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  5. An FSS Escrow Case Study: Jana Williams

An FSS Escrow Case Study

This case study covers:

  1. Enrolling Jana in FSS
  2. Calculating & Tracking Jana’s Escrow Credit
  3. Posting a Positive OARQ Adjustment to the Voucher
  4. Posting a Negative, Retroactive OARQ Adjustment to the Voucher

Meet Jana WilliamsIcon of a woman (Jana)

  • Jana Williams lives at Elmwood Village with her daughter. She works part-time and is the representative payee for her daughter’s SSI. Jana has no additional source of income.
  • She attended an FSS orientation and is excited to enroll in the FSS program to begin saving for her goal of homeownership.
  • She plans to meet with the FSS Coordinator on January 9, 2019 for her enrollment appointment. Her most recent recertification was effective January 1, 2019 at which time her Total Tenant Payment (TTP) was determined to be $300 per month.

Preparing Jana’s Contract of Participation (COP)

  • Prior to preparing the COP, make sure to verify that Jana is eligible for the FSS program.
    • Confirm that she lives in an apartment with a Project-Based Section 8 subsidy.
    • Refer to your site’s FSS Action Plan to verify other requirements.
  • Jana’s FSS start date will be February 1, 2019 because she completed her enrollment appointment on January 9, 2019.

A sample of Form 50059, highlighting Jana’s Total Employment Income as $4,680 in Section D, and Total Annual Income as $12,480 and Total Tenant Payment as $300 in Section F.

Sample contract of participation. Step 1: Enter the official owner entity and head of household’s name on the second line (i.e., Jana Williams). Step 2: Enter the contract effective date. This will always be the first of the month following the participant’s enrollment meeting. The expiration date should be 5 years after the effective date. In this example, the Meeting Date is 1/9/19, which makes the Effective Date 2/1/19 and the Expiration Date 1/31/24. Step 3: Enter income information that is in place at the time of the contract effective date. Property Management can find this on the household’s most recent Form 50059. In this example, Annual Income is $12,480 (from Line 86 of the latest 50059), Earned Income is $4,680 (from Line 70 of the latest 50059, and T.T.P. is $300 (from Line 108 of the latest 50059).

Page 2 of sample contract of participation. Step 4: Sign and date the last page of the C.O.P. The signature date should be prior to the C.O.P. effective date. The F.S.S. Coordinator will review the C.O.P. with the resident during the enrollment meeting and get their signature. In this example, the signature date is 1/2/2019 and the effective date is 2/1/2019.

Record Jana’s Enrollment

  • Once the FSS Coordinator has met with the new participant, he/she will share the fully executed COP with the Property Management staff who track and manage the escrow funds.
  • The next step is to record the COP information in your property management software or another self-designed FSS tracker. If you have an FSS section in the resident’s profile of your property management software, enter their FSS information there.
  • At minimum, you will need to record:
    • Property Name
    • Unit number and name of FSS participant
    • Any household ID used by your organization
    • COP effective date
    • Annual earned income on the COP
    • TTP on the COP

Jana Starts to Save

  • When Jana enrolled in FSS her TTP was $300/month (the TTP as of the time of FSS enrollment is known as the “baseline” TTP). In May 2019, Jana starts working additional hours at work. She reports her income increase to Property Management right away.
  • Property Management completes an interim recertification. Based on this recertification, Jana’s TTP increased to $417/month effective June 1, 2019.
  • Because she is in the FSS program, and the increase in income and rent is due to an increase in her earnings, she will be able to escrow that difference, building savings in her FSS escrow savings account.
  • Property Management calculates Jana’s monthly escrow credit at the time of the interim recertification using the Monthly FSS Credit Worksheet, as shown below. They use information from Jana’s new 50059 effective June 1, 2019 as well as her COP to complete her monthly escrow credit calculation.

Calculate Jana's Escrow Credit

  • The multifamily escrow credit worksheet provides an easy way to calculate the FSS escrow credit.

Image of an example multifamily FSS escrow credit worksheet entry portion. To fill in the escrow calculator, fill in lines 3 and 4 using information from the C.O.P. Fill in the other lines from the latest Form 50059. In this example: Head of Household name is Jana Williams. The date is May 1, 2019. Baseline Monthly T.T.P. is $300. Baseline Annual Earned Income is $4,680. Current monthly T.T.P. is $417. Current annual earned income is $9,360. Current adjusted annual income is $16,680. Low-income limit is $47,900. Very low-income limit is $18,000. And, current monthly gross rent is $600. It is Best Practice to save an electronic copy of the participant’s escrow credit worksheet with the corresponding effective date in the document name and use it as a template for future calculations for the participant. The baseline information from the C.O.P. will remain the same on every escrow credit worksheet throughout the resident’s participation in F.S.S.

  • The bottom box of the spreadsheet calculator generates the new monthly escrow credit explains how it was calculated.

Image of example F.S.S. enrollment and escrow tracker, showing the monthly escrow credit as $0.00 for each month from February 2019 through May 2019 and $117 in June 2019.

Note: Jana’s monthly escrow credit, $117, is the difference between her new TTP ($417) and her TTP at the time of FSS enrollment ($300). This is because her increase in rent is due entirely to an increase in her annual earned income. Increases in unearned income do not lead to any increase in escrow.

  • The final step is to record Jana’s new escrow credit in the property management software or FSS tracker. For example:

Image of an example multifamily FSS escrow credit worksheet output portion. In this example, the worksheet calculates the final FSS escrow credit as $117. This appears as Item H on the sheet.

Post a Positive OARQ Adjustment to the Voucher

  • In order to receive reimbursement for escrow deposits from HUD, you must post Jana’s escrow credit as a positive OARQ adjustment to your monthly HAP voucher.
  • All FSS OARQ adjustments must indicate the following in the comments section:
    • Voucher Month/Year for the Escrow Credit,
    • Unit Number,
    • Head of Household’s Last Name, and
    • the words “FSS Participant”
  • In this case, the comments line for the monthly $117 OARQ adjustment would read: 12/2018, Unit 15, Williams, FSS Participant
  • Note: If the staff member who processes the monthly voucher is different from the person who calculates the monthly escrow credit, the new escrow credit amount must be communicated between these two people, using the property management software, your organization’s FSS tracker, or another method (such as a shared document, regular e-mail, or standing team meeting). Whatever the method, it should be codified in your property’s procedures for FSS.
  • Until Jana recertifies again, you will bill HUD every month for the same escrow credit amount, $117.

Record the OARQ Adjustment

  • It is a best practice to track both the monthly OARQ adjustment and monthly escrow credit for each FSS participant. In this instance, the monthly escrow credit is the same as the OARQ adjustment, but in some cases, the two will be different. This is described in greater detail in “OARQ Adjustment Basics” and demonstrated below (“A Drop in Earnings and a Retroactive OARQ Adjustment”).

After One Year in FSS

  • Jana has been in the FSS program for a full year.
  • While she had no escrow for the first four months, she began earning $117 per month in escrow as of June 1, 2019 which continued through January 2020. She has accrued $936 in the FSS escrow account.
  • For each month from June 2019 on, the accounting team has done the following:
    • entered a positive OARQ adjustment on the HAP voucher for $117,
    • received $117 from HUD,
    • deposited the $117 in the savings account the property uses for FSS escrow deposits, and
    • noted a $117 credit for Jana’s household in the escrow account ledger.

A Drop in Earnings and a Retroactive OARQ Adjustment

  • In late March 2020, Jana experienced a decline in earned income. Her aunt had a hip replaced, and Jana reduced her hours in order to take care of her relative.
  • Jana’s annual income dropped to $13,520 annually and her annual earned income fell to $6,200 (Jana’s change in income was driven entirely by her change in earnings). She recertified immediately and her TTP was reduced to $338/month effective April 1, 2020.
  • The staff member who conducted her recertification completed a new Escrow Credit Worksheet, calculating her new monthly escrow credit to be $38/month.

Tracking the Change in Monthly Escrow Credit

  • The staff member who conducted the recertification has alerted the accounting staff member who manages the OARQ adjustments, the escrow account, and the escrow ledger that an FSS participant has had a recertification.
  • The accounting team checks the amount and date against what was submitted to HUD. She identifies a discrepancy – an OARQ adjustment of $117 was already submitted for April 2020, but the correct amount is now $38 – which means a retroactive OARQ adjustment is needed to correct it.

Posting the Voucher

  • On the May 2020 HAP voucher, along with the HAP entries and other OARQ adjustments, the accounting team will submit a retroactive negative OARQ adjustment for Jana’s April 2020 FSS escrow and, on another line, a separate, positive OARQ adjustment for the escrow credit that Jana accrues in May 2020.
    • The retroactive adjustment is the revised escrow credit amount ($38) minus the amount originally billed for April 2020 ($117). $38 – $117 = -$79.
    • A positive OARQ adjustment of $38 for May 2020.

Retroactive OARQ adjustments are common when an FSS participant earning escrow savings has a decrease in earnings.

Rent decreases related to a loss of earnings are effective as of the first of the month following the income decrease – with no requirement for a 30-day notice. By contrast, regular billing to HUD is submitted at least a month in advance.

For this reason, a negative, retroactive OARQ adjustment is usually needed when an FSS participant who is accruing escrow savings has a dip in earnings.

The comments lines for the two OARQ adjustments read as follows

  • For the negative $79 OARQ adjustment: 4/2020, Unit 15, Williams, FSS Participant
  • For the positive $38 OARQ adjustment: 5/2020, Unit 15, Williams, FSS Participant
  • The accounting team should also verify that the correct amounts have been deposited into the escrow account and entered into the escrow account ledger for Jana’s household. If the amounts do not match up, the accounting team will need to withdraw the overage amount, correct the ledger entries, and, ideally, include a note that the ledger has been corrected because of a retroactive adjustment to the amount.

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