Rural Development (RD) and its predecessor agency, the Farmers Home Administration (FmHA), have financed the development over 550,000 units of Section 515 Rural Rental Housing, nearly 70% of which are, or were, deeply subsidized by Rental Assistance which limits residents’ rents to 30% of income and thereby serves very low-income households.
Prior to 1987, owners of this housing did not have any use or prepayment restrictions and could secure FmHA loans to construct a development and then prepay the loan at any time without any restrictions or resident protections. To address part of this problem, Congress enacted legislation in 1979 that placed 20-year use restrictions (15 years if rents are not subsidized) on all developments financed after that date. Because owners of Section 515 developments financed prior to 1987 could still prepay their loans and displace residents, Congress, as part of the Emergency Low Income Housing Preservation Act of 1987 (ELIHPA), placed prepayment restrictions on all developments financed prior to that date. In 1989, Congress placed use and prepayment restrictions on all projects financed after that time for the term of the Section 515 loan. Lastly, in 1992, Congress extended the 1987 ELIHPA prepayment restrictions to loans financed between 1987 and 1989.
The ELIHPA prepayment restrictions do not prohibit prepayment of Section 515 loans. They simply require that RD offer incentives to owners who seek to prepay their loans to encourage them to remain in the program for an additional 20 years. If the owner rejects the incentives and the prepayment will have an adverse impact on minority housing opportunities in the community, the owner is required to offer the development for sale, for a period of six months, to a nonprofit or public agency. If a sale is not consummated, the owner may prepay the loan. If the prepayment does not have an adverse impact on minority housing opportunities, the owner may prepay the loan subject to certain resident protections.
Due to prepayments, foreclosures, and loan maturations, there are currently only about 450,000 units of Section 515 housing remaining. Of these units, approximately 150,000 are subject to the post-1989 use and prepayment restrictions. Another 300,000 units are only subject to the ELIHPA prepayment restrictions.
Residents of Section 515 housing must be given notice of an owner’s intent to apply to prepay the Section 515 loan. If a prepayment is approved, the residents are eligible for Rural Demonstration Vouchers that will allow them to remain in the development or move to other housing. They are also entitled to Letters of Priority Entitlement that give them priority admission to other Section 515 housing. Residents who were receiving Rental Assistance and who move to another Section 515 project can have the Rental Assistance transferred to the new housing.
This article lists and analyzes the changes made by RD to the Rural Demonstration Voucher Program through a notice published in the Federal Register.
This article discusses the district court decision in Goldammer v. United States, in which the court held that the prepayment of a Section 515 loan and sale of the development violated ELIHPA.
This article reviews the district court decision in Schroeder v. United States, in which the court reversed a magistrate’s decision and held that an owner of a Section 515 development does not have the right to prepay a Section 515 loan without first complying with ELIHPA.
This article reviews a bill introduced in the House of Representatives that proposed to establish a program authorizing funding for the revitalization of the Section 515 Rural Rental housing stock and creating a permanent rural voucher program that would protect Section 515 residents against displacement when an owner prepays a Section 515 loan.
This article discusses the United States Court of Appeals for the Ninth Circuit’s decision in Goldammer v. United States, which reversed the district court decision allowing an owner of a Section 515 development to prepay its loan and sell the development to a new owner. The court held that the residents of the development have the right to challenge the validity of the prepayment.
This article reviews an RHS sponsored study that recommended that prepayment restrictions on the Section 515 loan program, which were enacted as part of the Emergency Low Income Preservation Act of 1987 (ELIHPA), should be lifted.
This article summarizes the district court ruling that the housing authority owner of a Section 515 development could not prepay its loan and that its efforts to vacate and demolish the development violated the Fair Housing Act.
This article summarizes the United States Court of Appeals for the Eighth Circuit decision affirming the district court holding that the owner of a Section 515 development was not authorized to prepay its loan even when the loan balance was nominal and that the owner’s efforts to vacate and demolish the development, which was occupied by African-American households, violated the Fair Housing Act.
The Oregon District court, upon remand, held that RD accepted the prepayment of a section 515 loan in violation of the Emergency Low Income Housing Preservation Act of 1987. The decision was affirmed in Goldammer v. United States, 465 F.3d 1031 (9th Cir. 2006).
The district court for the Eastern District of Missouri held that the housing authority owner of a Section 515 development could not prepay its loan even when it owed less that $200 and that its efforts to vacate and demolish the development violated the Fair Housing Act. The decision was affirmed in Charleston Housing Authority v. U.S. Department of Agriculture, 419 F.3d 729 (8th Cir, 2005).
RD and owners of Section 515 housing have not consistently followed the prepayment restrictions enacted in 1987. Residents of Section 515 housing have successfully challenged prepayments, or RD approved requests to prepay, in several cases.
Residents of a Section 515 development, subsidized by HUD Section 8 project-based subsidies, challenged prepayment of a 515 loan because RD failed to make an incentive offer to the owner prior to approving the prepayment offer and to include proper use restrictions in the release deed at the time of loan satisfaction although RD, without the owner’s permission, filed a corrective deed of satisfaction later that included proper restrictions.
The residents of an RD Section 515 development challenged the prepayment of a Section 515 loan and subsequent sale of the development to a third party on the ground that the prepayment was in violation of ELIHPA. The new owner, who had attempted to raise the rents of the Section 515 tenants, RD and the residents entered into a consent decree under which RD agreed to refinance the development under the Section 515 program and to reinstate Rental Assistance subsidies for residents.
Residents of a Section 515 development challenged approved prepayment of Section 515 loan as having violated ELIHPA. Residents, owners and RD settled case by agreeing to the sale of the development to a public housing authority with RD Section 515 financing.
Court of appeals held that residents of Section 515 development are entitled to have judicial review of RD decision to accept prepayment of loan. The decision reversed a lower court opinion (2005 WL 1307698 (D.Or., May 26, 2005)) that dismissed the residents’ case and granted owner’s claim that it is entitled to quiet title to the property and, thereby, remove the RD lien.
On remand from the court of appeals, the district court ruled that prepayment of the Section 515 loan was in violation of ELIHPA and that the development should be brought back into the Section 515 program.
The district court held that ELIHPA precludes owner of a Section 515 development from prepaying the Section 515 loan as part of an action to quiet title to the property even though owner has proffered to pay the balance of loan. Affirmed Schroeder v. United States, No. 07-36073 (9th Cir., June 22, 2009).
The Court of Appeals affirmed district court decision (336 F.Supp.2d 934 (E.D. Mo. 2004)), which held that the housing authority is not entitled to prepay its Section 515 loan even though it only owed a nominal amount on the loan due to earlier partial prepayments. It also held that in light of ELIHPA, the housing authority was not entitled to quiet title to the property when it proffered to pay the balance of the loan.
The Court of Appeals held that application of ELIHPA to Parkridge’s loan agreements did not violate the partnership’s substantive due process rights and that application of ELIHPA to the loan agreement did not result in a compensable taking under the Fifth Amendment. Accordingly, the court of appeals upheld ELIHPA’s constitutionality.
On appeal from a district court decision that dismissed the plaintiff owner’s quiet title claim against RD, the Court of Appeals upheld the district court’s finding that the United States has waived sovereign immunity against a quiet title claim by an owner of a Section 515 development who sought to prepay a Section 515 loan in contravention of ELIHPA. It also reversed the district court’s conclusion that the unmistakability doctrine bars the action.
On remand from the 9th Circuit, the district court granted the owner’s motion for quiet title to the Section 515 property upon condition that the owner prepay the balance of the RD loan. The court held that ELIHPA was a “private act” which did not impair the owner’s right to prepay the loan. The court also denied the plaintiff residents the right to intervene in the case.
The Court of Appeals held that residents of Section 515 housing do not have a right to intervene in an owner’s quiet title suit against RD and that the district court did not abuse its discretion in denying the residents the discretionary right to intervene in the owner’s quiet title suit against the United States.
Several owners have substantively challenged the RD prepayment restrictions on the ground that they were unconstitutional impairments of contracts, that they could be circumvented through a state quiet title law suit, or that payments made in advance were not prepayments within the ELIHPA restrictions. While owners prevailed in two early cases, recent cases have all failed and have overridden the rationale of the earlier cases.
Statutes and Regulations
The Section 515 program is authorized in 42 U.S.C. §1485. Program regulations are set out in 7 C.F.R. § 3560.1 et. seq. RD has published three handbooks that set out its policies with respect to the program: HB-1-3560, HB-2-3560 and HB-3-3560. They can be accessed here.
The prepayment restrictions are codified at 42 U.S.C. § 1472(c). The regulations governing prepayments are set out in 7 C.F.R. § 3560 Subpart N (3560.651 et. seq.) The handbook provisions regarding prepayment are set out in HB-3-3560, Chapter 15.
Pub.L. 96-153 § 503, 93 Stat. 1134 (Dec. 21, 1979) (codified at 42 U.S.C. § 1472(c)(1)(A) (West 2003) (legislation placing 20-year use restrictions on new Section 515 loans)
Pub.L. 100-242, § 241, 101 Stat. 1886 (Feb. 5, 1988) (codified at 42 U.S.C. 1472(c)) (ELIHPA Prepayment Restrictions)
Pub.L. 101-235 § 206, 103 Stat. 2041 (Dec. 15, 1989) (codified at 42 U.S.C. § 1472(c)(1)(B)) (legislation extending use and prepayment restrictions to full term of the Section 515 loan)
7 C.F.R. Part 3560, Subpart N (7 C.F.R. §§ 3560.651 – 3560.663 (2008)) (regulations governing prepayment restrictions)
73 Fed. Reg. 15,473 (March 24, 2008) (RD Federal Register notice regarding the operation of the Rural Voucher Demonstration Program)
RD Unnumbered Letter (April 10, 2009) announcing changes to Rural Voucher Program
Included in this handbook are the procedures governing eviction from RD housing