NLHA Shares Concerns With REAC

            EARLIER THIS YEAR, the Real Estate Assessment Center (REAC) instituted a new process for contracting with inspectors.  Previously, HUD had awarded contracts to three major companies who typically subbed out the work to various contractors.  Over time, as everyone became familiar with the protocol and process, inspection results were more consistent with the condition of the properties (although not perfect).  Inspections were costing HUD upward of $800 per inspection.   HUD determined it could achieve savings by contracting directly with inspectors and eliminating the middleman.

As a result, HUD/REAC came up with a “reverse auction” process that enables inspectors to bid for inspection contracts on line, with HUD selecting the low bidder.  Typically inspections can be done for about $300-$350 per property (depending on size and location).  This approach has clearly resulted in savings to the Federal Government.  However, because the “reverse auction” process introduced a new batch of inspectors, some more qualified than others, uneven results have occurred.

Impact of Reverse Auction Process  

During the latter part of summer, NLHA’s members reported that well managed properties that once scored in the 90s were receiving subsequent inspection scores below 60 and sometimes below 30, including properties that had just undergone substantial rehabilitation.  The properties were being cited for deficiencies that did not exist or the inspector did not understand the protocol. To add insult to injury, when the projects’ management appealed the inspections, the appeals were denied for an alleged lack of proper documentation.

Several months ago NLHA contacted the Assistant Secretary of Public and Indian Housing, Orlando Cabrera (who oversees REAC) as well as the Director of REAC, Liz Hanson after collecting examples from NLHA members of inspection inconsistencies and NLHA asked them to review the types and amount of REAC problems that were occurring.  Toward the end of December, NLHA requested a meeting with REAC to discuss these issues.   Denise Muha and NLHA member Lisa Tunick of Hessel and Aluise, PC, attended the meeting.

Identifying the Issues

            Based on the information that was provided to NLHA by its members, several problem areas were identified and summarized including:

Ø        A number of inspectors appear to ignore REAC protocol, do not understand what constitutes deficiencies, fail to call out observations, fail to exercise common sense etc., resulting in scores that are not reflective of the property’s condition and generating needless referrals to the Enforcement Center.  

Ø        REAC has elevated its documentation standards to a level that exceeds what would be required in a court of law.  This is a violation of due process, and may result in deprivations of property rights.  REAC routinely is rejecting legitimate third party documentation for obscure, nonsensical reasons and has rejected photographic documentation because it did not show the entire area where the deficiency could be. In other words, if a deficiency was cited for part of an area in the parking lot or on the exterior of a building, REAC rejects pictures of the purported deficiency and insists that the entire parking lot or the all of the walls of a building be photographed.  

Ø        REAC/HUD had originally agreed that unlocked electrical boxes (that do not otherwise pose an electrical hazard) that were in a room with a locked door were acceptable.  However, some inspectors are now citing such situations as deficiencies and on appeal REAC upholds the deficiencies responding that there is no guarantee that the door will remain locked.  In addition, telephone wires, cable boxes and other low voltage equipment are generating electrical hazard deficiencies.  Further, while REAC has clarified that elevator controls not designed with covers should not be cited as a deficiency (and especially if located in a locked room) such situations are routinely cited as “open covers-electrical hazard.”

REAC Response

            During the meeting with REAC officials, it was reported that changes have been made to the “reverse auction” process to address concerns about inspector competency.  Among such changes is an elevation of the qualifications necessary to be a REAC inspector.  Applicants must have completed at least 250 inspections before being considered an eligible candidate for a REAC contract.  In addition, inspectors who complete the REAC training are provisionally approved and are accompanied by a Quality Assurance inspector on their first three inspections with the third inspection counting as the “final exam” to become a fully certified inspector.  Only when they pass muster will they then be certified.  HUD has also implemented quarterly reviews of the inspectors.

            REAC has also developed new software for use by the inspectors that will be implemented in the coming months. The software provides a “decision tree” for inspectors to help them understand what they should be looking for during an inspection.  This new software will also include the long-awaited changes endorsed by NLHA (four years ago) that will address proportionality.

            REAC has also agreed that a second appeal will be allowed when the initial appeal as been rejected without merit.  Such appeals would be directed toward Elizabeth Hanson, the Director of REAC who will make an independent review of the inspection and the documentation provided in support of the appeal.

            REAC will also review the examples NLHA provided of arbitrary elevation of the documentation standard required for appeals. REAC officials reported that it was not their intention to make it impossible for owners or PHAs to provide proof that the deficiency was in error.  NLHA believes that photographs and third-party documentation, backed up with owner affidavits, if necessary, should be sufficient to meet this standard.

What Can You Do?

            In addition to sending appropriate staff to REAC inspector training (REAC is planning to offer on line training soon) so that the property can be maintained to those standards, whoever accompanies the inspector should have a camera or video recorder with a date/time stamp to record deficiencies that are called out by the inspector. This will be important if you need to appeal the inspection.  If the inspector has not called out the deficiencies, please ask him/her to do so (this is a requirement unless the owner/manager becomes argumentative).

            If the inspector assigned to your property is clearly not qualified or if he/she is acting unprofessionally, you have the right to stop the inspection by calling the REAC help desk at 1/888-245-4860.  Further, when an inspector calls the property and proposes a date for the inspection, you are not required to accept that date. You can request an alternate date within a reasonable timeframe.  If the inspector says it is that date or nothing, report him to REAC.  Further, if you are planning to conduct major renovations during the inspection timeframe, please notify the HUD office of your rehab plans well in advance so that an appropriate note will be made in REMS which will allow the inspection can be rescheduled.

            And lastly, if your appeal is rejected despite a clear mistake(s) by the inspector and sufficient documentation of the errors was provided as part of the appeal, please request a second appeal by contacting Elizabeth Hanson at REAC. 

            REAC reports that over 90 percent of multifamily properties, and over 80 percent of public housing properties pass inspection.  NLHA’s goal is to ensure that representative scores are received by all properties and that the REAC appeals process is fair.