Hello, and thanks for joining us for today's Navigate Tuesday tip. I'm Pam, and today we're gonna talk a little bit about how to address tenant misreporting. There's a real temptation sometimes to see misreporting as fraud, but fraud has a very specific definition. Fraud is intentional.

concealment or misreporting of material information and that's important. Fraud does not happen by accident and material information is information about things that are necessary to qualify someone for assistance. So for instance, if a tenant lies to me about what their favorite brand of sneakers is, that's not material to their eligibility.

If they are falsifying their income, for example, that becomes a concern because it's material to whether or not they qualify. But fraud has a very specific HUD and legal definition. Fraud is a crime. So it's most often the case that it's not going to be provable fraud, but misreporting of information is still a concern.

And we're gonna talk about how you can address misreporting. When you are looking at something as misreporting, misreporting is simply the fact that the information they gave you is not accurate and we need to correct it. It doesn't get into assuming intent, which is kind of where fraud goes, and it can still be addressed. More often than not, you are gonna be looking at misreporting of information rather than fraud.

Most incidents, HUD is gonna see is unintentional misreport.

So when you suspect that a tenant or an applicant has misreported something that's material, the first thing you do with a tenant is send a letter. And a sample letter is in the 4350.3, it's exhibit 7-7. You send them a letter that says, hey, we think you have failed to report something you were required to report. You're gonna give them a deadline by which to meet with you. You're gonna meet with them, remember, be objective.

Don't get emotional, don't accuse. The issue is simply, have information that leads me to believe that what you told me is not accurate, so let's get that accurate. You're gonna verify any information that's an issue, and you're gonna ask them if anything else has changed, sort of like when you do an interim. You're gonna do any interims that need to be done, and you're gonna document that file.

The effective dates of interim certifications vary a little bit by whether or not someone reported on time and whether it's an increase or a decrease. So if the tenant follows the rules, they get 30 days notice of an increase and they get their decreases the first of the month following the change, right? So I get 30 days notice of an increase and I get a decrease right away.

When the tenant does not follow the rules, that sort of flips. So then if it's an increase, I'm gonna go back to the first month after things changed and they're gonna wait for a decrease. It's the first of the month following the completion of the cert. So here's an example to show you how this actually works. Let's say we have a tenant that gets a new job on April 10th.

that's gonna be an increase, they report it on time, so they have to get a 30 day notice. That means that even though they started working in April, they don't see their increase until June 1st after that 30 day notice. Let's say they got a job in April, but I found out about it in June and had to ask them to come to me. Then it becomes the first of the month after the date things changed.

So if they got a job in April, it goes retroactive to May 1st. So essentially they forfeit their 30 day notice. Report an increase on time, you get 30 days notice. Don't report an increase on time and we don't punish, but they forfeit that 30 day notice. Let's say now we're dealing with a decrease. The tenant loses their job on April 10th and they bring you proof right away.

We're going to decrease that rent May 1st, the next 1st of the month. If they don't tell me until July, then the earliest their rent is going to go down is August 1st, because they are not necessarily required to report a decrease. They're required to report certain changes to their household and any increase.

So again, they benefit by doing what they're supposed to. They lose those benefits when they don't.

So when you're doing an interim for these things, you're going to sign paperwork with them, you're gonna verify. One of the really good things to do with somebody who has failed to report accurately is review their reporting requirements and have them sign something that says, understand I'm supposed to report these things by this time.

because if it happens again, it makes it easier to prove that somebody knew the rules and didn't tell the truth. Does that guarantee it's fraud? No, but it makes it easier for you to act and harder for them to claim that they didn't know the rules. So that is not a requirement, but it's a suggestion so that you can document that tenant knew what they had to report.

If you truly suspect fraud, there are some things that you can do. Now, HUD says the proper response to bona fide proven fraud is termination of tenancy. So the first thing to do if you suspect you really have fraud, speak with your supervisor or your compliance department, speak with an attorney.

It's a good idea to speak with HUD before you take action to make sure that your account executive also thinks you have fraud. Fraud includes intent. Fraud is an intentional act to deceive. It's a pretty high bar to prove somebody's intent. And if they didn't intend to deceive, fraud doesn't exist. It's accidental misreported.

Even if you have a very strong gut feeling that somebody is doing it on purpose, a gut feeling is not proof, a gut feeling does not make fraud. The overwhelming instances of misreporting are going to be just that. Overwhelmingly, you're going to fix what's wrong. You may be going back. You may have a repayment agreement, but it's going to be misreported.


With applicants, it's kind of the same process. Misrepresenting material facts can be grounds for rejection. Again, I would suggest you tread carefully there and defer to your compliance people and your attorney because again,

you're going to need to look at whether they intended to deceive. So you always want to be following your owner agent policy, the HUD guidelines, and it's always a good idea to bring an attorney in because fair housing can play into this, your appeal rules can play into this.

For example, it's unlikely that somebody forgot they had $100,000 in the bank or $300,000 in the bank, but occasionally it does happen. If they're not the member in the household that handled the financial matters, they may not totally be aware of what the family assets are. So tread carefully, make sure things are accurate, ask for documentation.

So the key takeaway is when we're talking about misreporting, fraud is intentional. It's intentional misrepresentation or omission of material information, things that are necessary to determine in eligibility or eligibility. Your focus is really on correcting misreported information most of the time. The tenants benefit from reporting on time.

they lose those benefits when they don't. So that 30 day notice. When addressing fraud, it is always a good idea to make sure you are reviewing requirements with the tenant. They may have misunderstood something. Our business is very complicated. The rules are very complicated. So it is possible that it was just an accident. So you wanna make sure they understand what they're supposed to do.


Actionable fraud is always going to involve discussion with others. It's going to be your supervisor, your attorney, HUD, your contract administrator. If you're going to go after somebody for fraud and evict, that's always kind of a wider discussion to make sure that you don't get yourself in trouble with that in court. So it's something that really you should be very cautious of leaping to. You don't want to say to a tenant,

I think you're committing fraud because that involves an accusation, so you want to be careful. And misreporting can be grounds for rejection, but again, that's going to be part of your owner agent policies. You're going to talk about that with compliance, sometimes with an attorney. So it's a complicated issue, but you do need to address it. The first step to that is always, hey, tenant, I think you failed to report something, so let's talk about it.

The resources that you're going to have, the things that you can look at regarding misreporting of information, a lot of it's in chapter seven of the 4350.3. So it's paragraph seven dash 12 B, paragraph seven dash 13 D. There's exhibit seven dash seven, which is that sample notice. And then there's also a paragraph in chapter eight, which is the termination chapter.

paragraph 8-13A3. So you can look at all of those to get an idea of what you're supposed to do with misreporting, what HUD considers to be an issue, and how you address it. And that is gonna do it for our discussion today. We would love to hear what you would like to see on the next Tuesday tip. You can email me at the address on your screen, or you can send it through the Navigate portal, and we will see you on the next Tuesday tip.