Q & A | Violate HUD or LIHTC Rules?
Aug 17, 2022
Question from a Blog Reader
"Help, these programs have to work together better! I have a HUD property that is being rehabbed with tax credits. The owner was convinced that everyone would qualify when we started this process. When talking to the residents before the rehab, we focused on all of the benefits of the new rehabbed units but never talked about what happens if a household does not qualify under tax credit rules. Actually, the owner kind of implied that everyone would automatically qualify to stay. After the acquisition, we did tax credit certifications on everyone, and six of our households do not qualify for tax credits. Our HUD Contract Administrator tells us that we cannot remove these households. However, the owner asked me to serve notice on those tenants. He insists that, if these programs are supposed to work together, we shouldn’t have to sacrifice the new tax credits because we are also HUD. For this same reason, he says that the Uniform Relocation Act does not apply in this case when tax credits are at risk. Can I serve these notices on the households that do not qualify for the tax credits?"
Answer
Summary: To give notice would violate the households’ rights under HUD rules. It is the obligation of the owner and managers to ensure that all requirements are met when multiple funding sources are involved. We do have some suggestions on what you can do, however.
Both HUD and Uniform Relocation Act provisions come into play here. In January of 2015, HUD published a helpful memo that provided guidance on tenancy protections for households when owners participate in both a HUD-assisted program and Low-Income Housing Tax Credits. HUD published this Memo because they received reports that some owners were doing what the owner is suggesting - to terminate the tenancy of current HUD-assisted tenants who do not meet LIHTC eligibility guidelines. As you have discovered, this can happen even at properties where move-in income eligibility is set at 50% or even 30% for HUD-assisted units. Time easily changes household income status and they may have income in excess of the LIHTC eligibility level by the time the acquisition occurs.
The owner has agreed to assume HUD obligations in the funding of the property and HUD makes it clear that an owner may only terminate a household's tenancy in limited circumstances as prescribed by HUD regulations and by the lease, and must follow HUD and state/local procedures. Terminations for reasons other than those permitted by HUD are prohibited. The lease agreement details the grounds for termination of tenancy, which do not include failure to meet LIHTC requirements, including LIHTC-specific income and student eligibility rules.
Should an assisted household be over-income and no longer eligible to receive a HUD subsidy because the owner determines through the annual or an interim recertification that the tenant now has the ability to pay the full contract rent or market rent, the owner will terminate the assistance to the tenant. However, in accordance with the lease agreement, the tenant retains all other rights under the lease, including the right to occupy the unit.
What is the best practical solution? Incentives!
In many cases, HUD said in the Memo that owners of LIHTC properties have offered incentives to HUD-eligible households who do not qualify for LIHTC to move voluntarily. HUD allows this as long as:
- The incentives are not paid from Section 8 or FHA project funds.
- The owner informs the household in writing that they have the option of remaining in occupancy as HUD-assisted tenants under the terms of their lease, in order to ensure that the choice of moving with incentives is truly voluntary.
- HUD doesn't explicitly state this in the Memo, but getting the household to sign an agreement that demonstrates that they understand the above as well as proof of where the funds for the incentives came from would create a paper trail to demonstrate compliance with the HUD rules.
Note that it is still the household's choice whether they will move, and the owner will have to figure into any incentives the loss of rental assistance that the household may experience. Finally, the owner will need to figure in the provisions of the Uniform Relocation Act, (URA) which applies to people displaced by rehabilitation of projects with federal funding. Details of the URA is beyond the scope of this answer, but it DOES apply to the HUD project involved, and the provisions of the URA will be important to the choices and financial payments that the owner will have to make.
Links to the HUD Memo and URA are below.
HUD Memo on protections for HUD-assisted households in properties with LIHTCs.
Check HERE! How to effectively combine programs will be a topic to be discussed at this year's Compliance Summit Events. Virtual seats are still available!
There is a very good chance that the topic of this post is covered in an online on-demand course at Costello University.
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