HUD Issues NSPIRE Appeals Guidance

We review best practices for submitting a technical review request.

The LIHTC program has always looked to HUD’s Real Estate Assessment Center (REAC) for guidance on how to perform oversight of the physical condition of properties. In fact, the Internal Revenue Code’s monitoring regulations states that inspections are to be completed in accordance with 24 CFR 5.703, referred to as the “UPCS Inspection Protocol” [Treasury Regulations 1.42-5]. Now, UPCS, or Uniform Physical Condition Standards, has been replaced with National Standards for the Physical Inspection of Real Estate (NSPIRE), which has updated the LIHTC program’s inspection standards.

One goal of changing the inspections standards was to fix inconsistencies from one site to another. Inconsistent inspections have created negative impressions of affordable housing programs. And as a result, owners and managers have opted out of HUD financing and subsidized programs to avoid REAC inspections, and similar complaints have been heard regarding inspections for all funding programs. For example, landlord participation is one of the greatest challenges for the voucher program. And unpredictable housing inspections are a common complaint of landlords participating in the Housing Choice Voucher (HCV) program.

To address this lack of consistency in housing inspections, NSPIRE reduces the scope of what is inspected and draws a distinction between safety issues and conditions that should be handled between the owner and resident, such as small holes, stained carpets, and other normal wear and tear. Essentially, the revision of the inspection protocol removes aesthetics from the inspection, and replaces it with a deeper prioritization to safety standards. The new inspection standards are rooted more in standardized building codes such as the International Building Code, International Fire Code, and other standards, which have been widely adopted by many cities and counties throughout the country.

Now that NSPIRE is the required inspection standard for the LIHTC program, state agencies must start using NSPIRE as the inspection protocol for monitoring. And HOME, Housing Trust Fund, and other HUD CPD programs must implement NSPIRE by October 2025 and spend the interim getting ready for the transition. To help you stay on top of the latest news from HUD regarding the NSPIRE inspection protocol, we highlight recent guidance HUD has issued for appeals or technical reviews for the NSPIRE housing inspection protocol.

Appealing Inspection Results

According to HUD, public housing authorities (PHAs) and owners have experienced issues when submitting appeals in the NSPIRE IT system. Under the NSPIRE rule, a PHA or owner can request a technical review of the inspection results and score if they believe the results should be reviewed due to verifiable reasons. The regulations for technical review under NSPIRE align the Public Housing and Multifamily Housing programs regulations and remove the term “database adjustment” that was used under the former UPCS provisions.

The technical review process allows PHAs and owners to have points restored for verifiable reasons, including HUD or inspector error, adverse conditions beyond their control, modernization work in progress, and conflicts with state or local code. Owners must submit that technical review request within 45 calendar days following the day HUD provides the inspection report to the owner. The request is made through the NSPIRE system and must include evidence to support their claim. HUD recommends a technical review only if the correction would result in a significant improvement in the property’s overall score. We’ll go over the basis for a technical review and best practices when submitting a technical review request.

Basis for Technical Review

It’s important to note that REAC won’t conduct a technical review of the inspection results based on a PHA or owner’s correction of conditions after the inspection. Upon receipt of a request for appeal from the owner or PHA, REAC will review the inspection and the evidence. REAC may consult with HUD field or program staff as part of the review. Based on review, REAC may:

• Undertake a new inspection;
• Correct the original inspection; or
• Issue a new physical condition score.

REAC may undertake a new inspection if the inspection completed has significant anomalies or errors. This decision may be made when the inspection is received by REAC, and before the report is released to the PHA. If this occurs, the new inspection will typically be scheduled within 30 days of the original inspection, with at least a 14-day notice to the PHA or owner.

For all technical reviews that don’t include undertaking a new inspection, REAC expects to issue a decision within 90 days of a complete application. In the first year of NSPIRE implementation, this timeline may go up to 120 days. PHAs or owners that don’t hear from REAC on the status of their appeal within 120 days will have all points relating to appealed deficiencies restored.

After an owner receives an inspection report, the owner should carefully review it and conduct a survey of the site. Moderate deficiencies must be corrected within 30 days and low deficiencies must be corrected within 60 days, unless indicated otherwise within the individual inspection standards. For sites that score at or above 60, the survey may be limited to inspecting for deficiencies based on the inspecting entity's inspection findings. For sites that score below 60, the owner or PHA must conduct a survey of the entire site, including all units, inside areas, and outside areas, for any deficiency, and must electronically submit a copy of the results of the survey to HUD.

Significant improvement requirement. HUD says a request for a technical review of inspection results must be accompanied by evidence that an objectively verifiable and material error occurred, which if corrected will result in a significant improvement in the overall score of the property.

According to HUD, a significant improvement refers to an increase in a score for the site such that the new score crosses an administratively significant threshold, which may include an increase in the property score to 60 or above or change the inspection frequency for the site.

For example, if a successful review of a score would increase the score of a site from 79 to 81, this increase would mean a site would be designated a standard 2 performing property and it would undergo a physical inspection every two years instead of undergoing a yearly physical inspection as a standard 3 performing property.

Building data error. Building data error is a type of mistake that would be a valid reason for a score adjustment. A building data error occurs if the inspector inspected the wrong building or a building that wasn’t owned by the property, including common or site areas that weren’t a part of the property. For example, an inspector may have cited a sidewalk that doesn’t belong to the site. Acceptable evidence for this type of error includes a letter from a public authority such as a fire marshall, code enforcement officer, licensed contractor; surveys performed by licensed professional or issued by government entity; and proof of ownership.

Unit count error. A unit count error occurs if the total number of units considered in scoring is incorrect due to the fault of HUD. Since scoring uses total units, REAC will examine instances where the owner can provide evidence that the total units used was incorrect and that the results were not representative of the condition of the site. REAC will accept evidence from the source system such as the integrated real estate management system.

Non-existent deficiency error. A non-existent deficiency error occurs if the inspection records an observed deficiency that doesn’t satisfy or doesn’t meet a reasonable interpretation of the definition of that deficiency as defined by inspection procedures. For example, this error can occur if the deficiency cited by the inspector doesn’t apply to the observed condition or the inspector cited the wrong defect. Acceptable evidence for this error includes evaluation from a public authority such as a fire marshall, code enforcement officer, licensed contractor; or a letter from licensed professional.

Adjustments for factors not reflected or inappropriately reflected in physical condition score. This adjustment occurs when there are inconsistencies between local code requirements and NSPIRE standards. There may be conditions that are permitted by local variance or license or which are preexisting physical features that don’t conform to, or are inconsistent with, HUD's physical condition protocol. Acceptable evidence includes letter from public authority such as a fire marshall, code enforcement officer, licensed professional; or a copy of official publication for the property location and applicable housing code.

Adjustments for adverse conditions beyond the control of the owner or PHA. HUD may determine that certain deficiencies that adversely and significantly affect the physical condition score of the project were caused by circumstances beyond the control of the owner or PHA. This adjustment may occur if there was a natural disaster or damage caused by third parties such as a private entity or public entity undertaking work near a site that results in damage.

The correction of these conditions, however, remains the responsibility of the owner or PHA. Acceptable evidence includes a statement of nearby work and proof of damage caused to property, such as an insurance claim or statement from government source.

Adjustments for modernization work in progress. You may get a score adjustment if the defect cited in the inspection report is a result of a HUD-approved modernization or rehabilitation project that’s underway. In this case, acceptable evidence includes a letter from HUD approving the work; work orders from a licensed professional; contracts such as legal documentation with signature by vendor responsible for work; and a statement of start and completion dates.

Best Practices for Submitting Technical Reviews

Before submitting an appeal, HUD recommends that you review NSPIRE standards, at www.federalregister.gov/d/2023-13293, for full details on standards and scoring methodology. And in your appeal, you should clearly describe the basis for appeal and ensure supporting documentation is legible. You should not submit documents that are unrelated to the specific deficiency that’s being appealed.

To submit an appeal, you first log in to the NSPIRE system and then perform the following steps:

• Select the Inspections tab
• Select an Inspection Name to open the inspection record (e.g., INSP-XXXXX)
• Select "View all" under "ExAM Deficiencies;"
• Select a deficiency name (e.g. QR-XXXXXXX)
• Select "Add/Remove from Appeal"
• Select an Appeal Reason from the dropdown menu
• Clearly describe the error that was made, in accordance with the Appeal Reason and describe supporting documentation in the “Property Appeal Comments” field.
• Attach objective, verifiable, and current evidence to support the request and select Save.
• Go back to view all under exAM Deficiencies and under the “Appeal?” column, confirm that check marks are present for each deficiency that a request has been saved. This indicates that the deficiency has been added to the appeal.
• At this point you would repeat the above steps to add additional deficiencies to the appeal. HUD says to add all deficiencies regardless of the score deduction.
• For final submission of the appeal to HUD, select the inspection name (e.g., INSP-XXXXX) in the top left corner of the screen. The inspection record screen will surface. Submit the appeal by selecting “Submit Appeal.” A tabular view of deficiencies set to appeal will surface. If all the appeals are present select “Submit.” To add/remove any appeal before submitting, deselect the pop- up screen, and go back to “view all” under “ExAM Deficiencies.”
• Select “Submit to HUD” to make certain the appeal is transmitted to HUD for review.

HUD notes that an appeal can’t be added or modified after submission or the “Submit to HUD” button is clicked. The system will automatically provide an alert if an attempt is made to add or modify an appeal after the last day to submit the appeal, or after the appeal has already been submitted. Only one appeal per inspection may be submitted to HUD. If the “Submit to HUD” button isn’t selected, the appeal won’t be reviewed by HUD. The appeal will be rejected if the evidence provided is insufficient.