Reporting Requirement: Refinance, Replacing Old FHA Loan With New FHA Loan

An explanation of HUD audit requirements and corresponding electronic submission requirements can be found in the document titled “Submission and Review Requirements & REMS Critical Data Fields for Annual Financial Statements

“Refinance – Replacing an Old FHA Loan with a New FHA Loan – No Change in Ownership or Control” section VI. E.

When a HUD-insured loan is replaced with a new HUD-insured loan with no changes in ownership, there is no break in financial reporting. The owner must file a full twelve-month AFS. REMS ownership information, including the “Date Owner Assumed Financial Responsibility (FASS)” (FASS date) remains unchanged. If the new loan is a new construction or substantial rehabilitation loan, then the FASS date is the day after cost certification cut-off.

[Note from AHACPA: At the time of the FASSUB electronic submission, the FHA number may not be updated in the template.  This is not a cause for concern.  Annual submissions are tracked in HUD’s system via Tax ID Number, not FHA number.  Additionally, there is no new setup required to access the submission.]

Definition of Federal Government Expenditures (Threshold)

The Threshold for Profit Motivated is $500,000 and Non-Profit is $750,000. 

In a nutshell:

  • The outstanding beginning balance of HUD-insured or HUD-held mortgages, USDA Mortgage, USDA Section 538 Mortgage
  • The outstanding beginning principal balance of a USDA Mortgage, a mortgage
  • The original amount of 202/811 capital grants
  • Project-based rent subsidies received during the year
  • Interest reduction payments receiving during the year
  • Retained excess income
  • Other federal grants received during the year (e.g. service coordinator)

[Information originally obtained from HUD’s Financial Assessment of Multifamily Housing (FASS-MF) Page.  This page is no longer active on HUD’s site.  The basic information remains relevant]

Clarification of Notice H2013-23

Housing Notice H2013-23 allows profit-motivated owners that receive less than $500,000 [Non-profit that receive less than $750,000] in combined federal financial assistance to file owner-certified financial statements in lieu of audited statements. The $500,000 profit-motivated [$750,000 non-profit] threshold applies to owning entities and not to individual projects. If an owner owns more than one HUD assisted project then the federal awards threshold would apply to all Section 8 contracts and HUD mortgages owned by the entity. Combined federal financial assistance is calculated the same as it is for OMB A133 nonprofit audits. Instructions for the calculation can be found here.


[Information originally obtained from From HUD’s REAC>Single Audit Act Page.  This page is no longer active on HUD’s site.  The basic information remains relevant]

DID YOU KNOW that $500,000 (profit motivated) / $750,000 (non-profit) is made up of more than expenditures?

Important! The Office of Management and Budget has issued a revision to Circular A-133, Audits of State and Local Governments for Non-Profit Organizations increasing the audit threshold from $300,000 to $500,000  $750,000 [1] of Federal Awards for Fiscal Year ending after December 31, 2003. (03/22/04)

In order to comply with OMB Circular A-133 standards, all PHAs and non-profit Multifamily Projects expending $500,000 $750,000 [1]  or more in Federal funds must have an independent audit conducted by an IPA. (03/22/04)

To determine whether your PHA or non-profit Multifamily Project has expended more than $500,000 $750,000 [1], you should consult the definition of Federal government expenditures according to A-133. (03/22/04)

According to OMB Circular A-133, Section .205(d), loans and loan guarantees for the proceeds of which were received and federal awards for which the proceeds were received and expended in prior years are still considered to be expended in the current year if the laws, regulations, and the provisions of contracts or grant agreements impose continuing compliance requirements. Thus, OMB Circular A-133 requires independent audits conducted by an IPA as long as you must comply with provisions in your regulatory agreement in addition to the repayment of the loan. Capital grants are also included in this calculation of Federal funds.

To assist you in determining if your PHA or Non-Profit Organization is required to have an independent audit in accordance with OMB Circular A-133, we have designed the following questionnaires  These questionnaires have not been updated to reflect the change from $500,000 to $750,000[1].

These questionnaires are intended to provide assistance in making the determination, however, you should obtain and review the requirements in OMB Circular A-133 to ensure your determination of total federal expenditures is complete and accurate.


Other References:


[1] The Office of Management and Budget (OMB) has raised the threshold for compliance audits of entities that receive federal award money from $500,000 per fiscal year to $750,000 per fiscal year.

Liquidation Basis of Accounting

Question: We are currently working on an audit where the property will be sold to a new entity sometime in the next month or so. Since we know that the property will be sold, we would normally report on a liquidation basis to conform to U.S. GAAP.

In your experience, does HUD prefer that we report on a liquidation basis? Or do they prefer that we keep the property on accrual basis but have a qualified opinion that we should have reported on a liquidation basis?


Answer: HUD does not want the liquidation basis of accounting in these financial statements. Your (Seller’s) statements will be for the period from the beginning of the year through the day before the sale. The purchaser’s statements will be for the period from the date of the transaction through the end of year.

Here is the actual guidance:

Submission Requirements Memo – page 13
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.

On the Multifamily Housing – News page it states:

Transfers of Ownership – Financial Reporting:

In a transfer of ownership, the old owner’s (seller’s) audit should cover the period from the beginning of the fiscal year through the day before the transfer. In most states ownership is legally transferred on the date the deed is signed. The new owner (buyer) is responsible for reporting from the date of the transfer through the end of the new owner’s fiscal year.

Under no circumstances should the seller’s audit ‘zero out’ fixed assets, cash, or reserve accounts because the seller is responsible for reporting up to the day before the transfer. For additional information, please refer to the Office of Asset Management Memorandum dated 6/22/04.

~ Les Sparks

Reporting Requirement: Prepayment (or refinance from HUD mortgage to conventional mortgage)

What is the audit requirement for when an entity/partnership has refinanced or paid off their HUD-Insured mortgage?


An explanation of HUD audit requirements and corresponding electronic submission requirements can be found in the document titled “Submission and Review Requirements & REMS Critical Data Fields for Annual Financial Statements

Mortgage note prepayments / Refinancing from a HUD-insured mortgage to a conventional mortgage are discussed in section VII. D., starting on page 19.

D. Mortgage Note Prepayments: If there are no ongoing financial reporting requirements, owners who prepay their mortgage are required to submit an AFS [Annual Financial Statement] for the full fiscal year ending prior to the prepayment year. For example, if an owner prepays in March 2004, the AFS for the fiscal year ending December 31, 2003, is required. No AFS for 2004 will be required as long as the owner prepays the mortgage on or before the project’s fiscal year end date. However, if the owner has other business agreements (i.e., HAP contracts, Use Agreements, etc.) that require ongoing financial reporting, then no lapse in reporting is allowed. For example, if the owner prepays the mortgage in February 2004, but the owner has a HAP contract that requires financial reporting, then the owner must submit a full twelve-month AFS for 2004 and thereafter until the HAP is terminated. If the owner sells the project in conjunction with a prepayment, and the project has ongoing financial reporting requirements (i.e., HAP contract, Use Agreement, etc.), then the seller must submit an AFS covering the period up through the date before the HAP or Use Agreement is assigned.

Deferral of Stub Period

At times situations arise where an owner is responsible for submitting financial statements for a reporting period of less than 12 months.  Auditors refer to these partial year submissions as “stub” period financial statements.  HUD may approve the deferment of a stub period financial statement to minimize the cost of preparing and submitting annual financial statements as part of a Transfer of Physical Assets (TPA), the assignment and assumption of a Housing Assistance Payment Contract (HAP), and/or when an owner refinances a mortgage with HUD insurance.

REAC has the authority to approve or deny requests to defer partial year submissions of the annual financial statements for a period of time less than or equal to 120 days.

All deferment requests must be submitted electronically by logging into the Financial Assessment Subsystem (FASSUB) through REAC.  Select “waiver” from the main FASSUB menu.  Once a request is submitted it will be approved or disapproved within 10 working days.  You must log back into the FASSUB system to obtain HUD’s decision on your request.  To check the status click on “Administrative Request Status Box”.

EXAMPLE 1 – Purchaser Request:

Reporting Periods involved: 10/13/2019 – 12/31/2019 and 01/01/2020 – 12/31/2020.

ABC Apartments is purchased on October 13th, 2019, with a Fiscal Year End of December 31st. The new owner (purchaser) can request a deferral (waiver) of the 12/31/2019 stub period by logging into the FASSUB system and clicking on “Waiver”.  Enter 12/31/2019 as the “Entity Fiscal Year End” date.  After the request has been approved the new reporting period will be 10/13/2019 – 12/31/2020.

Sample Request: “We are requesting a waiver of the 10/13/2019 – 12/31/2019 reporting period.  This stub period will be included with the 12/31/2020 year end financial statement and electronic submission.”

EXAMPLE 2 – Seller Request:

Reporting Periods involved: 01/01/2019 – 12/31/2019 and 01/01/2020 – 01/23/2020

XYZ Apartments is purchased on January 23rd, 2016, with a Fiscal Year End of December 31st.  The previous owner (seller) can request a deferral in order to report for the 01/01/2019 – 01/22/2020 period. Similar to Example 1, this is done by logging into the FASSUB system and clicking on “Waiver”.  Enter 12/31/2019 as the “Entity Fiscal Year End” date, requesting the 01/01/2019 – 12/31/2019 to be deferred to the next reporting period.  After the request has been approved the new reporting period will be 01/01/2019 – 01/23/2020. When entering the submission for this period 12/31/2020 is entered as the fiscal year end.

Sample Request: “We are requesting a waiver of the 01/01/2019 – 12/31/2019 reporting period.  This period will be included with the 01/22/2020 financial statement and electronic submission.”

References:
https://portal.hud.gov/hudportal/documents/huddoc?id=11-27hsgn.pdf
https://portal.hud.gov/hudportal/documents/huddoc?id=12-17hsgn.pdf

Waivers and Deferments of Financial Statements

The following information is taken from Submission and Review Requirements & REMS Critical Data Fields for Annual Financial Statements

Page 27 & 28:

X. Waivers and Deferments

  1. Waivers of AFS Submission: Only the Assistant Secretary for Housing (FHA Commissioner) in Headquarters has authority to waive the requirement to submit an AFS. Generally, the AFS filing requirement will not be waived. The procedures for processing are presented in Attachment 2.
  2. Waivers to Defer Partial Year Submission. As with extensions, the Office of Asset Management provided REAC limited authority to approve or deny deferment requests of less than or equal to 90 days*. A waiver to defer is an option, not a right. The owner’s coordinator MUST submit the request on-line under the “Select An Option Menu, Waiver” in FASSUB on the REAC Secure Systems website (See Attachment 2 – page 31).* Extended to 120 days, see information at the end of article.

Attachment 2

Agreement between Multifamily Housing and REAC
Processing Requests for Waivers and Deferments of Financial Statements

A. Waiver Request Procedures

The authority to waive financial statements and to develop policy on waivers rests solely with the Assistant Secretary-FHA Commissioner. The requirement to submit financial statements to HUD electronically cannot be waived unless HUD has entered into a legally binding agreement with the owner that waives the owner’s contractual requirement to submit financial statements. The procedures for processing waivers are:

  1. The owner must submit a written request for a waiver to the local Hub or Program Center along with supporting documentation indicating the reasons they believe HUD should waive the financial submission requirements.
  2. Project Managers should review the request and determine if it has merit for approval. If the decision is affirmative, the project manager must forward the request with their recommendation via memorandum to the Office of Asset Management. However, if the project manager determines that the request lacks a basis for approval, the Hub/Program Center should deny the request.
  3. The Office of Asset Management will review the request to determine if HUD has authority under the existing regulations and business agreements with the owner to extend a waiver that was previously approved, or approve a new waiver.
  4. The Office of Asset Management will notify the field office and REAC in writing if the request is approved or disapproved, and the project manager will inform the owner in writing accordingly. If the request is approved, the PM should instruct the owner to submit a waiver request electronically to FASS-MF.
  5. Upon receipt of the approval letter from the Hub/Program Center, the owner must submit a waiver request electronically via the FASS-MF system, and REAC will approve the request in the system. 6. If the Hub/Program Center denies the waiver request, the owner may appeal the decision to the Office of Asset Management.

B. Waiver Criteria

  1. The request must specify the specific terms or conditions and the time period for the waiver.
  2. The waiver cannot be for a period over one year.

C. Waivers to Defer Partial Year Submissions

During the normal course of business, situations may arise for which an owner is responsible for submitting financial statements with a reporting period of less than 12 months. Auditors refer to these as “stub” period financial statements. If the stub period is equal to or less than 90 days 120 days*, HUD allows the owner to defer reporting, and to add the stub period to the next full year financial statements (e.g. the owner would submit financial statements covering up to 15 months 16 months*). This procedure is known as a deferment of the reporting period. A deferment is different from a waiver in that the financial submission requirement is not waived, but the timing of the submission is deferred to a later date. HUD regularly approves the deferment of stub period reporting as part of Transfers of Physical Assets (TPA), refinances, and new project development thus ensuring that the owners are not flagged as being overdue. The owner’s coordinator submits this request on-line under the “Select An Option Menu, Waiver” in FASSUB on the REAC Secure Systems website located at http://www.hud.gov/offices/reac/online/reasyst.cfm.

* See the following for more information on stub period submissions:

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.