Fit for a physical: tax-credit community owners can prepare for inspections and avoid the types of findings that a state housing credit agency might consider "common" by following several steps.

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The Internal Revenue Service (IRS) places significant focus on the physical condition of tax-credit communities. In public comments, the IRS has stated IRS Forms 8823 issued for physical condition non-compliance are a high priority. Understanding the ins and outs of the Uniform Physical Condition Standards (UPCS) and how apartment owners and managers can prepare best for physical inspections will help ensure their projects are in "shape" for their next "physicals."

UPCS is the set of standards developed by HUD for its multifamily housing portfolio. State housing credit agencies also use the UPCS to monitor the physical condition of Low Income Housing Tax Credit communities. The Internal Revenue Code allows state agencies to also use local codes or the UPCS, but agencies usually choose to use the UPCS.

The UPCS is composed of five inspectable areas, each of which covers various aspects of a multifamily housing community's physical condition. The inspectable areas include:

* SITE: parking lots, sidewalks, fencing and playgrounds

* BUILDING EXTERIOR: siding and roofing

* BUILDING SYSTEMS: furnace, water heater, boilers and elevators

* COMMON AREAS: community rooms, laundry rooms and hallways

* APARTMENTS: bedrooms, living room, bathrooms and kitchen

In addition to the inspectable areas, the inspector will be on the lookout for health and safety violations. Conditions that might affect the safety of the residents or guests (e.g., exposed wires or vermin infestations) will have to be addressed promptly.

Although each inspection varies, some findings seem to occur frequently. Identifying common non-compliance is an excellent way to avoid inspection findings. Because each apartment community is unique, it may be helpful to develop a top 10 list that identifies the common findings at a particular apartment community, based on staff and state inspections.

A top 10 list can be a useful tool to help develop a preventive maintenance plan. If a community plan currently is not in place, now is a good time to develop one--before the next inspection.

Common Pitfalls

The Ohio Housing Finance Agency (OHFA) provides its customers with a list of frequent physical inspection findings so managers can more effectively prepare for inspections. Some of these findings include:

* Smoke detectors with missing or inappropriate batteries;

* Ground Fault Circuit Interrupters not installed correctly or not functional;

* Open breaker slots and/or missing covers on electrical panels;

* Basements, without proper egress, used as bedrooms;

* Grease around stove burners;

* Loose handrails on both interior and exterior stairwells;

* Light bulbs missing from stairwells and/or basements;

* Torn or broken window blinds;

* Inoperable cars;

* Missing or damaged window screens; and

* Loose toilet bases.

Proactive owners or managers can take a few steps to ensure that they are prepared for an inspection of a tax credit community, and avoid findings a state housing credit agency might consider "common." Following are recommendations:

1. Conduct regular unit and site inspections. Quarterly inspections are not too frequent. Find the schedule that is best for the community.

2. Review previous reports for the community in question or others in the portfolio. What findings appear most frequently? Is it possible that a gap exists in the systems in place that might result in the finding?

3. Involve maintenance technicians in prevention. Technicians should check smoke detectors whenever they go into a unit and note additional repairs or issues that could be identified during an inspection.

4. Include a provision in the lease or in the community's house rules addressing smoke detectors, and enforce the provision. A penalty (provided state law allows it)--even a minor penalty--for removing batteries or dismantling a detector can go a long way in ensure smoke detectors remain in place and operable. Some owners make sure to let residents know that maintenance technicians will be happy to replace batteries for free whenever new ones are needed. This takes the burden off the resident and ensures the unit is safe and in compliance.

5. Know where the keys are for the units. The faster the community can move inspectors through units, the sooner the inspectors will be gone.

6. Develop positive resident relations. If residents know they can report maintenance problems, you'll have a head start on fixing problems before an inspector finds them.

7. In addition to regular inspections, also conduct move-in and move-out inspections. This will not only help with turning units, but also will ensure staffers know the condition and status of each unit, because under the tax-credit program, even vacant units must be in rent-ready condition.

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Owners, managers, state housing credit agencies and residents desire affordable apartment communities that are safe and attractive. The UPCS is one step in ensuring that desire is met. With a little planning and some attention to detail, an owner or manager can be sure to be "in shape" for a property's next physical inspection.

HUD's Top 20 UPCS Deficiencies and Recommendations

Following are common deficiencies and recommendations HUD publishes to help communities successfully undergo inspections based on the Uniform Physical Conditions Standards (UPCS):

1. Water Heater: The pressure relief valve discharge tube extends to within 18 inches of the floor.

2. Misaligned Chimney: The vent stack on gas operated water heaters or furnaces is properly aligned.

3. Missing HVAC Covers: Covers are installed on all baseboard heaters.

4. Access to the Electrical Panel: Access to the electrical panels is not blocked by furniture or other items not easily removed.

5. Missing Covers: Electrical panels have interior covers (aside from the panel lid box itself) to prevent exposure from the wire connections are in place.

6. Open Breaker/Fuse Ports: Open breaker/fuse ports are covered.

7. Doors Damaged Seals: The factory-installed seals on exterior doors, such as building or unit doors, are in place and are not damaged.

B. Doors Damaged Hardware: Exterior door hardware locks or latches properly and fire doors function as designed.

9. Security Doors: Security doors do not have dual-side key locks.

10. Kitchen: Stove burners are working.

11. Plumbing: Pipes and faucets are not leaking, and areas around any leaks are cleaned up and repaired.

12. Damaged Sinks/Showers: Any hardware problems are repaired, diverters are working, drains have stoppers and hot and cold water handles are in place and working

13. Clothes Dryers: Machines are properly vented to the outside from units or laundry rooms.

14. Storm Water Sewers: Structures are not clogged with trash or leaves.

15. Sanitary Sewer Damaged Covers: Caps located in the grass on the exterior of the building that have been damaged by a lawn mower are cleaned out and repaired.

16. Trash Chutes: Hardware is in place and the chute door closes properly.

17. Trash Receptacles: Containers are not overflowing and are adequate in size for the property.

18. Auxiliary Lighting: The back-up lighting works even when the test light does not work.

19. Leaking Domestic Water: There are no leaks in the domestic water supply, including the hose bibs located on the exterior of the building.

20. Outlet and Switch Plate Covers: Items are not cracked or broken.

Source: U.S. Department of Housing and Urban Development http://www.hud.gov/office/reac/products/pass/top20.pdf

Inspection Resources

* The Inspection Group Inc.

www.theinspectiongroup.com

* HUD Real Estate Assessment Center

www.hud.gov/offices/reac

* Comprehensive list of UPCS inspectable areas

http://www.hud.gov/offices/reac/products/pass/upcd_comp_list.pdf

* HUD UPCS training materials

http://www.hud.gov/offices/reac/products/pass/materials.cfm

Brian Carnahan is Director of the Ohio Housing Finance Agency's Office of Program Compliance, where he oversees the compliance monitoring of tax credit, HOME and Section 8 communities. He can be reached at [e-mail].