HOTMA Verification Hierarchy Updates and the LIHTC Program

With the implementation of the Housing Opportunities Through Modernization Act of 2016*, the way verifications of income, assets, and expenses are collected has changed. HUD refers to the order in which verification documents are obtained, from most acceptable (Level 6), to least acceptable (Level 1), as the Verification Hierarchy.

Owners have always been required to collect third-party verification of reported family annual income, the value of assets and expenses related to deductions from annual income, and other factors that affect the determination of income. Third-party verification is a process by which owners gather information independently from the source of the income, assets, expenses, or other factors that affect the determination of adjusted income.

The Big Six

There are six levels of the verification hierarchy as found in the HUD Notice H 2023-10, Table J-2. The levels are ranked in order of highest to lowest for acceptable verification methods.

Level 6 (Highest) of the verification hierarchy, Upfront Income Verification (UIV) using HUD’s Enterprise Income Information (EIV) system, is not available for the LIHTC program.

The owner/agent of a LIHTC property would start with Level 5 (Highest) Upfront Income Verification (UIV) using non-EIV system. Level 5 examples are the Work Number, VOD, web-based state benefits systems such as COMPASS, etc. If the owner/agent doesn’t have access to UIV, for example, these verifications may require a fee, documentation must be placed in the file. This can be as simple as a note in the file or memo which states: Employer uses the work number which requires a fee for verification. Level 4 can then be used.

Level 4 (High) Written, third-party verification from the source, also known as “tenant provided verification” or source documents, have moved above the traditional written third‐party verification form, which is now Level 3 (Medium). These documents must be an original or authentic document generated by a third-party source. Examples of acceptable Level 4 written third-party verification, which are generated by a third-party source and can be provided directly from the applicant/tenant, include but are not limited to: pay stubs, payroll summary report, employer notice/letter of hire/termination, SSA benefit verification letter, bank statements, child support payment stubs, welfare benefit letters and/or printouts, and unemployment monetary benefit notices, a minimum of one (1) statement that reflects the current balance of banking/financial accounts. If the applicant/tenant is not able to provide source documents, the owner/agent must note in the file why Level 4 documents were not collected before moving on to Level 3.

Level 3 (Medium) Written Third-Party verification form. This practice is also known as “traditional third-party verification.” This type of verification is a form developed by the State Housing Finance Agency (HFA) or other reputable source and used uniformly for all families when needed to collect information from a third-party source. The form is completed by the third-party source by hand (in writing or typeset). The form is sent directly to the third-party source by mail, fax, or email.

Level 2 (Medium) Oral Third-Party Verification is commonly used when the third-party source does not respond to the Owner’s/agent’s faxed, mailed, or e-mailed request for information in a reasonable time frame (e.g., 10 business days). The Owner/agent would conduct an independent verification of information by contacting the individual income/asset source(s), as identified by the family, via telephone or in-person visit. The Owner/agent must document in the

tenant file the date and time of the telephone call (or visit to the third party), the name of the person contacted and their telephone number, along with the confirmed information.

Since Level 3 Written Third-Party verification form and Level 2 Oral Third-Party Verification are both medium, the owner can attempt either Level 3 or Level 2 before moving down to Level 1 Non-Third-Party Verification Technique: Self-Certification. The Owner/agent must document the file that either Level 3 or Level 2 was attempted, and no response received. The Owner/agent can then use Level 1 (Low) Self Certification.

Level 1 (Low) Self Certification should only be used as a last resort to obtain any third-party verification, or if specifically permitted, such as to determine income from assets under the current threshold (adjusted for inflation). The tenant must submit a signed statement of reported income and/or assets to the Owner/agent. This verification method should be used as a last resort when the Owner/agent has not been successful in obtaining information via all other required verification techniques. When the Owner/agent relies on self-certification to verify income or expenses, the Owner/agent must document in the tenant file why third-party verification was not available. Note: HUD does not require that a self-certification be notarized; however, HUD recommends including language on any self-certification to ensure the certifier understands the consequences of knowingly providing false information. Please check with your State HFA to verify if the self-certification must be notarized.

*Please note, HUD Section 8 MFH and RD have delayed implementation for HOTMA until July 1, 2025. In addition, the Pennsylvania Finance Housing Agency has delayed implementation until July 1, 2025. Please be sure to check with your state Housing Finance Agency for HOTMA implementation dates, some states have implemented HOTMA.

Owners and Management Agents should be well trained in understanding the HOTMA requirements as they relate to maintaining compliance in affordable housing. MLCM offers consulting services and training regarding the various affordable housing programs impacted by the implementation of HOTMA. For more information on these services don’t hesitate to contact us. The information presented in this post is intended solely for informational purposes and should not be construed as consulting advice from M&L Compliance Management LLC.

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