When you receive a letter from the state housing agency announcing your LIHTC compliance review, you may feel a mix of dread and pure adrenaline. Suddenly, every single tenant file in your office feels like a potential landmine. This is where a solid LIHTC file review checklist becomes your best friend.
For 29 years, as the founder of Sanchez Compliance, I’ve seen firsthand how a simple oversight can spiral into a costly non-compliance finding. My experience with affordable housing regulations has shown me that many of the same mistakes pop up time and time again. These compliance challenges are common for property managers across the country.
Those small errors, the ones that seem insignificant on a busy Tuesday afternoon, are exactly what auditors are trained to find. A misplaced date or a miscalculation can jeopardize thousands of dollars in housing tax credits. My goal is to help you catch these issues long before an auditor does, and that process starts with a reliable LIHTC file review checklist. Learn more about our Third-Party Tenant File Review Services.
Table Of Contents:
- 1. Incomplete or Missing Tenant Income Certifications (TICs)
- 2. Faulty Income Calculations
- 3. Improper Asset Verification
- 4. Incorrect Student Status Documentation
- 5. Outdated or Mismatched Utility Allowances
- 6. The All-Important LIHTC File Review Checklist: Documents are Missing
- 7. Misinterpreting the ‘Next Available Unit’ Rule
- 8. Application and Verification Form Errors
- 9. Gross Rent Test Failures
- 10. Timing Issues with Signatures and Dates
- Implementing Your Own Proactive LIHTC File Review Process
- Conclusion
Below, I’ve outlined the ten most common compliance issues that property managers encounter during a LIHTC file review. Each one includes practical guidance to help you identify and correct these problems before they become costly audit findings.
1. Incomplete or Missing Tenant Income Certifications (TICs)
The Tenant Income Certification, or TIC, is the absolute heart of a compliance file. It is the single document that summarizes the household’s eligibility at move-in or during the recertification process. It is amazing how often these crucial forms are missing vital information. I frequently see TICs without resident signatures, staff signatures, or proper effective dates.
Each signature and date serves a specific purpose in the compliance audit. The resident’s signature acknowledges that the information provided is true and correct. The manager’s signature certifies that the file has been reviewed for completeness. Without a fully executed TIC, you cannot prove the household was eligible on their move-in date, creating a significant compliance issue. Reference HUD Handbook 4350.3 for TIC completion standards.
These oversights happen for many reasons, from a resident rushing through paperwork to a busy leasing agent forgetting a final check. Sometimes, property management companies use an outdated version of the form, which can also trigger a finding. It is critical to treat this document with the attention it deserves and check that every line is complete before closing the tenant file.
2. Faulty Income Calculations
Calculating household composition and income seems straightforward, but this is where many properties get into trouble. The LIHTC program has very specific rules for projecting anticipated tenant income over the next 12 months. One of the most common mistakes is miscalculating variable income sources like overtime, bonuses, or tips from a tenant’s employment.
Simply taking the last pay stub and multiplying it out might not give you an accurate picture of the tenant income verification. You have to take a look at the full picture, including 2 or more paystubs, employment verification in accordance with what the state agency requires. For instance, if a tenant works in a seasonal industry, their income might fluctuate dramatically throughout the year. According to IRS guidance on Form 8823, failure to correctly calculate income is a frequent reason for reporting non-compliance.
Effective income verification is more than just collecting documents; it involves a thorough analysis of all income sources. Proper compliance training is essential for staff to understand how to handle different income scenarios. This knowledge is crucial for both initial income certification and annual recertifications, protecting the property from potential legal challenges.
3. Improper Asset Verification
Assets remain a challenging part of any file review, and HOTMA has significantly changed how they must be handled. Under the new rules, assets at or below the asset self-certification threshold do not require third-party verification. Instead, households may self-certify those assets. For 2025, that threshold is $51,600.
Only assets above the threshold must go through the full verification process. This is a major shift from past practice, where every asset had to be verified and income from all assets had to be calculated regardless of the total amount.
Here is where many teams run into issues:
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Continuing to request bank statements, retirement account balances, or other documentation for households whose assets fall under the self-certification limit
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Applying old verification rules and missing HOTMA’s updated thresholds and requirements
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Calculating or imputing income from assets that should have been self-certified instead
HOTMA’s goal is to streamline the process and reduce the administrative burden for both applicants and site staff. However, consistent application of the revised rules is essential for compliance and fair housing. All applicants must be evaluated using the same HOTMA-aligned procedures.
Small errors, like verifying assets that do not require verification or misapplying income-from-assets rules, can still lead to incorrect total income calculations and findings of non-compliance. Ensuring your team is trained on HOTMA’s asset thresholds and self-certification requirements is critical for clean, compliant files.
4. Incorrect Student Status Documentation
The student rule in the LIHTC program causes a lot of confusion among housing providers. Generally, a household comprised entirely of full-time students does not qualify for a tax credit unit. There are several important exceptions to this rule, but you must be able to document that the household meets one of them. The definition of a “full-time student” is determined by the educational institution itself.
I see many tenant files where student status was not verified at all for every household member 18 or older. Or, a household claims an exception, but the documentation to prove it is missing. For example, to meet the exception for a single parent with minor children, you need paperwork proving the parent has sole or joint custody and that the children are not dependents of another individual outside the household.
Other exceptions include households where all members are married and entitled to file a joint tax return, or households receiving assistance under Title IV of the Social Security Act. Full student rule guidance is available from HUD.gov. Without clear documentation for one of these exceptions, the household is technically ineligible. This puts the tax credits for that unit at risk, demonstrating how specific housing regulations can be.
5. Outdated or Mismatched Utility Allowances
Gross rent is the combination of what the tenant pays and the utility allowance (UA). To make sure your rents are not over the maximum allowable limit, you have to use the correct and most current utility allowance. State housing agencies typically publish new UA schedules each year. Using last year’s number is a very common and preventable mistake that can lead to major compliance issues.
Another problem is using the wrong UA for the unit based on its specific features. The allowance can vary based on the number of bedrooms or even the building’s construction type. Proper utility allowance calculations require applying the specific allowance that matches the unit in question. This detail is critical because an incorrect UA can push the gross rent over the limit, resulting in a program violation.
Always check the official publication from your state agency for the most recent allowance calculations. You can find a list of all state housing finance agencies through the National Council of State Housing Agencies to find yours. Making this part of your pre-leasing checklist for every new move-in is a best practice for property management.
6. The All-Important LIHTC File Review Checklist: Documents are Missing
A complete tenant file is more than just the application and the TIC. Your LIHTC file review checklist needs to account for every piece of paper needed to prove eligibility. It is surprising how often I find files missing basic items. This might include government-issued photo IDs for all adult members, birth certificates for minors, or Social Security cards for everyone in the household.
Without these fundamental documents, you cannot verify the identities and ages of the people living in the unit. This creates a chain of doubt for an auditor. Effective file management involves creating a system to track all necessary paperwork from application to move-in.
A physical or digital checklist for each compliance file can help your team make sure nothing slips through the cracks. This systematic approach is the foundation of a proactive approach to compliance. Explore our Affordable Housing Compliance Services for guidance on creating a consistent process. Below is a table of commonly overlooked documents.
| Document Type | Why It’s Needed | Common Mistake |
|---|---|---|
| Third-Party Verification Forms | Provides objective confirmation of all income and asset sources. | Incomplete, unsigned, or outdated forms. Be sure to include proof of how it was received (mail, email, fax). |
| Lease Agreements & Addenda | The legal contract outlining the terms of tenancy and rent. | Missing required LIHTC-specific clauses or addenda. |
| Reasonable Accommodation Documentation | Supports and documents a household’s reasonable accommodation request and approval process, as required under fair housing. | Documentation is not from a qualified source or the file lacks proper records of the request, review, and approval process. |
| Divorce Decrees/Child Support Orders | Verifies household composition and child support income. | Not properly documenting household composition. An official court document is not required, but the file must clearly support who is in the household and what income is received. |
7. Misinterpreting the ‘Next Available Unit’ Rule
The Next Available Unit Rule can be a source of confusion for property managers. When a household’s income goes over 140% of the area median income (the specific percentage can vary), that unit becomes an “over-income” unit. See detailed rules in the IRS Guide to LIHTC Compliance (Form 8823). Per IRS Section 42 rules, the very next available unit of comparable or smaller size in the same building must be rented to a qualified low-income household.
The mistake I often see is a lack of diligent tracking of leasing activities. A property might rent the next available unit to a market-rate tenant or another household without regard to this rule. This breaks what’s known as the “NAU” (Next Available Unit) rule requirement and is a serious compliance issue that can impact your housing tax credit.
Maintaining a clear and chronological log of unit availability, move-ins, and move-outs is the only way to prove you are following this rule correctly. This log should be a standard part of your property management operations. It provides a clear audit trail for any agency audit.
8. Application and Verification Form Errors
Sometimes, non-compliance comes down to the smallest details that impact a tenant file review. Every single question on the application must be answered. An unanswered question is a red flag for an auditor because it represents unknown or unverified information. It is the staff’s responsibility to work with the applicant to fill out the form completely.
Additionally, all corrections on official documents, including many HUD forms, should be made with a single line through the error, with the applicant initialing the change. The use of correction fluid or tape is not permitted on these sensitive personal documents. I also find third-party verification forms that were sent to employers or banks but were not signed or dated by the property staff. These small administrative slips suggest a lack of procedural control and can erode an auditor’s confidence in your operations and staff compliance. Our Compliance Evaluation can help identify and prevent these errors.
9. Gross Rent Test Failures
This is a big one for any affordable housing program. The gross rent for a unit cannot exceed the maximum rent limit set for the LIHTC program. As mentioned before, gross rent is the tenant rent portion plus the correct certification utility allowance. The error here is typically a simple math mistake or using the wrong rent limit figure for that specific unit type and income bracket.
Another common mistake is failing to include mandatory fees in the gross rent calculation. Any fee the resident is required to pay must be counted toward gross rent. For example, if the property requires residents to carry renter’s insurance, the cost of that required insurance must be included as a mandatory fee in the calculation. Missing these fees can push the unit over the allowable limit.
Overcharging rent can lead to serious findings and financial penalties. Always verify the latest state-issued rent and income limits before signing new leases, and confirm your property management software reflects those updates. If the unit receives rental assistance, ensure it’s accurately factored into the rent calculation.
Always double-check the math to confirm the tenant portion of the rent combined with the correct utility allowance and any mandatory fees does not exceed the limit. A simple calculator and a moment of review can save thousands. This is a key part of maintaining your affordable housing compliance.
10. Timing Issues with Signatures and Dates
The LIHTC program is all about timing and documentation. Every verification document in a file, such as a bank statement or a letter from an employer, must be dated within 120 days of the household’s move-in date. See the HUD Handbook 4350.3, Chapter 5 for verification timelines. Using older documentation is a common mistake and renders the verification invalid, creating a hole in your tenant file.
Another critical timing issue involves the TIC signature date. The Tenant Income Certification must be signed by the resident and the property owner’s representative on or before the move-in date. I have seen countless files where the TIC was signed a day, a week, or even a month after the move-in. This invalidates the certification because it fails to prove eligibility at the time of move-in.
Regular compliance checks within your own team can help catch these date-related errors before they become a problem. Creating a timeline as part of your file review process can help your team visualize the deadlines. This commitment to detail helps ensure you are always ready for a review.
Implementing Your Own Proactive LIHTC File Review Process
Identifying common errors is the first step, but building a system to prevent them is what separates struggling properties from successful ones. A proactive approach to compliance file review is about creating a culture of accuracy. This means establishing a clear, multi-layered review process before a file is ever considered “complete.”
Start by developing a comprehensive internal checklist based on your state agency’s specific requirements and the points discussed here. You can also request professional support through our Compliance Services. The leasing agent should perform the first review, followed by a second review from the property manager. This dual-check system catches simple human errors before they become ingrained in the tenant file. This approach is one of the best compliance solutions for property managers face.
Regular compliance training for all staff is non-negotiable for essential affordable housing programs. Housing regulations change, and your team’s knowledge must stay current. This training should provide clear guidance on income certification, asset verification, and other key areas. An effective compliance program is an ongoing effort, not a one-time fix, and it’s what keeps your housing tax credit safe.
Conclusion
Being proactive is always better than reacting to a negative audit finding. By using this list as a guide, you can start strengthening your compliance procedures today. A thorough internal review process built around a strong LIHTC file review checklist protects your property, its owners, and its investors from the financial risks of non-compliance.
It’s about creating a system of accuracy and accountability. A commitment to regular compliance helps build a portfolio that is consistently audit-ready. This way, when that official letter does arrive, you can feel confident and prepared instead of panicked.
Need help reviewing your tenant files before your next audit? Contact Sanchez Compliance and request tailored LIHTC file audits and staff training to keep your property audit-ready.
