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Section 8 Contract Renewals

Most project-based Section 8 contracts executed prior to the early 1990s ran for a fixed period of time, usually between five and 20 years. Starting in the mid-1990s, Congress reduced the funding for renewal contracts to one year, so upon expiration most owners renewed only for one-year terms. At each expiration, the owner has a choice whether to renew its participation in the program or to "opt-out." Congress and HUD have established rules and policies governing the rent level of the government’s contract renewal offer. If the building is in acceptable condition (i.e., not a "troubled" property), there are four primary ways of renewing the contract, depending mostly on a comparison of the Section 8 rent level under the expiring contract with the true market rent level. HUD’s Section 8 Renewal Policy Guide describes these options in detail.

Straight renewal. This option is used if the Section 8 rent is comparable to market rent and the owner is willing to renew. The parties simply extend the contract with essentially the same terms and rents as before. Owners with Section 8 rents less than market value may choose this option to bide their time for a year, especially if they are seeking to avoid to the administrative burden and five-year commitment of a "markup." This option is also available to owners of properties that are "exempt" from the Mark to Market program (Section 202, Rural Housing Service Section 515, or certain bond-financed properties), even though their current rents exceed market level.

Mark Up to Market. This option is used if the Section 8 rents are significantly lower than the market rents and the owner of an eligible property wants to secure higher Section 8 rents. Under a “mark up,” the contract is renewed and HUD raises the Section 8 rents to match the market rents, eliminating the financial incentive for the owner to opt-out of the program. Participating owners must commit to remain in the Section 8 program for at least five years with only annual cost adjustments.

Restructuring/Mark to Market. This approach is used if the Section 8 rent is significantly higher than the market rent. Usually, the owner cannot simply opt-out of the program without suffering financial hardship because the rents would decrease too much, creating difficulties in maintaining debt service payments and operating expenses. HUD, however, can generally only subsidize rents at "market" levels. Thus, with this approach, the contract is usually renewed and HUD lowers the rents for the property to match market rents, and the debt must be restructured (divided into two portions, one currently serviceable and the other not) or partially forgiven in order for the owner to keep the building financially viable. A Restructuring Plan could include a conversion of some or all of the project-based assistance to vouchers, pursuant to a Rental Assistance Assessment Plan. NHLP’s Advocate's Guide: Restructuring has more information on the Mark to Market process.

Mark to Market "Lites." This option can be used if the Section 8 rent is only moderately higher than the market rent for the property, such that the owner can keep the property financially viable at the (lower) market rents. HUD and the owner renew the contract, reducing the rent to market rent, without debt restructuring or partial forgiveness.

Regardless of the approach, the contract renewal process is complex, and HUD and the owners may disagree on any number of things, such as the appropriate rent level and the condition of the property. Tenants have specific notice and participation rights, depending on the option chosen by the owner. Most expiring contracts are currently being renewed only for one year at a time because Congress provides appropriations only for one year at a time. However, owners may obtain contracts of any length, subject to appropriations, and longer commitments are required for those using Mark to Market restructuring or the Mark Up options. Where project-based assistance is not renewed (“opt-out” or terminated), most tenants will receive replacement vouchers which may not be sufficient to enable them to remain in their homes.

In order to administer the "Mark to Market" components of the renewal program, in 1997 Congress created the Office of Multifamily Housing Assistance Restructuring (OMHAR), originally as an entity with its own director, reporting directly to the HUD Secretary. When Congress extended the Mark-to-Market program for five years in 2001, it also extended the existence of OMHAR for another three years, while vesting the Federal Housing Administration Commissioner (the Assistant Secretary for Housing) with oversight of OMHAR. More recently, the administration of Mark to Market has been the responsibility of the Office of Affordable Housing Preservation.

For more information, see NHLP, HUD Housing Programs: Tenants’ Rights (3rd ed., 2004 and 2010 Supplement).

Articles

Other articles

NHLP has compiled a list of other articles on Assisted Housing Preservation for 2004-2008 and on Section 8 Contract Renewal Issues from 1997-2002 that may be useful for advocates doing background research.

A Brief Review of State and Local Preservation Purchase Laws

This NHLP Housing Law Bulletin article is from Nov.-Dec. 2006. Many state and local governments have recently begun to allocate more of their own resources or other funds within their control (usually, bond financing and tax credits) to meet affordable housing preservation needs, as well as undertaking other regulatory preservation initiatives, such as improved notices. This article and the accompanying chart provide a brief summary of these state and local laws.

Congress Acts to Address Project-Based Section 8 Funding Crisis

This NHLP Housing Law Bulletin article is from Oct. 2008. Prior Bulletin articles have described the inability of the Department of Housing and Urban Development (HUD) to make timely payments to project-based Section 8 owners, and HUD’s strategy to cope with Fiscal Year (FY) 2008’s funding shortfall—providing only “funding increments,” good for several months at a time. The shortfall—the additional funds required to fully back one-year renewal contracts—has been acknowledged by HUD and is now estimated to be at least $2.5 billion for FY 2009, a huge chunk of the program’s $6.14 billion FY 2008 appropriation. The insufficiency results directly from the Administration’s inadequate budget requests; never did the Administration clarify to Congress that it was changing its policy to request funding only to take all contracts through the end of the fiscal year, rather than the one-year contract term previously funded. This article reviews recent developments.

Congress Considers Affordable Housing Funding in Stimulus Package

This NHLP Housing Law Bulletin article is from Feb. 2009. President Obama’s push for an economic recovery program during the first few weeks of his Administration has provided an unprecedented opportunity for Congress to address years of funding neglect for affordable housing programs serving the lowest-income people most in need of federal help. The quickly deepening recession promises to accelerate housing affordability problems experienced by millions, as family incomes are reduced by cuts in hours, jobs and possibly public benefits. Advocates, led by the National Low Income Housing Coalition, have been working diligently to encourage Congress to inject substantial sums for affordable housing into the more than $800 million in spending and tax cuts intended to stimulate demand and economic activity.

Congress Considers Overdue Preservation Agenda

This NHLP Housing Law Bulletin article is from 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.

Congress Considers Solutions for Project-Based Section 8 Funding Crisis

This NHLP Housing Law Bulletin article is from April-May 2008. For an undetermined amount of time prior to late 2007, HUD had been renewing contracts for one year, but dividing the necessary funding among two fiscal years: allocating some funds from the applicable year’s appropriation, but only enough to carry the property through the end of that fiscal year, and then “backfilling” the remainder of the one-year contract term that ran into the subsequent fiscal year with the next year’s appropriated budget authority. Although HUD has still not issued a required finding on whether this prior practice in fact violated the Anti-Deficiency Act, as required by the Act and by the FY 2008 Appropriations Act, it has proceeded to “short-fund” all project-based contract renewals. This article reviews the risks that lie ahead due to this policy.

Growing Reports of a Project-based Section 8 Funding Crisis as FY 2007 Closes

This NHLP Housing Law Bulletin article from Sept. 2007 describes how eports surfaced over the summer of HUD failing to make timely Housing Assistance Payments (HAP) to Section 8 project-based housing owners. Apparently, HUD did not have enough funding authorized to honor its contractual commitments. This article provides an overview of the situation.

Obama Signs Stimulus Bill Providing Major Support for Affordable Housing

This NHLP Housing Law Bulletin article from March 2009 examines the affordable housing restrictions of the American Recovery and Reinvestment Act of 2009 (ARRA), the long-anticipated stimulus package intended to provide relief to those hardest hit by the recession and to steer the country back on a path toward economic recovery. As reported in the February 20009 issue of the Bulletin, the final conference report emerged from a House and Senate conference convened to resolve significant differences between their respective bills. The bill signed into law by the President reflected the compromise reached by the two houses and contained a number of significant appropriations related to affordable housing, many of them representing important victories for advocates.

Cases

City of Joliet v. New West L.P.

Nos. 08-3032 & 08-3033 (7th Cir. April 9, 2009) (rejecting claims by owner, tenants and HUD that City’s state court eminent domain action to condemn for other uses a property being preserved under Mark to Market Restructuring plan was preempted by federal law); prior opinion New West, L.P. v. City of Joliet, 491 F.3d 717 (7th Cir. 2007) (reinstating owner’s Supremacy Clause, civil rights and fair housing claims against city, which seeks to use eminent domain to condemn a multifamily property that HUD approved for MAHRAA restructuring; subsequently, tenants seek to intervene on consolidated interlocutory appeal; note that HUD removed City’s condemnation action to federal court in separate action).

Neighborhood Research Institute v. Campus Partners for Community Urban Development

212 F.R.D. 374 (S.D. Ohio 2002) (after court granted defendants’ motion to dismiss community group’s claims involving alleged rights to participate in Mark to Market restructuring process because MAHRAA or its regulations did not create enforceable rights for plaintiffs, court denied defendant owner’s motion for assessment of Rule 11).

Steinhorst Assocs. v. Preston

572 F.Supp. 2d 112 (D.D.C. 2008) (owner asserted APA rulemaking challenge to validity of HUD regulation (24 C.F.R. § 401.100(b)) stating that projects must be reviewed for exception treatment or restructuring eligibility at each renewal, not just initially; loan was locally bond-financed and could not be prepaid at initial renewal, and possibly triggered penalty for later prepayment; ruling on owner’s summary judgment motion, court invalidated HUD’s regulation that was not published for notice and comment, holding that rule was legislative, not interpretive, and that prior public notice and comment was required by APA; court remanded issue of renewing the owner’s HAP contract to HUD).

Materials

NHLP’s Advocates’ Guide: Restructuring

Provides basic information about how tenants can use the restructuring process to address key issues concerning their homes.

Technical Assistance funding may be available from HUD. Section 514 of MAHRAA authorizes HUD to make available up to $10 million annually for technical assistance for tenants residing in expiring Section 8 properties and for predevelopment expenses of nonprofit acquisitions. Additional legislative and administrative policies are currently under consideration to implement this program.

HUD’s Office of Affordable Housing Preservation

This office, formerly Office of Multifamily Housing Assistance Restructuring (OMHAR), has some helpful information, currently focusing mostly on the Mark to Market Restructuring program.

Statutes and Regulations

Pub. L. No. 111-8, 123 Stat. 524 (March 2009)

Appropriations for renewals for FY 09.

Pub. L. No. 111-5, 123 Stat. 524 (Feb. 2009)

Additional stimulus appropriations under Economic Recovery Act, including $2.0 billion for Section 8 contract renewals.

Pub. L. No. 106-74, § 531, 113 Stat. 1109 (Oct. 20, 1999)

(extensively revised Section 524 of MAHRAA concerning rent levels HUD can and must offer to various types of properties with expiring Section 8 contracts, including "Mark Up to Market").

Pub. L. No. 110-5, § 21043, 121 Stat. 53 (Feb. 15, 2007)

Extends Mark to Market program until October 1, 2011.

Pub. L. No. 105-276, § 549, 112 Stat. 2461, 2607 (Oct. 21, 1998)

Codified at 42 U.S.C. §1437f(c)(8) Restores the requirement that owners provide one-year’s notice to tenants and HUD of expiration or termination.

Pub. L. No. 106-74, § 535, 113 Stat. 1047, 1121 (Oct. 20, 1999)

Removes requirement that notice state reasons for notices served after effective date.

Pub. L. No. 107-117, § 1303, 115 Stat. 2230, 2340 (Nov. 26, 2001)

Appropriation for technical assistance funds under § 514 of MAHRAA.

Older statutes

NHLP has compiled a list of older statutes related to renewals that may be useful for advocates.

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 11 covers "Resident Issues," including notice requirements. Appendices 11-1 and 11-2 prescribe the required form of notice.

HUD‘s Operating Procedures Guide

For PAE administration of Mark to Market Restructuring or "Mark to Market Lites.

Check HUD’s website for more current HUD Notices.

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 program; Section 514 authorizes technical assistance funding for tenant education and outreach, as well as predevelopment). 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. This document is NHLP’s compilation of the statute with amendments, current as of May 2009.

Pub. L. No. 107-116, § 601, et seq., 115 Stat. 2177, 2220 (Jan. 10, 2002)

(Mark to Market Extension Act) Extends mark to market program for five years to 2006, Office of Multifamily Housing Assistance Restructuring (OMHAR) three years, moves OMHAR under jurisdiction of FHA Commissioner.

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