Last week, HUD’s Office of Multifamily Housing issued a new notice explaining the procedures its field leadership should use in initiating proceedings to disqualify FHA-insured multifamily borrowers, including the principals of borrower entities, from program participation using Limited Denials of Participation (LDPs). The procedures are intended to comply with current HUD regulations for issuance of LDPs. The LDP bars a person or entity from participating in one or more federal programs for a specific period of time and within the geographic jurisdiction of the HUD office that issued the LDP. LDPs last for up to 1 year. A publicly available list of all currently excluded parties is kept by HUD.
Why did HUD issue the notice? Risk mitigation. According to HUD, the goal of the notice is to increase the use of the LDP process in particular for multifamily borrowers who made claims against the FHA Insurance Fund. Although HUD’s Active Partners Performance System (APPS) will “flag” bad borrowers, HUD has flexibility as to whether to continue to do business with a flagged individual or entity. The LDP, in contrast, is mandatory. HUD indicates that increasing LDPs for borrowers and their principals will thus help mitigate the risk of future claims against the Insurance Fund.