(a) If the director determines that a project is not in substantial compliance with the requirements of this act or the agreement executed pursuant to Kan. Stat. Ann. 2023 Supp. 79-32,312, and amendments thereto, the director shall inform the project builder or developer of the project in writing that the project will lose designation as a qualified housing project in 120 days from the date of mailing of the notice unless such builder or developer corrects the deficiencies and becomes compliant with with the requirements for designation.

(b) At the end of such 120-day period, if the project is still not in substantial compliance, the director shall send a notice of loss of designation to the project builder or developer, the secretary of revenue and all known qualified investors in the project. Loss of designation of a qualified housing project shall preclude the issuance of any additional tax credits with respect to the project, and the director shall not approve any subsequent application for such project as a qualified housing project. Upon loss of the designation as a qualified housing project, the project builder or developer shall repay any tax credits such taxpayer has claimed.

(c) Qualified investors other than the project builder or developer who have lawfully made a cash investment in a qualified housing project approved by the director shall not have tax credits disallowed solely due to the project losing its designation as a qualified housing project under this act.