That pit in your stomach is a familiar feeling. It arrives right after the email from the state housing agency hits your inbox. The audit notice.
Suddenly, every resident file feels like a ticking time bomb. You start questioning every signature, every calculation, every single piece of paper.
Is everything perfect? For many property managers and owners, the stress of LIHTC compliance is constant. A proper LIHTC file review can change everything, but it feels like you’re one tiny mistake away from a disaster. A third-party LIHTC file review is your path to sleeping soundly at night. With decades of experience navigating complex state-level requirements — including TDHCA regulations in Texas — we help properties stay compliant no matter how challenging the rules may be.
Table Of Contents:
- What Exactly is an LIHTC File Review?
- The Stakes Are High: Why You Can’t Afford a Mistake
- The In-House Dilemma: Common Challenges for Management Teams
- Your Best Defense: The Power of a 3rd Party LIHTC File Review
- What Does a Thorough 3rd Party Review Actually Cover?
- The Different Types of Third-Party File Reviews
- Finding the Right Partner: What to Look for in a Compliance Consultant
- The Sanchez “Always Be Audit-Ready” Method
- Conclusion
What Exactly is an LIHTC File Review?
Let’s break it down to the basics. A Low-Income Housing Tax Credit (LIHTC) resident file is the complete story of a household’s eligibility. It contains every document that proves they qualify to live in your tax credit community.
This file is your evidence, your proof to the IRS and your state agency that you’re following the rules. Think of it as a legal record for each resident. It has the initial application and all the verifications needed to prove program eligibility at move-in.
The file also includes the signed Tenant Income Certification (TIC), which is the most critical document in affordable housing compliance. Every piece of paper, from pay stubs to bank statements, must be there. And it all needs to be accurate and correctly calculated before the resident ever gets their keys.
The Stakes Are High: Why You Can’t Afford a Mistake
The LIHTC program offers a dollar-for-dollar reduction in federal tax liability. It is a powerful incentive for developers to build affordable housing. But with great reward comes great responsibility.
Non-compliance is not just a slap on the wrist. If an auditor finds errors, they issue an IRS Form 8823 or Low-Income Housing Credit Agencies Report of Noncompliance. This form reports the issue directly to the IRS, creating a permanent record of the problem.
This can lead to the loss of tax credits for that unit, or even for the entire building. In worst-case scenarios, it can trigger tax credit recapture. This means the owners have to pay back credits they’ve already claimed, a massive financial blow that can put a whole project at risk. Beyond the direct financial penalties, consistent findings can damage your reputation with the state agency, potentially impacting future tax credit allocations.
The In-House Dilemma: Common Challenges for Management Teams
You probably have a great team on site. They are dedicated and work hard. But they are also juggling a hundred different things every single day.
Resident issues, maintenance requests, and marketing efforts all pull them in different directions. Conducting a thorough file review is just one more task on an already full plate. This puts any property manager in a difficult position.
High Staff Turnover and Training Gaps
Property management is known for its high turnover rate. New staff members may not have the deep training needed for LIHTC’s specific rules. The learning curve for Section 42 compliance is steep, and there’s little room for error.
Without consistent, ongoing compliance training, mistakes are almost inevitable. An error made by a new employee a year ago can easily surface during an audit today. This creates a cycle of risk for the property, where past mistakes can jeopardize current and future tax credits.
It’s More Than Just a Second Job
Reviewing LIHTC files is not something you can do effectively in between phone calls. It needs dedicated time and focus. Your team is often forced to squeeze it in, which increases the chance of missing something critical.
This constant pressure can lead to staff burnout. They feel the weight of tax credit compliance on top of their primary duties of managing the property and serving residents. Industry surveys show how challenging it is to retain talented staff because of these high-pressure demands.
The Bias of Looking at Your Own Work
It is incredibly difficult to spot your own mistakes. After you’ve spent hours working on a file, your brain sees what it expects to see. You might skip right over a calculation error or a missing document.
This is a natural human tendency called confirmation bias. It is not a sign of a bad employee. It just means a fresh perspective is needed to catch what you might have missed during the initial resident qualification.
Your Best Defense: The Power of a 3rd Party LIHTC File Review
Bringing in an outside expert isn’t a sign of weakness. It’s one of the smartest strategic decisions you can make. It protects your team, your property, and your investment.
A third-party LIHTC file review gives you a clear, objective assessment of your compliance standing. It acts as a safety net. This catches potential issues before your state agency does.
Think of it like having an editor for a book. The author can write a great story, but an editor will always find ways to improve it and catch mistakes. A compliance consultant does the same for your resident files, preparing you for successful audit preparation.
An Unbiased, Fresh Set of Eyes
An external reviewer has no prior involvement with the files. They are not influenced by conversations with the resident or internal pressures. Their only job is to check the file against the program rules.
This objectivity is priceless. They will question everything and verify every detail based purely on the documents in front of them. This is exactly what an auditor from the state agency will do during a formal review.
Tapping into Specialized Expertise
Your property manager is a generalist. They have to be. But a compliance consultant is a specialist whose entire career is focused on the details of Section 42 of the tax code and state-specific requirements.
I’ve personally spent 29 years working with these rules. This kind of deep experience is hard to develop in-house. A consultant sees patterns and recurring issues across hundreds of properties, allowing them to spot problems your team might not even know to look for.
Freeing Up Your Onsite Team
When you outsource file reviews, you give your onsite team a huge gift. The gift of time and reduced stress. You let them get back to focusing on leasing, resident retention, and daily operations.
This can boost team morale and job satisfaction. They can feel supported instead of overwhelmed. This helps you build a stronger, more stable onsite team in the long run, improving overall property performance.
What Does a Thorough 3rd Party Review Actually Cover?
A professional review goes deep into every part of the resident file. It is more than just checking boxes. It is about understanding the full story and making sure it aligns perfectly with all program requirements.
A quality LIHTC file review will examine every document and calculation with a fine-toothed comb. This protects you from those small errors that can become big problems later. It’s a complete health check for your compliance process.
Here’s a look at what we typically scrutinize in a file.
| File Component | Key Review Points |
|---|---|
| Application Integrity | Is every question answered? Are all required signatures and dates in place? Is the demographic information complete and does it match supporting documents? |
| Income Verification | All sources of income (wages, child support, Social Security, unemployment, etc.) must have current, third-party verification. We check dates and document authenticity. Referencing the HUD Handbook 4350.3 is essential for correctly handling variable income sources. |
| Income Calculations | This is a major source of common LIHTC errors. We re-calculate everything from scratch, checking for correct annualization methods for variable, seasonal, or new employment. |
| Asset Verification |
Verify all disclosed assets, such as bank accounts and real estate.
|
| Student Status Rules | The student rules can be tricky. We confirm the eligibility of every household with students to make certain they meet one of the specific program exceptions. |
| Tenant Income Certification (TIC) | We review the TIC for absolute accuracy. Do the numbers match the verification documents? Are the right utility allowances used? Are all the dates and signatures correct? |
| Lease Agreement | The lease must contain all required LIHTC language and addenda. We also confirm rent amounts are correct and do not exceed the maximum allowable rent for the unit. |
| Move-In Timing | The first-year file is critical. We verify that the move-in date, lease start date, and TIC signature dates align with program rules and occur in the correct sequence. |
| Annual Recertifications | For existing residents, we check that annual recertifications were completed on time. We review the entire recertification process with the same level of detail as a move-in file. |
This level of detail is what separates a quick check from a true, audit-ready review.
The Different Types of Third-Party File Reviews
Not all file reviews are the same. Depending on your property’s situation, you may need a specific type of review to address your most urgent compliance needs. Understanding these options helps you choose the right level of support to keep your property compliant and audit-ready.
Due Diligence File Review for Acquisitions
When purchasing an existing LIHTC property, you are also purchasing its compliance history. A due diligence file review is essential to understand the level of risk you are inheriting from the previous owner. This review uncovers existing non-compliance issues that could lead to future credit loss.
This type of review examines a sample of resident files, typically 10-20% or more, depending on the property’s age and perceived risk. It gives potential buyers a clear picture of the property’s compliance health. Findings from this review can be used as leverage during negotiations and provide a clear picture of the property’s compliance health before closing.
Pre-Audit Review for State Agency Inspections
One of the most common services requested is a pre-audit review, performed as soon as you receive notice of an upcoming inspection from the state housing agency. This “mock audit” carefully reviews 100% of the files that the state agency, such as the Texas Department of Housing and Community Affairs (TDHCA), will likely inspect. It allows you to find and correct errors before the official auditor arrives.
A pre-audit review significantly reduces the chances of receiving an 8823 finding. It provides a roadmap for correcting any identified issues and prepares your staff for the questions the auditor will ask. This proactive step transforms a stressful event into a manageable process.
Because each state has its own unique rules and Qualified Allocation Plan (QAP), it’s essential to work with a compliance consultant who understands your state’s requirements, especially when preparing for a TDHCA audit.
Ongoing or Quarterly File Reviews
Instead of waiting for an audit notice, many owners and management companies opt for ongoing file reviews to stay ahead of compliance issues.
A compliance consultant will review a set number of files each month or quarter. This proactive approach catches errors early, preventing them from becoming systemic problems.
It also provides continuous training for your onsite team, helping them improve accuracy and confidence while keeping your property in a constant state of readiness.
New Lease-Up File Reviews
The initial lease-up period is one of the riskiest times for a new LIHTC property. Every single initial certification must be perfect to protect tax credits. Many developers and managers use a third party to review 100% of the move-in files as they are processed.
This ensures the property is fully compliant from day one. It catches any issues before a resident even moves in, preventing costly mistakes at the most critical stage of the property’s life. This provides peace of mind for investors and syndicators from the very beginning.
Remote File Reviews (MI/AR)
For properties looking for flexibility, remote file reviews offer a secure, efficient way to manage compliance without requiring onsite visits.
Files are submitted electronically for review, covering both move-ins (MI) and annual recertifications (AR).
This is especially helpful for properties operating in states like Texas, where TDHCA deadlines and rules must be met precisely to maintain compliance.
This is ideal for multi-site portfolios or management teams needing timely feedback while keeping costs manageable.
Utility Allowance Preparation (HUSM)
Utility allowances directly impact rent calculations and tenant eligibility, making accuracy essential.
Our HUSM utility allowance preparation services ensure that schedules and calculations meet federal and state requirements.
Correct utility allowance documentation protects your property from findings and keeps your rent structures compliant.
Certification Catch-Up Assistance
Falling behind on certifications can quickly snowball into major compliance problems.
We provide short-term onsite support to bring initial or annual certifications up to date.
This service is especially valuable during staffing shortages, turnover, or periods of rapid growth.
By catching up quickly, you prevent missed deadlines that could result in serious penalties.
Finding the Right Partner: What to Look for in a Compliance Consultant
Choosing a compliance partner is a big decision. You are entrusting them with a critical part of your business. Not all consultants are created equal.
You need someone who acts as a true partner. They should feel like an extension of your own team. Their goal should be to educate and empower you, not just point out flaws.
Experience is Everything
You cannot fake experience in this industry. Ask how long they have been working specifically with the LIHTC program. Have they worked with properties similar to yours in size and type?
Look for someone who has seen it all. Someone who has been through countless state agency audits and knows exactly what auditors look for. This real-world experience is invaluable for effective resident file audits.
Do They Understand Your State’s Rules?
The LIHTC program is a federal program, but it’s administered by state housing finance agencies. Each state has its own Qualified Allocation Plan (QAP) and its own specific set of rules and preferences. These state-level interpretations are critical to successful compliance.
For instance, the rules followed by the Texas Department of Housing and Community Affairs can differ from those in California or Florida. Your consultant must have experience with your specific state agency. A one-size-fits-all approach does not work for LIHTC compliance.
Look for Industry Certifications
While experience is paramount, professional certifications demonstrate a commitment to the field and a verified level of knowledge. Look for consultants who hold credentials like the Housing Credit Certified Professional (HCCP), Certified Occupancy Specialist (COS) or National Compliance Professional – Executive Level (NCP-E). These designations show that the individual has passed rigorous exams on Section 42 regulations.
Look for a Proactive Approach
A great compliance partner does more than just review files. They help you build better systems. They should offer training for your staff and help you improve your internal processes.
The goal should be to make you less dependent on them over time. They should be building your team’s capacity and confidence. Look for someone committed to your long-term success, who provides clear reports and actionable steps for correction.
The Sanchez “Always Be Audit-Ready” Method
After 29 years in this business, I’ve learned that reacting to audits is a losing game. It’s stressful, expensive, and it keeps you on the defensive. That’s why at Sanchez Compliance & Consulting, we developed our “Always Be Audit-Ready” method.
The idea is simple. We shift from a mindset of panic-before-an-audit to a state of constant preparedness. It’s not a one-time fix; it is an ongoing process of building strong internal controls and habits.
We help you create systems so that you feel confident about your compliance every single day of the year. This proactive approach means no more scrambling. No more late nights trying to fix files before an auditor arrives.
It means when that audit letter does arrive, you feel calm and in control. You can focus on serving your residents, not on worrying about compliance penalties. This is the peace of mind we aim to give all of our partners.
Conclusion
The stress that comes with LIHTC compliance is real, but it does not have to be your reality. That pit in your stomach when an audit is announced can be replaced with confidence. A proactive stance with a professional third-party LIHTC file review can completely change the game.
It’s about more than just avoiding findings; it’s about protecting your assets, supporting your staff, and gaining genuine peace of mind. Your team can focus on operations, knowing their hard work is being checked and validated by an expert.
Investing in an expert LIHTC file review is one of the most effective forms of insurance you can get for your property. It turns a source of anxiety into a well-managed part of your business. This allows you to focus on the mission of providing quality affordable housing.
Ready to take the stress out of compliance?
At Sanchez Compliance & Consulting, we use our proven Always Be Audit-Ready Method to help you reduce risk, avoid costly penalties, and keep your properties in top compliance year-round.
Whether you need help with pre-audit preparation, remote file reviews, lease-up file reviews, utility allowance prep, or certification catch-up assistance, our team is ready to create a custom compliance plan that fits your property’s needs.
📞 Schedule your third-party file review today and gain peace of mind knowing you’ll be fully prepared for your next TDHCA audit or state inspection.
About Jeanie Sanchez and Sanchez Compliance & Consulting
I’m Juanita (Jeanie), and I provide compliance solutions for affordable housing providers. My specialty is managing the file review process and backup, delivering greater security, reducing redundancy, and increasing staff understanding.
On the technical side, I help management agents with:
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Applying Section 42 and state agency requirements
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Analyzing IRS Forms 8609 and guidance on Multi-Building Elections
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Pre-State Agency audit preparation and post-audit response
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Lease-up file reviews and first-year review support
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Remote file reviews (MI/AR)
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Audit preparation and response, including internal audits and takeover due diligence audits
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Certification catch-up onsite assistance (initial or annual, limited availability)
For HUD and Section 8 compliance, I collaborate with Integral Housing Compliance and my colleague, Rosa Turovsky, who specialize in these areas.
When you partner with me (AKA Sanchez Compliance & Consulting), you benefit from 29+ years of industry experience and efficient, consistent compliance solutions designed to minimize your organization’s exposure to non-compliance.
We proudly hold these certifications:
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WBENC – Women’s Business Enterprise National Council
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WOSB – Women-Owned Small Business (SBA Certified)
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Texas HUB – Historically Underutilized Business
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MWBE – Minority/Women-Owned Business Enterprise (self-declared)
At Sanchez Compliance & Consulting, our goal is to take the stress out of affordable housing audits. Using our proven Always Be Audit-Ready Method, we help property owners reduce stress, avoid penalties, and stay prepared year-round.
Contact us today to schedule a consultation and create a custom audit-readiness plan for your properties — so you can focus on serving residents, not worrying about compliance.
