officials are listed below. 

A. Tenants Displaced from Rural Development Financed Multi-family Properties 

For existing MFH tenants or Section 502/504 borrowers displaced by the disaster, the 

Agency has several authorities available to minimize the impact of the devastation. 

Special Action Servicing Requirements 

1. The existing MFH tenants and/or Section 

502/504 borrowers made homeless by the disaster 

may apply for occupancy at any Rural 

Development financed property as a "displaced 

tenant." In accordance with 7 CFR 3560.154 (g) 

(2)(ii), they will be placed, first come-first served, 

on the waiting list, with or without a Letter of 

Priority Entitlement (LOPE letter). They would 

then be offered any vacant unit or the next 

available unit if no vacancies exist. Under this 

circumstance, the tenant required to move is 

entitled to or could benefit from the special 

actions and waivers identified in this section. 

No action required. 

9-36 
HB-2-3560 

Special Action Servicing Requirements 

2. Some existing tenants may have been receiving 

Rental Assistance (RA) in units made 

uninhabitable by the disaster. While the Agency 

cannot provide RA to a tenant unless they occupy 

an eligible Rural Development financed property, 

the Agency can allow the transfer of the tenant's 

RA unit to an eligible Rural Development 

property where the tenant could then continue to 

receive RA. Any such arrangement needs to be 

agreed to by all parties and be designed to return 

the RA, and the tenant if they chose, back to their 

original apartment unit. 

In accordance with this special action, Servicing 

Officials will be authorized to arrange temporary 

transfers of RA from properties made uninhabitable 

by the disaster to properties in surrounding areas 

that have vacancies in habitable units, as follows: 

a. The owners must enter into an agreement 

whereby RA units, in an amount equal to or less 

than the number of vacant units in the receiving 

property, are transferred for a period of time until 

the units in the damaged property can be made 

habitable. When the units are habitable, the RA 

units will be transferred back to the original 

property. RA units may be transferred as a group or 

one at a time. 

b. First priority for the use of transferred units is RA 

tenants moving from the damaged property. The 

tenants would be accommodated first come-first 

served from the waiting list in accordance with 7 

CFR 3560.154 (g)(2)(ii). These displaced tenants 

would receive priority over any other applicant or 

existing tenant. 

c. Displaced tenants receiving the transferred RA 

must sign an attachment to their lease indicating that 

they understand that the RA unit will be returned to 

its original property when the damaged apartment 

unit has been made habitable. At that time, the 

displaced tenant could also return and continue to 

receive RA. This agreement would be subject to the 

tenant remaining eligible and the tenant wishing to 

return to their original unit. However, if the tenant 

chooses to stay, they could not be assured RA and 

the borrower would charge an appropriate rent 

based on any subsidy available to that property. 

9-37 

(02-24-05) SPECIAL PN 

Revised (12-17-08) PN 425 
HB-2-3560 

B. Assistance for Rural Development Financed Properties Destroyed or Damaged

In properties where all or a substantial number of the units become uninhabitable, the 

Agency has several authorities available to minimize the financial impact of the disaster. 

Special Action Servicing Requirements 

1. If borrowers are unable to transmit tenant certification 

information due to communication problems relating to 

the disaster, the Agency may waive overage charges due 

to late submission. The borrower should contact the 

Servicing Office to advise them of any problems with 

transmitting information to the Agency. 

State Office may waive overage charges. 

2. If borrowers are temporarily unable to make loan 

payments, the Agency may waive late fees to reduce any 

extra financial burden. 

State Office may waive late fees. 

3. The Agency may enter into servicing workout plans 

to assist properties whose financial viability has been 

disrupted. Workout plans as described in 7 CFR 

3560.453 can include a variety of actions to lower 

operating costs. These include reducing contributions to 

the reserve account or lowering loan payments. 

Reamortization of the account can be used to bring the 

account current once the repair is completed. Servicing 

workout plans would also bring into consideration any 

borrower receipt of insurance benefits. 

The Agency should work with the Borrower 

to determine an appropriate workout plan. 

4. Provided borrowers are making a good faith effort to 

repair any apartment units made uninhabitable by the 

disaster, interest credit may remain in effect. 

The Agency should review the situation after 

180 days to assess progress in rehabilitating 

damaged units. 

C. Non-Rural Development Tenants

Disaster evacuees who were not tenants in other Rural Development properties may 

apply for housing in Rural Development financed properties. Evacuees are entitled to receive a 

LOPE letter or may have a FEMA registration number, both of which place them at the top of 

the waiting list. Borrowers, at their discretion, may apply or waive their standard tenant 

screening requirements. Borrowers must, however, continue to comply with all Fair Housing 

regulations and the selection criteria cannot be arbitrary or discriminatory. 

9-38 
HB-2-3560 

Special Action Servicing Requirements 

1. Borrowers who house disaster evacuees are 

required to utilize tracking identification numbers 

of other government agencies if the evacuee has 

received federal disaster assistance. If a disaster 

evacuee applicant rents in a Rural Developmentfinanced property, the FEMA registration number 

must be entered into Multi-Family Information 

System (MFIS). 

 In disaster situations where more than 500,000 

people are affected, Agency officials should ensure 

that: 

1. The property manager inquires about and 

obtains verification of receipt by an evacuee of 

any rent assistance provided by any 

governmental Agency, such as Transition 

Housing Assistance offered by FEMA. If such 

assistance is received in a lump sum, it will be 

treated as exempt income for rent calculation 

purposes. If such assistance is regular and ongoing, the assistance will be counted as income, 

regardless of the size of the disaster. These 

amounts should appear on the Tenant 

Certification, Form RD 3560-8; 

2. If a tenant receives a rental voucher (similar to 

a HUD voucher), then the property manager 

should code Form RD 3560-8, Part II, field 6 

“Tenant Subsidy Code” as “4 – Other Public 

RA.” 

3. Managers must obtain such verification within 

90 days of occupancy; 

4. Borrowers must place in the tenant’s file a copy 

of the FEMA award notification or other 

corroborating evidence that the tenant is 

registered to receive benefits from FEMA; 

5. Managers must indicate on the Tenant 

Certification the appropriate disaster code (as 

provided by Rural Development) for each 

evacuee housed in the property. Managers 

must include the correct FEMA registration 

number on the Tenant Certification form. 

6. Servicing Officials must conduct a random 

sampling of evacuee files within 90 days of 

occupancy to assure that the evacuee provided 

all required certifications, that the FEMA and 

the correct disaster code was input to MFIS 

correctly, and follow-up with corrective actions 

within 30 days; 

7. Borrowers should notify disaster evacuees of 

any available emergency Rural Development 

assistance upon notification from Rural 

Development; 

9-39 

(02-24-05) SPECIAL PN 

Revised (03-17-10) PN 437 
HB-2-3560 

Special Action Servicing Requirements 

 8. Servicing Officials must conduct a random 

sampling of evacuee files within 180 days to 

review rent charges to all evacuees to ensure 

borrowers are not collecting rent amounts in 

excess of the tenant’s net tenant contribution 

and review properties that have an unusually 

high number of tenants classified as disaster 

evacuees (in cases where emergency rental 

assistance has been provided). 

2. Allow for imputed income from assets due to 

homeownership affected by the disaster. 

3. Zero income applicants may be allowed to 

reside in apartment units, if rental assistance or 

other subsidy is available. 

4. Collection of security deposit per 7 CFR 

3560.204 may be waived, if requested by the 

owner of the property. 

5. Owners of elderly designated properties may 

rent to age-ineligible applicants for six months 

from the date of the waiver. 

In disaster situations regardless of the number of 

people affected, Servicing Officials must review a 

random sample of evacuee files within 180 days of 

evacuee occupancy to ensure that the age-ineligible 

evacuees are no longer residents of the elderly 

designated properties.

6. If requested, the Agency may waive 7 CFR 

3560.576 (b)(2) and (e) to allow Off Farm Labor 

Housing owners to accept non-farm applicants 

and allow for income to be received from sources 

other than from farm labor employment. 

In disaster situations regardless of the number of 

people affected, Servicing Officials must review a 

random sample of evacuee files within 180 days of 

evacuee occupancy to ensure that the ineligible 

evacuees are no longer residents of the farm labor 

housing property.

7. Annual lease required per 7 CFR 3560.156 

(b)(2) may be waived and leases may be issued on 

a month-to-month basis. 

9-40 
HB-2-3560 

ATTACHMENT 9-A

State Wage and Benefit Matching Agreements 

(As of April 2006) 

State Matching 

Agreements 

Matching 

Impediment 

Actively 

Matching 

Disclosure 

Allowed 

Alabama Yes N/A Yes Yes 

Alaska Yes N/A No No 

Arizona Yes N/A Yes Yes 

Arkansas No C N/A N/A 

California Yes N/A Yes No 

Colorado Yes N/A Yes No 

Connecticut No B N/A N/A 

Delaware Yes N/A Yes No 

Florida Yes N/A Yes Yes 

Georgia Yes N/A Yes Yes 

Hawaii No C No No 

Idaho Yes N/A Yes Yes 

Illinois Yes N/A Yes No 

Indiana Yes N/A Yes No 

Iowa Yes N/A Yes No 

Kansas Yes N/A Yes No 

Kentucky No B N/A N/A 

Louisiana Yes N/A Yes No 

Maine Yes N/A Yes No 

Maryland Yes N/A Yes No 

Massachusetts No A N/A N/A 

Michigan No A N/A N/A 

Minnesota Yes N/A Yes No 

Mississippi No C N/A N/A 

Missouri Yes N/A Yes No 

Montana Yes N/A Yes N/A 

Nebraska Yes N/A Yes No 

Nevada Yes N/A No No 

New Hampshire No A N/A N/A 

New Jersey Yes N/A Yes No 

New Mexico No C N/A N/A 

New York No C N/A N/A 

North Carolina Yes N/A Yes N/A 

North Dakota No A N/A N/A 

Ohio No A N/A N/A 

Oklahoma No A N/A N/A 

Oregon Yes N/A Yes No 

Pennsylvania No C N/A N/A 

Puerto Rico No A N/A N/A 

Rhode Island No A N/A N/A 

South Carolina No C N/A N/A 

South Dakota Yes N/A Yes No 

Tennessee Yes N/A No No 

(02-24-05) SPECIAL PN 

Revised (06-21-06) PN 399 

Attachment 9-A 

Page 1 of 2 
HB-2-3560 

State Matching 

Agreements 

Matching 

Impediment 

Actively 

Matching 

Disclosure 

Allowed 

Texas Yes N/A Yes No 

Utah Yes N/A Yes No 

Vermont No C N/A N/A 

Virginia Yes N/A Yes No 

Washington Yes N/A Yes No 

West Virginia Yes N/A Yes No 

Wisconsin Yes N/A Yes Yes 

Wyoming Yes N/A Yes No 

A = State Law prohibited agreement 

B = RD State Office could not reach acceptable agreement with State DOL 

C = RD State Office working with State DOL to reach an acceptable agreement. Quarterly 

reporting as to the status of reaching an acceptable agreement to the National Office is required. 

Attachment 9-A 

Page 2 of 2 
HB-2-3560 

ATTACHMENT 9-B 

REPORT OF STATUS OF UNUSED RENTAL ASSISTANCE UNITS 

State: 

Use this form to report semi-annually on the planned disposition of available unused RA in your State. In 

the table below, identify the number of withheld units allotted in each category. 

Check the box below for the appropriate Reporting Date: 

A. Reporting as of April 1, 20____ Due Date: May 1, 20__ 

B. Reporting as of October 1, 20 ___ Due Date: November 1, 20__ 

Part A # RA 

units 

 1. Possible RA Units for Transfer: (Per 

PRJS4200 “Occupancy Trend”)

 If adjusted for turnover units, check this 

box. 

 2. Less: LH Seasonal – units not currently 

occupied 

 3. Less: Legal Actions Underway 

(Acceleration/Foreclosure) 

 4. Less: Property Undergoing Rehab. – 

units not currently occupied 

 5. Less: Existing RA Agreement dated 

prior to 5/85 (Agreement does not allow for 

transfer) 

 

 6. Less: Unused RA Units Currently in 

Appeal 

 7. Less: Unused RA units to be used in 

conjunction with new construction/ 

rehabilitation/ ownership transfers/equity 

loans 

Complete Part B for all RA units identified on 

this line 

 8. Less: No. of RA units that have not 

begun to go through the administrative 

actions (appeal rights) 

 9. Administrator’s Reserve Line 2 minus the sum of lines 3 through 9. 

Must submit Form RD 3560-55 (only complete the 

“Transferor” column) for all projects with units on this 

line. If RA units are from FY 2004 – 2006 

appropriations, please provide expiration date on Form 

RD 3560-55 in the Remarks section.

(Signature) State Director Date 

(02-24-05) SPECIAL PN 

Revised (03-17-10) PN 437 

Attachment 9-B 

Page 1 of 3 
HB-2-3560 

Part B: States must identify the Proposed Disposition of their available unused RA. State 

Directors may designate unused RA units to be used in conjunction with new construction, 

rehabilitation, transfers, or incentive loans that are expected to be used in the next 6 months. 

Units should be used within the allotted timeframe or will become subject to recapture. Number 

of RA units listed must match Part A, line 8.

Project Name 

No. of 

RA 

units 

Date of 

Anticipated 

Use 

Purpose (I.E. New Construction, 

Rehabilitation, Transfers, Equity 

Loans) 

 

Part C: This is your State’s Request for Unused RA that may be available from the 

Administrator’s Reserve. Use the codes below and identify State needs for RA. Do not repeat 

property needs from Part B unless there is insufficient unused RA in your State to satisfy the 

project’s needs. 

Use Code 

(See 

Below)

Project Name No. of 

RA 

units 

Date of 

Anticipated 

Use 

Comments 

 

Attachment 9-B 

Page 2 of 3 
HB-2-3560 

Use Codes: 

1. National Emergency – Per Administrator’s declaration 

2. State Emergency – Per State Director declaration and National Office concurrence 

3. Preservation – Sale to Nonprofit or Incentive RA (to be used within the quarter) 

4. Agency Credit Sales (to be funded in current FY) 

5. Ownership Transfer (to close within the quarter) 

6. Agency Rehabilitation loan (to be used within the quarter) 

7. Other Rehabilitation funding (to close within the quarter) 

8. New Construction (to be used within the quarter) 

9. Workout Plan (To be used within the quarter) 

10. Rent Overburdened Tenants 

11. Other (identify in Comment area) 

Attachment 9-B 

Page 3 of 3 

(02-24-05) SPECIAL PN 

Revised (12-17-08) PN 425
HB-2-3560 

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