What a third-party LIHTC file review actually checks

Owners ask a reasonable question before commissioning a third-party file review: what exactly are you looking at, and why can't our own team look at the same thing? The honest answer is that your team can look at all of it. What they cannot easily do is look at it without the assumptions they carry from having built the file in the first place.

Here is what an independent Section 42 tenant file review actually examines, in the order a reviewer works through it.

1. Initial eligibility at the correct point in time

Everything in a LIHTC file hangs off the initial certification. The reviewer confirms the effective date, that certification preceded or coincided with occupancy, that the income determination used the correct limit for the correct household size, and that the limit in effect on that date was the one applied. A file with a later limit applied retroactively, or an effective date that follows move-in, is a structural problem, not a paperwork problem.

2. Income calculation and its supporting verification

Each income source is traced from the calculation back to the document that supports it. The reviewer is checking annualization method, the treatment of variable and seasonal income, overtime and bonus history, self-employment documentation, and whether the verification is current as of the certification date. The most common finding is not a wrong number. It is a number the file cannot prove.

3. Assets and imputed income

Asset schedules are reviewed for completeness, correct valuation, the treatment of disposed assets, and whether imputed income was calculated and applied when the threshold required it. Under HOTMA asset rules, the reviewer also checks that the correct self-certification standard was used and that the file documents which framework the property is operating under.

4. Student status

Full-time student household status is verified for every member and for each certification year, along with the applicable exception where one is claimed. Student rules produce disproportionate exposure because a single unqualified full-time student household can render the unit out of compliance for the entire period.

5. Rent, utility allowance, and the gross rent test

The reviewer recomputes gross rent: contract rent plus the applicable utility allowance, tested against the limit for the unit's set-aside designation. Then the utility allowance itself is checked, its source, its effective date, and whether the property implemented the update within the required window. Utility allowance timing is one of the quiet, portfolio-wide findings that nobody catches internally because it looks like a completed task.

6. Recertification history and continuing compliance

For properties that recertify, the reviewer confirms the chain is unbroken and timely. For 100% low-income properties operating under the recertification waiver, the reviewer confirms the waiver is properly documented and that household composition changes were still tracked. The Available Unit Rule is tested wherever a household's income crossed the applicable threshold.

7. Signatures, forms, and file integrity

Missing signatures, undated forms, unexecuted leases, missing lease addenda, and unresolved corrections are checked last because they are the easiest to fix and the most embarrassing to be cited for.

Internal QC checks whether the file was completed. Independent review checks whether the file would survive somebody who does not already believe it.

What the deliverable should contain

A file review that produces only a pass or fail list is not worth commissioning. The output should identify each issue at the file and unit level, cite the governing authority, distinguish documentation gaps from actual noncompliance, indicate whether the condition is correctable and how, and flag any pattern that is likely to repeat across the portfolio. Pattern identification is what converts a review from a cleanup exercise into a process fix.

When it is worth doing

The highest-value moments are the ones with an external deadline attached: before a state agency monitoring visit, during lease-up when first-year credit delivery is at stake, before an investor or asset manager review, after a management transition, and immediately after a finding when the concern is how many other files share the same defect. Costs vary by scope, depth, and turnaround, which is why we publish how LIHTC file review pricing actually works rather than a single number, and scope each engagement to the file count and deadline.

The point of an independent LIHTC file review is not to grade your team. It is to make sure the first person who reads these files with fresh eyes is not the one who can file a Form 8823.