LIHTC Ethical Standards & Professional Conduct 5 — Questions and Answers
Question 1: Under TCAC regulations, what is a LIHTC owner's ethical obligation when a tenant's income increases above the applicable income limit at recertification?
- Immediately terminate the tenancy to maintain the project's income-restricted status
- Allow the tenant to remain and apply the next-available-unit rule as required by the program (Correct answer)
- Increase the tenant's rent to market rate without further income monitoring
- Request a waiver from TCAC to count the over-income unit toward the set-aside
Correct answer: Allow the tenant to remain and apply the next-available-unit rule as required by the program
The next-available-unit rule allows over-income tenants to remain housed while requiring the next comparable unit be leased to a qualified household.
Question 2: A LIHTC compliance consultant simultaneously advises both the developer and the investor on the same transaction. This arrangement represents:
- An efficient use of expertise that benefits both parties equally
- A conflict of interest requiring informed written consent from both parties or disengagement (Correct answer)
- Standard industry practice that requires no special disclosure
- An arrangement that is categorically prohibited under California professional licensing laws
Correct answer: A conflict of interest requiring informed written consent from both parties or disengagement
Representing parties with potentially adverse interests in the same transaction creates a conflict of interest requiring full disclosure and informed written consent.
Question 3: A LIHTC property manager adds a policy requiring all prospective tenants to have a U.S. citizen co-signer. This policy:
- Is permissible as a standard credit-strengthening requirement
- Likely constitutes national origin or citizenship discrimination in violation of fair housing law (Correct answer)
- Is required for properties that receive federal funding under the HOME program
- Is acceptable if the policy is applied uniformly to all applicants
Correct answer: Likely constitutes national origin or citizenship discrimination in violation of fair housing law
A blanket co-signer requirement tied to citizenship status likely constitutes national origin discrimination, which is prohibited under the Fair Housing Act.
Question 4: When a LIHTC syndicator discovers the general partner has diverted partnership funds for personal use, the syndicator's fiduciary duty requires:
- Giving the GP an opportunity to repay the funds privately before taking action
- Notifying limited partner investors, removing the GP if authorized, and reporting to relevant authorities (Correct answer)
- Reducing future equity installments until the diverted funds are repaid
- Taking no action since the syndicator's role ended at financial close
Correct answer: Notifying limited partner investors, removing the GP if authorized, and reporting to relevant authorities
A GP diverting partnership funds triggers the syndicator's fiduciary duty to protect investors, which requires disclosure, GP removal, and regulatory reporting.
Question 5: Under California ethical standards for LIHTC professionals, maintaining a 'self-monitoring' compliance system requires which of the following?
- Relying solely on IRS Form 8609 filing deadlines to trigger internal reviews
- Conducting ongoing internal audits, training staff, and correcting noncompliance before state inspections (Correct answer)
- Delegating all compliance functions to the property management company with no owner oversight
- Self-reporting noncompliance only when it is discovered during TCAC physical inspections
Correct answer: Conducting ongoing internal audits, training staff, and correcting noncompliance before state inspections
Self-monitoring requires proactive internal audits, staff training, and timely self-correction rather than waiting for regulatory inspections to uncover problems.
Question 6: A LIHTC property advertises 'English-speaking tenants preferred' in its marketing materials. This statement:
- Is permissible if the majority of existing tenants speak English
- Violates fair housing law by signaling preference based on national origin (Correct answer)
- Is acceptable as a legitimate operational need for property communication
- Is only prohibited in properties that receive Section 8 Project-Based Vouchers
Correct answer: Violates fair housing law by signaling preference based on national origin
Language preference statements in housing advertising signal discriminatory intent based on national origin, which is prohibited under federal and California fair housing law.
Question 7: What ethical obligation does a LIHTC developer have when they become aware that a project's market study contains inflated demand projections submitted to TCAC?
- Proceed with the project since the study was prepared by an independent third party
- Notify TCAC of the inaccurate data and submit a corrected market study (Correct answer)
- Request that TCAC not review the market study until the project is placed in service
- Use the inflated projections only for investor presentations, not for TCAC scoring purposes
Correct answer: Notify TCAC of the inaccurate data and submit a corrected market study
The developer has an ethical obligation to notify TCAC and submit corrected data; proceeding with known false information constitutes a misrepresentation to the allocating agency.
LIHTC Ethical Standards & Professional Conduct 5
Under TCAC regulations, what is a LIHTC owner's ethical obligation when a tenant's income increases above the applicable income limit at recertification?