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Owner Nonrenewal of Expiring Project-Based Section 8 Contracts (“Opt-Outs”)

Under applicable federal law, when a project-based Section 8 contract expires, an owner may choose to renew the contract or decline to do so (“opt out”). Federal law requires an owner to give a one-year written notice to both tenants and HUD of its intention either to renew or to "opt-out" of the contract. Owners failing to give proper notice may either renew the contract for up to one year, or permit tenants to remain while paying their former rent contributions until one year after proper notice is served. Where project-based assistance is not renewed, most tenants will receive enhanced vouchers, intended to enable them to remain in their homes. For more information about opt-outs, see Challenging Conversions of Federally Assisted Housing and NHLP, HUD HOUSING PROGRAMS: TENANTS’ RIGHTS (4th ed. 2012), Sec. 12.4.2

Articles

Other articles

NHLP has compiled a list of other articles that may be useful for advocates doing background research.

Congress Considers Overdue Preservation Agenda

This NHLP Housing Law Bulletin article appeared in March 2008. In order to address the increasing shortage of affordable housing, Congress must enact stronger legislative policies to preserve hundreds of thousands of units of existing privately owned federally assisted affordable housing. Because the current policy framework allows many owners to convert to market-rate and the costs of acquisition and rehabilitation are substantial, major changes to existing budget and policy decisions are needed. The National Preservation Working Group has developed a package of legislative proposals that would address many of the obstacles to preserving affordable housing. These proposals are being considered by both the House and the Senate as their housing leadership drafts a comprehensive preservation bill to be introduced in Congress later this year. This article briefly reviews the major components of the NPWG preservation proposals.

Elderly Tenants Successfully Enforce Notice Requirements for Section 8 Opt-Out

This NHLP Housing Law Bulletin article from April-May 2007 describes a case in which a federal court in California issued a preliminary injunction to block an owner from proceeding with threatened rent increases and evictions for nonpayment until it complied with federal statutory notice requirements to end participation in the project-based Section 8 program. This decision should be useful in cases where owners fail to provide the specific notices often required by federal or state law to convert housing to market-rate use. It should also help when owners, often with the blessing of HUD, seek to convert based upon a defective notice when one year has elapsed since it was issued.

Fair Housing Litigation to Prevent the Loss of Federally Assisted Housing: The Duties of PHA's and Project Owners (Part One)

This NHLP Housing Law Bulletin article from April 2001 is part one of two articles and examines Federal Fair Housing law. The article covers the erosion of the federally assisted affordable housing stock and its effect on families of color; the legal mechanisms permitting demolitions, dispositions, and conversions in the federally assisted housing stock; an overview of the legal framework of discriminatory effect under Title VIII of the Civil Rights Act of 1968; and affirmative fair housing duties and Title VIII discriminatory effect claims.

Fair Housing Litigation to Prevent the Loss of Federally Assisted Housing: The Duties of PHA's and Project Owners (Part Two)

This NHLP Housing Law Bulletin article from Jul.-Aug. 2001 is part two of two articles and is an extension of an article on the fair housing duties of HUD regarding the loss of federally assisted housing. This article outlines the sources of demographic statistical data and other related information available on the Internet to support claims, describes how to approach the formulation discriminatory effect theories in situations involving the loss of public housing and federally assisted multifamily housing, and discusses the anticipated objections to the imposition of discriminatory effect liability against PHAs and project owners.

Opt-out and Prepayment of Four Section 8 Properties Preliminarily Enjoined

This NHLP Housing Law Bulletin article from Jul.-Aug. 2001 discusses how tenants in four HUD-insured and Project-based Section 8 assisted properties obtained a preliminary injunction that prevents the owners from selling the properties and terminating their Section 8 contracts. The injunction was issued by a federal district court on the grounds that the owners failed to comply with California law requiring notice to the tenants and others and failed to grant a right of first refusal to purchase the properties to specified public and private entities.

Persistent Tenants Win Challenge to Wrongful Mortgage Prepayment

This NHLP Housing Law Bulletin article from June 2004 details a case in which the United States District Court for the District of Massachusetts issued a decision invalidating HUD’s approval of a mortgage prepayment in 1986 as contrary to Section 250 of the National Housing Act. Granting summary judgment in favor of the tenants on the illegal prepayment claim, the court also awarded financial restitution under the Administrative Procedure Act to those tenants who were harmed more than 15 years later by the higher rents charged in the absence of the prepaid mortgage’s regulatory restrictions. The court also granted summary judgment in favor of HUD on the tenants’ disability discrimination claim.

State Court Hands Down Disappointing Preemption Ruling

This NHLP Housing Law Bulletin article from Nov-Dec. 2008 summarizes a case in which a New York state appellate court invalidated a New York City local preservation law that gives tenants the first right to purchase a building in which an owner is opting out of a project-based Section 8 contract. The court based its decision on an improper analysis of federal preemption law. While this decision sets back the New York City preservation law, its reach need not extend further than New York State and should be limited for reasons further discussed in the article.

Cases

Other Cases

NHLP has compiled a list of other cases that may be useful for advocates developing their own pleadings.

215 Alliance v. Cuomo

61 F.Supp. 2d 879 (D. Minn. Aug. 30, 1999), Successful challenge to HUD's approval of opt-out using HUD form notice due to lack of clarity regarding owners intent and failure to state reasons (as required by then-effective version of 42 U.S.C. §1437f(c)(9), since repealed); HUD's enhanced voucher policy of not subsidizing subsequent rent increases held contrary to authorizing law; favorable dicta on Fair Housing claims 42 U.S.C. §§ 3604 and 3608, failure to consider effects on racial minorities, disabled individuals, and failure to affirmatively further fair housing.

Brighton Village v. Martinez

No. 00-CV-12311-GAO, sub nom. Brighton Village Nominee Trust v. Malyshev, 2004 WL 594974 (D.Mass. Mar. 23, 2004).

Hines v. Charleston Housing Authority

No. 1:01CV00070CDP (E.D. Mo. Filed 2001), sub nom. Owens v. Charleston Hous. Auth., 336 F.Supp. 2d 934 (E.D. Mo. 2004), aff’d sub nom. Charleston Hous. Auth. v. U.S.D.A., 419 F.3d 729 (8th Cir. 2005).
Individual tenants and a housing advocacy organization challenged prepayment of 515 FmHA financing and proposed termination of Section 8 contract and demolition. Claims included violation of Rural Rental Housing statutes, violation of Section 515 loan resolution, note and deed of trust, improper notice of Section 8 HAP contract termination, and fair housing discrimination and affirmatively furthering claims. While rejecting various statutory claims, the court found that the PHA's opt-out and demolition plan had a discriminatory impact in violation of the Fair Housing Act, and ultimately ordered the PHA to repair and rent the property. The Eighth Circuit affirmed the District Court’s ruling on the Fair Housing Act claim, as well as its ruling on the owner’s claim against the government that had upheld the validity of ELIHPA, while remanding for further proceedings regarding appropriate injunctive remedies.

Kenneth Arms Tenant Association v. Martinez

2001 U.S. Dist. LEXIS 11470, No. Civ. S-01-832 LKK/JFM (E.D.Ca. order July 3, 2001).
The court preliminarily enjoined a proposed prepayment of 236 BMIR mortgages and termination of a Section 8 project-based contract. The decision was based primarily on violation of state law, Cal. Gov't Code Secs. 65863.10 and 65863.11. The court found no federal preemption of state statute, determined HUD has no duty to enforce state law, and dismissed HUD. HUD filed a letter brief stating its position that LIHPRHA’s express preemption provision applies only to properties that executed a LIHPRHA plan of action.

Mother Zion Tenant Association v. Donovan

No. 402239 (N.Y. Supreme Court decided Apr. 11, 2007), aff’d, 865 N.Y.S. 2d 64 (App. Div. 2008), motion for further review denied, 11 N.Y. 3d 915 (N.Y. Jan. 20, 2009).
Current residents of a New York City project-based Section 8 property sought to enforce the terms of Local Law 79, a tenant right to purchase law, and prevent the owner from opting out of the Section 8 program. Based primarily on Forest Park, the trial court ruled local law was impliedly preempted by federal law, and the Appellate Division affirmed. Further discretionary appellate review was denied.

Park Village Apartment Tenants Ass’n v. Mortimer Howard Trust

No. C 06-7389, 2007 WL 519038 (N.D. Cal. order Feb. 14, 2007) (order granting preliminary injunction), aff’d by unpublished order (9th Cir., No. 07-15382, Oct. 24, 2007), summary judgment granted (N.D. Cal. July 16, 2008).

People to End Homelessness v. Martinez

(D. R.I., March 29, 2001) (Order on Motion to Dismiss), aff'd, 339 F.3d 1 (1st Cir. 2003).
Plaintiffs, tenants of Develco Apartments and a community organization, challenged HUD's approval of Section 8 opt-out and provision of enhanced vouchers under Administrative Procedure Act based on noncompliance with state and federal notice statutes, and failure to affirmatively further fair housing under 42 U.S.C. § 3608(e). The District Court dismissed all claims against HUD, and partially dismissed claims against the Owner. On appeal, First Circuit upheld lower court's judgment, finding that HUD acted consistently with governing statutes in issuing enhanced vouchers despite deficient opt-out notices.

Other Cases on Opt-Outs (Alphabetical Order)

NHLP has compiled a list of other cases that may be useful for advocates developing their own pleadings.

Materials

NHLP’s Guide to Challenging Conversions of Federally Assisted Housing

Includes a Checklist for advocates’ use when evaluating adequacy of an owner’s notice.

HUD Letter to the District Court In Kenneth Arms

Letter stating HUD’s position that LIHPRHA’s express preemption provision is limited to properties executing a plan of action under LIHPRHA.

Note:

For information related to tenant protections after opt-outs, see Enhanced Vouchers.

Since federal laws no longer guarantee preservation of federally supported affordable housing facing conversion, many states and localities have enacted further protections for these properties through supplemental laws and policies.

Statutes and Regulations

42 U.S.C. 1437f(c)(8) (as amended Oct. 20, 1999)

Requires one-year advance notice to tenants and HUD for termination of project-based Section 8 contract, and prescribes form of notice.

Multifamily Assisted Housing Reform and Affordability Act of 1997

("MAHRAA"), Pub. L. No. 105-65, Title V, 111 Stat. 1343, 1384 (Oct. 27, 1997), codified at 42 U.S.C.A. § 1437f note (Historical and Statutory Notes, "Multifamily Housing Assistance"), as amended by Pub. L. No. 106-74, §531 (Oct. 20, 1999) (MAHRAA) Sec. 524 covers Section 8 contract renewals, much of statute outlines Mark to Market restructuring). MAHRAA is not codified in typical fashion, but is included as a "note" to 42 U.S.C. § 1437f, so legal reporting services have not compiled an amended version of the legislation.

Pub. L. No. 106-74, §531, 113 Stat. 1113 (Oct. 20, 1999)

Enacting an amended MAHRAA §524(d), requiring enhanced vouchers for all Section 8 contracts that are not renewed.

24 C.F.R. Part 401 (2008)

Multifamily Housing Mortgage and Housing Assistance Restructuring Program (“Mark to Market”)

24 C.F.R. Part 402 (2008)

Project-based Section 8 Contract Renewal Without Restructuring (Under Section 524(a) of MAHRAA)

HUD‘s Section 8 Renewal Policy Guide (updated through April 2009)

Chapter 8 of the Guide covers opt-outs and Chapter 11 covers "Resident Issues," including notice requirements. Appendices 11-1 and 11-2 prescribe the required form of notice, which includes a certification that the owner will accept enhanced vouchers.

Check HUD’s website for more current HUD Notices.

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