Articles

How, Why and Help with HUD Flags

Understanding how and why Flags are placed and being proactive about checking for and clearing Flags, can streamline your dealings with HUD and help you avoid surprises and headaches.

How and why are Flags placed? Flags appear in HUD's APPS system if a project or program participant fails to meet certain HUD requirements. APPS Flags are a direct result of Critical Findings by staff or managers in HUD Field Offices. HUD's list of Critical Findings, which can result in the placing of a Flag, includes:

• Unacceptable Physical Assessment (REAC Inspection Score)
• Below Average or Unsatisfactory Management and Occupancy Review
• Financial (Mortgage/Direct Loan) Default
• Mortgage Assignment
• Foreclosure
• GSA Excluded Party Listing Name Match
• Default Under a HAP Contract
• Notice of Contract or Regulatory Violation Issued by HUD
• Notice of Civil Money Penalties
• Any Regulatory Agreement Violation or Breach
• Felony Indictment or Conviction
• Debarment, Suspension or Temporary Denial to Participate
• Any HAP Contract Violation or Breach
• FASS (Financial Assessment Subsystem) Findings that relate to Regulatory Performance and Compliance
• Any "No" Answer on a Previous Participation Certification
• A Conditional Participation Approval or a Participation Denial
• and the all encompassing: Other Significant Event of Noncompliance or Nonperformance

What are the effects of a Flag? Flags can wreak havoc on operations, companies or individuals in a number of ways. When organizations submit a HUD 2530 Previous Participation Certification for clearance to participate in a new or existing community, the APPS system matches all entities and individuals with any Flags associated directly or indirectly to their participation. Flags can stop a financing closing in its tracks or prevent a management company from taking on a new HUD community.

Certain Flags and repeated events of non-compliance can result in referral to HUD's Departmental Enforcement Center (DEC). This branch is charged with taking action against owners who fail to cooperate in following statutory and regulatory requirements. DEC can impose sanctions, including suspension and debarment from Government business, civil money penalties or in more serious cases, abatement of owners' federal subsidy payments or foreclose on properties.

How do you know you have a Flag? Unfortunately, many folks are unaware a Flag even exists. If a Critical Finding has been referred to DEC, you will know you have a Flag. If the Critical Finding is for a low (but not failing) REAC score, below-average MOR or late financial filing, you may not receive any notification that a Flag has been placed on your record. The best course of action is to routinely run a Flag Report in APPS. (APPS is part of the HUD Secure System, also known as WASS.) If you have been putting off registering Coordinators or Users, this is yet another compelling reason to pursue this important registration. If you need to get a Coordinator or User set up in the HUD Secure System, remember that Murphy Consulting is available to help.

How do you clear a Flag? For that question, there are no easy answers. All Flags can be addressed, but not all Flags can be cleared quickly. For instance, while you can and should quickly address deficiencies found during REAC Inspections and MORs, these scores generally stand until the next inspection date. Flags for late financial filings are another matter. Typically, these can be removed upon request by providing proof corrective action has been taken (ie the filing has occurred). Each type of Flag is handled differently. Clearing Flags, or simply addressing them in the context of an application, can be problematic and time consuming.

Murphy Consulting guides folks through set up in the HUD Secure System, helps them navigate roadblocks along the way, walks them through HUD 2530 Previous Participation submissions and addresses ways to prevent Flags, resolve Flags and avoid hang-ups on clearance for new projects.

While diligence of property operations, management, reporting and maintenance can prevent Flags, even the most careful communities can have a Flag placed in their records. The best plan of action is to identify and address Flags as soon as they appear.

This editorial is for informational purposes only and is not designed for, nor should be relied upon, as a source of legal guidance or as a final authority with respect to any particular circumstance.

Related Articles