On June 19, 2015, the U.S. Department of Housing and Urban Development (“HUD”) issued a memorandum to incorporate language from the Consolidated and Further Continuing Appropriations Act, 2015 (Act). The language in the Act directed HUD to utilize balances greater than $250 per unit in residual receipts accounts to support current program purposes through September 30, 2015. At the time, this guidance only applied to properties with Section 202 or Section 811 PRACs (Project Rental Assistance Contracts) with PRAC expiration dates between July 19, 2015 and September 30, 2015.
HUD subsequently issued a follow-up memorandum on September 30, 2015. The purpose of this follow-up memorandum was to communicate continued implementation of statutory language in the Consolidated and Further Continuing Appropriations Act, 2015 addressing the remission of residual receipts for projects subject to a Section 202/811 PRACs. HUD expected to obtain statutory authority and direction from Congress to continue collection of excess residual receipts in order to supplement appropriated funds for the Sec. 202/811 programs under either a fiscal year 2016 continuing resolution or annual appropriations bill.
As expected, the Consolidated Appropriations Act, 2016 passed during December 2015 and HUD received the authority from Congress to continue the recapture of excess residual receipts on Section 202/811 projects during fiscal year 2016 (through September 30, 2016). The Real Estate Assessment Center has indicated the preferred accounting treatment for the recognition of the excess residual receipts to be remitted to HUD is to record the expense/loss to account 7190 – Other Entity Expenses and to provide an adequate explanation in the description
Section 202/811 project owners will continue to make the required deposits to residual receipts 90 days after year end. At PRAC termination/renewal, project owners will need to prepare and submit Form HUD-9250, “Funds Authorization” for the release of residual receipts exceeding $250 per unit and remit these amounts to HUD. Project owners of Section 202/811 projects with residual receipts account balances at or below $250 per unit shall retain the existing residual receipts balance until the next expiration/renewal date of the PRAC in accordance with existing procedures. HUD will also continue to consider approving requests for releases from the Residual Receipts account (to cover operating deficits or to make repairs to the property not covered by the Reserve Fund for Replacements) in accordance with HUD Handbook 4350.1, Chapter 25, “Residual Receipts”.
If you have any questions, concerns, or would like additional information on the aforementioned, please contact your HW&Co. Executive.