| ID | Status | Date | Public/Private | Industry | AHACPA Contact |
|---|---|---|---|---|---|
| #11806 | Closed | public | Multifamily | Les Sparks |
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Les, We recently joined AHACPA and are very impressed with the resources and FAQs available in the website. One of our clients recently contacted us to let us know about their plans to merge and refinance two existing HUD projects, lets call them phase 1 and phase 2, into a single HUD project. The two projects currently have the same owners but are separate legal entities, each one with their corresponding EIN, project numbers, and separate audits. The plan is that phase 2 will either merge or contribute its assets entirely to phase 1, phase 2 will cease to exist, and phase 1 will survive under a single new regulatory agreement. Even though phase 1 will continue to be a HUD project, the owner is anticipating that a brand new regulatory agreement, and a brand new project will carry on, from the perspective of HUD, starting the date after the transaction becomes effective. The new agreement will also be different kind of HUD commitment since the client is looking to do a cash-out refinance. We are anticipating that 1) we will need a stub period final audit for phase 1 and phase 2, 2) we will need to assist our client in getting the new “combined project” set up in REAC and 3) part of our audits for the two old projects will be to ensure that the TPA was properly disclosed and approved by HUD. Our primary question is, will this qualify a TPA and does it need HUD approval? We believe it does, but are not really sure about it since the two projects have the same owners, we think that maybe just one TPA will be needed for phase. What are some best practices for auditing the client’s compliance with the TPA approval requirements? The HUD audit guide is very vague about this point. We understand that the lender is the party that normally puts the TPA files together and sends to HUD for approval, but we are not really sure what kind of audit evidence needs to be retained or examined in a case like this? Also, as far as the potential “new project,” should we request that HUD allows the client to turn in a “long period” for it first year audit? We are of the understanding that if the first audit is for a period shorter than 60days, it can be combined with the first full calendar year of operations. Is there a process for requesting this or is it automatically set up in the AFS when the new project is created on REAC? Last question, assuming that the old phase 1 project continues to carry on, should the assets coming over from phase simply be reported as an equity contribution in the AFS?
thanks for your time in looking into this! feel free to reach out to us, 915-544-6770 Tello Cabrera.
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Tello, I am sorry that this email was lost to me. I is now showing up in my email. I can only imagine how this happened. We have just uncovered with a chane in personnel, that a few of these errors occurred. SO, I am very sorry. iF theis ever happens again, simply call the office and tell them we need to talk. WE try to keep up with email, but while I am on the road, I get behind due to flights and night or driving. Uuuugh!!!
Anyway, here we go.
Okay, if I understand correctly, the client is taking two and combining into 1. This will result in a new mortgage and will result in the termination of one entity and maybe a another 3rd entity (maybe!!)
So, the nature of the reporting will depend on how HUD decides to do the transaction. Further, will there by any rehab in conjunction with the refi? So, more data may be required. If they have to do any of this, HUD will have to be involved. That should not even be a questivon. There is no way to achieve this without HUDs help. The nature of this review dictates that there are really not that many strategies for the TPA review. The new Reg Agreement will the evidence. Timing really matters in this regard as it also determines reporting. Now, if there are no HAP contracts they may remove any aspect of the second project. In that case there may not be any stub period for project #2.
The best and really only step is to contact HUD and see how they intend to bring this together. This may not be an actual TPA as it does not really meet the requirements contained in chapter 13 of Handbook 4350.1. At worst I see this as a modified TPA which would require fewer items for HUD review. Again, there are not that many procedures to determine whether the TPA was conducted correctly. I just cannot see any scenario, where this could really be an audit issue.
If they actually treat this as some form of TPA, entity 1 would continue with no break in reporting or other weird dates. The only issue would be if they required an audt on entity 2. I just do not think it will work that way. They will likely combine the two together. I have seen HUD combine things under one TIN, but maintain the individual project IDs. IF they do that there will be one audit for the overall AFS. Then HUD would require separate sets of supplemental data for each project ID.
This is all up to HUD. I would not expect too many big changes.
Les
From: AHACPA Support <support@ahacpa.org> |