When LIHTC properties stumble, it’s rarely one giant mistake—it’s a handful of small misses that snowball into Form 8823s, equity adjusters, or even credit recapture. Here are the most common risks unique to LIHTC compliance California projects and how experienced counsel helps you prevent and cure them. Top Compliance Risks Extended Use Agreements & Conflicting Covenants Risk: Misalignment between TCAC regulatory agreements, bond covenants, local soft-money restrictions, and recorded land-use controls creates contradictory rent/income requirements. Counsel’s fix: Harmonize regulatory language at closing, add conflict-resolution clauses, and maintain a matrix showing which covenant governs each requirement across the compliance period and extended use. Income Certifications & Recertification Timing Risk: Incomplete third-party verifications, misapplied income exclusions, missing student status checks, or late annual recerts lead to reportable noncompliance. Counsel’s fix: Adopt written verification standards, recert calendars, and QA checklists; train site staff; review borderline files; spot-check calculations; confirm student-rule exceptions are documented. Next Available Unit (NAU) & Over-Income Mismanagement Risk: Failure to promptly rent the next available unit of comparable or smaller size at the over-income tenant’s building/stack can destroy applicable fraction and trigger credit loss. Counsel’s fix: Create NAU tracking logs, define “comparable unit” in policy, and implement an alert workflow so leasing prioritizes NAU compliance. Rent Limits, Utility Allowances & Fee Policies Risk: Incorrect UA source or late UA updates push gross rent above limits; “mandatory” amenity or parking fees effectively increase rent. Counsel’s fix: Calendar UA updates (PHA, HUD, or engine-approved method), document the methodology, and vet all fees against gross rent rules before implementation. Unit Mix, Applicable Fraction & Eligible Basis Drift Risk: Conversions of common areas, amenity changes, or unit repurposing alter eligible basis or reduce the applicable fraction without anyone recalculating impacts. Counsel’s fix: Require legal review before space conversions; maintain a living as-built/unit-mix schedule; update applicable fraction models after any physical changes. Habitability, Accessibility & Fair Housing Risk: Unresolved habitability issues, uncorrected accessibility barriers (federal/California requirements), or marketing/tenant selection missteps lead to enforcement actions and 8823s. Counsel’s fix: Integrate fair housing and reasonable accommodation procedures, document UFAS/ADA/California accessibility compliance, and keep a repair SLA with escalation paths. Student Rule & Household Composition Changes Risk: All-student households without a valid exception remain in place or become one post-lease; undocumented household members cause income/rent errors. Counsel’s fix: Standardize student questionnaires, recheck status at recert, and require prompt household update forms with targeted re-verification. Casualty Loss, Displacement & Restoration Deadlines Risk: Fire/flood units are offline too long or restored without requalifying tenants; temporary relocation violates rent/income rules. Counsel’s fix: Pre-approved casualty protocols, timeline tracking to placed-back-in-service, and relocation agreements vetted for rent and recert implications. Transfers, Refinances & Ownership Changes Risk: Entity transfers or refinancing that trigger new covenants or break existing ones without re-underwriting compliance. Counsel’s fix: Make compliance review a condition precedent to any transfer/refi; update regulatory crosswalks; notify investors/issuers and obtain required consents. Recordkeeping, 8823 Responses & Cure Windows Risk: Incomplete files, missing third-party docs, and slow responses to agency findings escalate minor issues into credit recapture risks. Counsel’s fix: File taxonomy and retention policies; mock audits; designate a response lead; provide factual, time-stamped cure evidence within agency deadlines. Where Recapture Risk Hides Sustained rent or income noncompliance that isn’t cured within allowed periods. Failure to maintain applicable fraction/low-income set-asides. Inaccurate UA leading to months of over-rent. Student rule violations. Unremedied habitability/accessibility issues affecting eligible basis or qualified occupancy. Missed NAU placement causing building-level disqualification. Post-closing covenant conflicts that force noncompliance with at least one program. Practical Mitigations—What Counsel Puts in Place Compliance Playbook: Property-specific manual covering certifications, NAU, UAs, fees, student rules, fair housing, relocation, and casualty . Calendar & Alerts: Automated reminders for UA updates, rent/income limits, recerts, marketing reports, and annual owner certifications. File QA & Mock Audits: Quarterly sampling with corrective action plans; pre-agency audit file scrubs. Covenant Crosswalk: One-page dashboard mapping TCAC, bond, and soft-fund requirements with the “most restrictive” flagged. Change-Control Policy: Legal review required before any fee, amenity, space use, transfer, or refinancing change. Training & Delegation: Annual training for site teams and regional managers; named compliance owner with authority to escalate. 8823 Response Kit: Templates, exhibits list, and timeline tracker to document cures quickly and thoroughly. How a Lawyer Adds Ongoing Value Interprets gray areas and negotiates pragmatic cures acceptable to investors, lenders, and agencies. Aligns regulatory agreements at closing so you don’t inherit conflicts you can’t meet. Builds systems that prevent errors—so compliance happens by default, not heroics. Coordinates with your investor to minimize adjusters and protect developer fee timing. If you want a property-specific plan to reduce findings and avoid recapture, contact us to discuss a pragmatic strategy for LIHTC compliance California—including extended use agreements, income certifications, NAU tracking, and audit readiness.