Special Claims - Vacancies

It's always exciting when a business owner finds a source of a little extra revenue. For most multi-family properties those opportunities are few and far in between. Unless you find additional space to rent out, you are limited by the units you already have. With Section 8 properties, however, there is an additional revenue source that many managers are unaware of. It is the special claims program.

Special claims was created by HUD because they realized that the regulations that bind an affordable housing property can lead to properties losing money. The special claims program allows owner/managers to request that HUD share some of the financial burden that properties are forced to endure because they are affordable housing.

There are 2 primary types of special claims - vacancy and unpaid rent/damages. In this article we will discuss the easier claim of vacancy and will return to unpaid rent/damages at a different time.

The vacancy claim is really simple. It is the easiest to track, the easiest to submit. It is based almost entirely on objective numbers and so unless there is some sort of error in those numbers it will be approved for amount you requested.

The reason the HUD created the vacancy claim is because they realized that it can take a really long time to move a tenant in to a vacant apartment. In a conventional property, you run a background and credit check and as long as the applicant is not a serial killer with no money you move them right in. Not so in the wonderful world of HUD.

The steps between a unit become vacant and moving a tenant in are so long and complicated that your unit will often remain vacant for weeks while you work through the long list of HUD regulations.]

It all begins with the wait list. Since affordable housing properties are well - affordable, many people want to live in them. So much so that it is common to have a wait list that will take you several years to get through. When a unit becomes available, you will have to work your way down that list and contact each applicant in order to determine if they are still interested in the apartment. The problem is that since these applicant applied years ago - their contact info may have changed and even the information on the mandatory Supplement to Application for Federally Assisted Housing might be outdated. It can take time to locate, call, mail letters and wait for the obligatory amount of days to hear back (as per your tenant selection plan).

Once you get a hold of an applicant you need to give them time to come down, provide all of their information, verify their information, and them make up a time for them to move in. This can take weeks. We are all familiar with the bank that won't respond with the asset verification or employer that won't send the income information. And after all that, the applicant may change their mind and you need to start this all over again! Meanwhile your unit sits empty and you are losing money every day.

And so to throw us a bone, HUD created the Vacancy Special Claim. HUD will pay 80% of the contract rent for up to 60 days while a unit is vacant. The 60 days begin not when the unit become vacant but rather from when the vacant unit becomes ready to move in to. The means that from the day the old tenant moves out until your maintenance team gets the unit into shape for a new tenant, you are not getting any money. Only when the maintenance guy signs off that the unit is in move in condition does the special claim clock start.

In order to get the claim there is list of things you need to submit to your Contract

Administrator. I could go through the entire list for you but you are betting off contacting your CA and having them send you their list (for example here is the list the PHFA sends out). Being that this is a HUD program every CA will have the same list but every CA likes to do things their own way so I would recommend reaching out to them before you submit your first claim. The list is pretty simple; most things are in the tenant file already or can be easily printed out from your software*.

The claim has an expiration date of 180 days from the date the unit was made ready. This may seem like a long time but if you are not on top of things you will forget about it and lose out. Get in the habit of reviewing your claims every month. One of the items on the list to submit is the adjustment page of the voucher (HUD-92670-A part 3) where the previous tenant moved out and also when the new tenant moved it. This means that you will have to wait until the month after the new tenant moves in before submitting. This can sometimes cause you to forget to submit and miss the 180 day deadline.

Special claims are submitted directly to your CA. As I mentioned earlier, reach out to them before you submit a claim to them because they each have their own way of doing things. I used to have to mail a paper claim to some CAs but they have since changed their rules and now I can email a pdf. But they have very specific guidelines of how to submit those pdfs (what to name the files, how to submit multiple claims, etc.)

Once they approve your claim (they may contact you with some questions**, or maybe approve the claim for a different amount) they will send you the approved claim together with an approval number (usually starting with the state and then a combination of numbers that include the year and date). You will need to enter the approval number and amount into your software so that it will be send to HUD together with the voucher (HUD-92670-A part 5). When you submit your monthly voucher through TRACS, the special claim will be submitted too. But remember, once your claim is approved, you have 90 days to submit it on a voucher. I would recommend entering your approved special claims into your software right away. There is nothing worse than losing an approved claim because you left it sitting in your inbox and forgot to enter a couple of numbers into your system (trust me - it has happened to me more than once!)

If you are still following, I hope you can appreciate how valuable this claim is. Here is an opportunity to get paid even when your unit is vacant. I have personally submitted hundreds of thousands of dollars worth of special claims over the last decade. What makes this so great (besides the obvious - money!) is that when you underwrite a deal you usually deduct a certain percentage of income for vacancies. With this special claim, while you will still lose some money to vacancies, you will make some "free" money back as well.

A couple of important points to finish off:

~The time that the unit is being made ready does not count towards you claim. Therefore it is in your best interest to make the unit ready right away. Even if you know that no one will be moving in for a while - get that unit ready so that you can get money from that special claim.

~You may be tempted to get lazy with your move-ins because after all you are still getting paid. HUD knows you might feel this way and so they only pay you 80% of the rent (and of course only for 60 days). And so as great as this claim is, it is far better to move in a new tenant as soon as you can. Therefore you should try to set yourself up that there are as few days as possible between the make ready date and the new move in. In a future post I will discuss some way you can do that.

~I would recommend you have someone in your corporate office oversee the claims process because if you are not on top of them, they can slip through the cracks. This is especially true where you don't have a lot of vacancies and so don't have claims that often.

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* Many software's make it very easy to know when you are eligible for a claim (i.e. Onesite's "Special Claims Finder") create the forms, submit them on the voucher, and track them.

** Since the vacancy claim is based on basic dates (Move out, Make Ready, and Move In) and numbers (the contract rent) there are usually not that many issues. The most common problems are where the dates were entered incorrectly. For example if your claim says the make ready date was on the 10th of the month but your maintenance log has the 11th, you will have your claim adjusted by one day.