How to Improve Compliance with UPCS Physical Inspection Standards

The IRS requires your state or local housing credit agency to perform physical inspections of sites awarded LIHTCs. The agencies want to ensure the sites are in a safe, decent, sanitary condition and in good repair. Specifically, Section 42 of the IRS code requires state housing agencies to conduct on-site inspections of all buildings by the end of the second calendar year following the year the last building in the project is placed in service. In addition, the code says that the agency must also conduct on-site inspections and low-income certification review at least once every three years after the initial on-site inspection.

Earlier this year, the IRS issued final regulations for LIHTC compliance monitoring. The final regulations follow the temporary regulations in place since 2016 to allow a housing agency to use the Real Estate Assessment Center (REAC) protocol to meet its physical inspection obligation if the inspection is conducted by HUD or a HUD-certified REAC inspector.

We’ll discuss the standards used by a HUD-certified REAC inspector and how the inspections are conducted. We’ll also discuss how to get ready for the inspection and provide a list of the 20 most frequently cited deficiencies that, if they had been repaired prior to the physical inspection, could have made a significant difference in a site’s overall inspection score. In addition, we’ll offer checklists for the five inspectable areas that you can use to evaluate your site to ensure a high REAC score.

Getting Ready

A state housing agency is allowed to give an owner reasonable notice that an inspection of the building and low-income units or tenant record review will occur so that the owner may notify tenants of the inspection or assemble tenant records for review. The final regulations shorten the reasonable notice requirement to 15 days in advance of when a site will experience a physical inspection or review of low-income certification, down from a 30-day notice requirement under the temporary regulations.

The notice period begins on the date the housing agency informs the owner that a site inspection of a project and low-income units or low-income certification review will occur. The 15-day notice is given to accommodate schedules and allow on-site managers sufficient time to provide the required notification to the residents that their unit may be selected for inspection. Only a sample of the units will be inspected. The units to be inspected will be selected randomly and the purpose of the inspection is to assess and record the physical condition of the property and units, not to evaluate housekeeping or to discuss other resident issues.

The advance notification allows management staff to pre-inspect all units on the property and perform any necessary repairs. To facilitate the inspection, you can ask residents to do the following:

• Raise window blinds, open curtains, and remove any objects from windowsills that could interfere with the opening or closing of the windows.
• Remove or relocate furniture that’s blocking or covering any part of an egress window in all bedrooms.
• Clear closets containing the electrical panel so that the electrical box can be opened and inspected.
• Clear the stove top and oven of all pots and pans and other items to facilitate testing.
• Clear sinks of dishes and other items so that the inspector may test the sink for leaks and the presence of hot water. This will also give the inspector access to test the garbage disposal, if available.
• Provide a clear path through interior doors, thus allowing the doors to open, close, and latch as intended.
• Provide clear path to the hot water heater to allow inspection for problematic conditions.

Also, having the following documentation available at the start of a REAC inspection may help expedite the inspection process. In advance of the inspection, compile the most current (within 12 months) inspection certificates for the following items:

• Sprinkler systems
• Fire alarm systems
• Boilers for hot water and hot water heaters
• Chillers for whole building air conditioning
• Elevators (must be posted in the elevator cab)
• Fire extinguishers in cabinets and in hallways
• Swimming pool (if applicable)

Conducting Inspections

Uniform Physical Condition Standards (UPCS) is the name used to refer to a set of standards used by HUD-certified REAC inspectors to assess the physical condition of units. UPCS organizes sites for evaluation based on five inspectable areas: Site, Building Exterior, Building Systems, Common Areas, and Unit. And each of these five inspectable areas are further broken down to specific Inspectable Items and Observable Deficiencies.

The REAC inspector may inspect the site, building exteriors, building systems, common areas, and units in any order that she chooses. And the site representative must provide the REAC inspector with access to any inspectable building, common area, sample unit, room, or closet.

Inspectors are required to report all deficiencies. Any life-threatening health and safety deficiency must be corrected immediately. The inspector’s goal is to objectively assess the physical condition of the property, not to create an exhaustive list of items needing repair. All “working” items in the apartment are inspected, including all windows, doors, toilets, sinks, tub/showers, cooking appliances, lights, etc. The inspector records the physical condition of the property as it exists at the time of the inspection. With few exceptions, inspectors must report all deficiencies observed, inspect the entire unit, complete inspecting a unit before moving on to another unit, and discuss the items identified during the inspection with management staff at the exit interview. Remember that all items must function as intended.

It’s important to note that during the inspection, the site representative has the right to ask for an explanation of a deficiency and to see the UPCS definition of a deficiency. It’s not uncommon for REAC inspectors to make errors during an inspection. For example, an inspector might cite you for a deficiency that didn’t actually exist. Or you might be cited for a condition that isn’t in fact a deficiency, such as missing door locks on bathroom doors, or that isn’t a deficiency under your local code, such as window guards. HUD gives you the right to appeal scores you think are unfair.

But to support your claim, HUD requires you to include physical evidence to show that the inspector shouldn’t have deducted points for the condition. This is why it’s critical that the property representative record good notes and take pictures of serious deficiencies during the inspection, not only for documentation purposes, but also to successfully appeal any deficiencies that the site representative deems to be inaccurate, unjustifiable, or egregious.

HUD’s Real Estate Assessment Center has put together a list of the top 20 maintenance problems that, if they had been repaired prior to the physical inspection, could have made a significant difference in the site’s overall inspection score. They are:

• Water heater—the pressure relief valve discharge tube should extend to within 18 inches of the floor.
• Misaligned chimney—the vent stacks on gas-operated water heaters or furnaces should be properly aligned.
• Missing HVAC covers—there should be covers on all baseboard heaters.
• Access to the electrical panel—access to the electrical panels shouldn’t be blocked by furniture or other items not easily removed.
• Missing covers—electrical panels should have interior covers (aside from the panel lid box itself) in place to prevent exposure from wire connections.
• Open breaker/fuse ports—open breaker and fuse ports should be covered.
• Damaged door seals—the factory-installed seals on exterior doors, such as building or unit doors, should be in place and undamaged.
• Damaged door hardware—exterior door hardware must either lock or latch properly and fire doors must function as designed.
• Security doors—security doors shouldn’t have dual-side key locks.
• Kitchen—stove burners must work properly.
• Plumbing—pipes and faucets shouldn’t be leaking, and areas around any leaks should be cleaned up and repaired.
• Damaged sinks/showers—any hardware items should be repaired, diverters must be working, drains should have stoppers, and hot and cold water handles should be in place and working.
• Clothes dryers—should be properly vented to the outside from units or laundry rooms.
• Storm water sewers—shouldn’t be clogged with trash or leaves.
• Sanitary sewer with damaged covers—the caps located in the grass on the exterior of a building that were damaged by a lawn mower should be cleaned out and repaired.
• Trash chutes—hardware should be in place and the chute door should close properly.
• Trash receptacles—receptacles shouldn’t be overflowing and should be adequate in size for the property.
• Auxiliary lighting—the back-up lighting should work, even when the test light doesn’t work.
• Leaking domestic water—there should be no leaks in the domestic water supply, including the hose bibs located on the exterior of the building.
• Outlet and switch plate covers—the covers shouldn’t be cracked or broken.

Use Checklists to Minimize Complications with UPCS Physical Inspection Standards

If your state housing agency has adopted UPCS physical inspection standards or uses HUD REAC inspectors when conducting physical inspections of LIHTC sites, use our model checklists below to go over your site and spot potential problems in advance of inspections. The following lists don’t include all items to be inspected, but they cover many items inspectors will evaluate within the five inspectable areas.