Reporting Requirement: Project Sold (TPA)

We have a client that is selling their HUD insured 223(a)(7) property. The buyer is assuming the mortgage. What are the audit requirements for my client (seller) and the buyer? Will my client have to submit audited financial statements for the period ending on the date of sale?


The official guidance to this question can be found in Submission and Review Requirements & REMS Critical Data Fields for Annual Financial Statements:

VI. Criteria for AFS Reporting Periods
B. Change in Ownership – Transfer of Physical Assets (TPA) and Assumptions of HAP Contract.

In a nutshell, the SELLER must file financial statements covering the period from the beginning of their fiscal year end through the day before the deed is signed.  The BUYER must file financial statements covering the period from the date the deed is signed through the end of the fiscal year end.


B. Change in Ownership – Transfer of Physical Assets (TPA) and Assumptions of HAP Contract

Burdens and benefits of ownership are legally transferred from the old owner to the new owner on the date the deed is signed. In no instance should a field office approve a TPA where the proposed new owner will not or cannot meet or exceed all HUD requirements at or shortly after HUD approval.

For a TPA, the seller must file an AFS covering the period from the beginning of their fiscal year through the day before the deed is signed. The date the deed is signed marks the beginning of the buyer’s (new owner’s) financial reporting responsibilities. The buyer (new owner) must file an AFS from the date the deed was signed until the end of its fiscal year.

The PM must require a copy of the signed deed when the owner submits preliminary TPA documents. Once the signed deed is received, the PM must update REMS with the buyer’s profile information and tax identification number (TIN) on the Ownership screen, and enter the “Date Owner Assumed Financial Responsibility (FASS).”

The PM must also input the date the deed was recorded in the “Date Ownership Assumed (Date Deed Recorded)” field on the Ownership screen. This date may differ from the date that the deed was signed, which is entered in the “Date Owner Assumed Financial Responsibility (FASS)” field per the instructions above.

The Ownership screen displays the current and prior owner’s name and TIN. As stated earlier, the seller (old owner) is required to submit financial statements through the day before the deed was signed. FASS-MF computes the reporting period of the seller and buyer based on this stored information. Once all changes are made in REMS, either owner can submit an AFS for their respective reporting periods. BOTH accounting periods must be filed in FASS-MF. PMs may refer to the Real Estate Management System User’s Guide, Chapter 4: Ownership, Adding an Owner, for additional instructions concerning REMS requirements.

If the former owner (seller) refuses to submit up through the date of their financial reporting responsibility, they must be referred to the DEC as a non-filer. The PM must flag all participants and affiliates in the selling entity in APPS and notify the seller of this action. The seller’s failure to submit will not prohibit the new owner from filing its AFS. (Should the seller refuse to submit you would only consider approving the TPA when a finding can be made that it is in the Department’s best interest.)

Note: If the deed is transferred while either HUD insurance is in effect or HUD is the mortgage holder, then the owner must submit a TPA application to the local program center for approval.

HUD will not release or ignore seller non-compliance simply because of a sale. In other words a noncompliant owner cannot escape responsibility by selling a property. (One would only approve a TPA from a non-compliant owner when a finding is made that it is in the best interest of the Department.)

In the case of the AFS, the seller (old owner) remains responsible for filing all AFS covering the period until the new buyer takes financial responsibility.

In cases where the owner was previously referred to the DEC for late or non- submitted AFS, the PM should coordinate action with the DEC. This coordination should not generally delay a TPA. The intent is to enable the DEC and MFH to work cooperatively and maximize the likelihood the noncompliant seller will complete its contractual obligations by filing all required AFS. The DEC will continue on its course to seek civil money penalties, sanctions, etc.

PMs must notify the owner in writing of its action to place a risk flag in the Active Partner Performance System (APPS). The risk flag will alert all other HUD personnel that an unresolved noncompliance condition(s) exists. The PM must assure to the best of their ability that all persons and entities responsible for the unresolved noncompliance are flagged in APPS. (Responsible parties are all individuals and entities considered to be sellers, typically, all limited and general partners, members in an LLC, corporate officers and directors and all stockholders owning or controlling 10% or more of corporate stock.)

When a TPA occurs and there is a HAP contract in place, the PM must examine the HAP contract to ensure it too requires physical inspections and financial reporting. As a condition of all HAP contract assumptions, the buyer must agree to amend the contract to allow physical inspections by HUD and require full financial reporting in accordance with 24 CFR Part 5.


Due Date for Electronic Submission for Seller following TPA:

From Kathy:  I had several members ask me about a 45 day deadline.  I could not find specific documentation on this and reached out to HUD for guidance.  This is their reply:

You will need to check the TPA documents regarding Housing’s deadline. The document most likely states that the financial statements are due within a certain number of days from TPA. That being said, FASS Overdue Tracking runs off the FYE date and we have no plans to change that in the near future. The system will not flag them until 3 months after the FYE Date. However, just because they are not flagged in FASS overdue tracking until 3 months after the FYE date doesn’t mean that the due date is 3 months after the FYE date. If they are required to file within 45 days of the TPA and they do not file timely, it would be up to the HUD Account Executive to follow up on the over financial statements and potentially make an elective referral to DEC and place a manual flag on the owner in APPS.

  • The information contained on this site is designed to provide accurate information in regard to the subject matter covered. However, this site is not a substitute for the promulgated standards or regulatory guidance. The information is provided with the understanding that AHACPA is not engaged in rendering legal, accounting, or other professional advice. If such advice is required, the services of a competent professional should be secured.