One of the most common questions I get from clients with HOME funding for their project is whether Section 504 requirements apply when HOME funding is present. THE ANSWER IS ALMOST ALWAYS - YES!
What is Section 504?
Section 504 of the Rehabilitation Act of 1973 is a federal law, codified at 29 U.S.C. § 794, that prohibits discrimination on the basis of disability in federally assisted programs or activities. Specifically, Section 504 states: "No otherwise qualified individual with a disability in the United States. . .shall, solely by reason of her or his disability, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program, service or activity receiving federal financial assistance or under any program or activity conducted by any Executive agency or by the United States Postal Service." This means that Section 504 prohibits discrimination on the basis of disability in any program or activity that receives financial assistance from any federal agency, including HUD as well as in programs conducted by federal agencies.
Who is a recipient of federal financial assistance?
The Section 504 regulations define "recipient" as any State or its political subdivision, any instrumentality of a state or its political subdivision, any public or private agency, institution organization, or other entity, or any person to which federal financial assistance is extended for any program or activity directly or through another recipient, including any successor, assignee, or transferee of a recipient, but excluding the ultimate beneficiary of the assistance. (24 C.F.R. § 8.3.) Thus, a HUD-funded public housing agency or a HUD-funded non-profit developer of low-income housing is a recipient of federal financial assistance and is subject to Section 504's requirements. Therefore, a public housing agency is covered by Section 504, for example, in the operation of its Section 8 voucher program or activity. However, a private landlord who accepts Section 8 tenant-based vouchers in payment for rent from a low-income individual is not a recipient of federal financial assistance merely by virtue of receipt of such payments. Similarly, while a developer that receives Community Development Block Grant (CDBG) or HOME funds for the rehabilitation of an owner-occupied unit is a recipient for purposes of Section 504, a family that owns the unit is not a recipient because the family is the ultimate beneficiary of the funds.
What physical accessibility requirements must a new federally assisted housing development meet in order to be in compliance with Section 504 requirements?
New construction of multifamily rental housing with five or more total units (not five or more HOME units) must be designed and constructed to be readily accessible to and usable by persons with disabilities. The common areas in the building must be made accessible, as well as a certain number of units.
For a federally assisted new construction housing project, Section 504 requires 5% of the dwelling units, or at least one unit, whichever is greater, to be accessible for persons with mobility disabilities. An additional 2% of the dwelling units, or at least one unit, whichever is greater, must be accessible for persons with hearing or visual disabilities. The project must also meet all Section 504 requirements in HUD’s implementing regulation, such as requirements regarding dispersal and utilization of accessible housing units.
If a federally assisted housing project is targeted for substantial alteration, what does Section 504 require in terms of accessible units?
Under Section 504, alterations are substantial if they are undertaken on a project that has 15 or more units and the cost of the alterations is 75% or more of the replacement cost of the completed facility. (See 24 C.F.R. § 8.23(a)). The new construction provisions of 24 C.F.R. § 8.22 apply. Section 8.22 requires that a minimum of 5% of the dwelling units, or at least one unit, whichever is greater, shall be made accessible to persons with mobility disabilities and an additional 2% of the dwelling units, or at least one unit, whichever is greater, shall be made accessible to persons with hearing or visual disabilities.
Recipients shall pay for reasonable modifications and accommodations needed by the individual (e.g., a ramp to a unit) unless providing that accommodation would be an undue financial and administrative burden or a fundamental alteration of the program. During the development phase, these costs are eligible HOME costs.
In summary, if you are developing or operating a multifamily property with five or more total units, and the project has any amount of HOME funding, the entire project is subject to the requirements of Section 504. In addition to the required percentage of accessible units, this means that owners of the project are required to pay the costs of modifications and accommodations for all units in the project - not just the HOME-designated units.
Meta (formerly Facebook) Settles Fair Housing Complaint with DOJ
The Department of Justice (DOJ) has entered into a Settlement Agreement resolving allegations that Meta Platforms, Inc., formerly known as Facebook, Inc., has engaged in discriminatory advertising in violation of the Fair Housing Act (FHA). The proposed agreement resolves a federal lawsuit alleging that Meta s housing advertising system discriminates against Facebook users based on their race, color, religion, sex, disability, familial status, and national origin. Meta uses algorithms in determining which Facebook users receive housing ads, and these algorithms rely, in part, on characteristics protected under the FHA. Under the settlement, which still must be approved by the federal court, Meta will stop using an advertising tool for housing ads (known as the "Special Ad Audience tool) that relies on a discriminatory algorithm. Meta will also develop a new system to address racial and other disparities caused by its use of personalization algorithms in its housing ad delivery system. The settlement marks the first time that Meta will be subject to court oversight for its ad targeting and delivery system. The DOJ lawsuit alleged both disparate treatment and disparate impact discrimination. Disparate treatment because it intentionally classifies users on the basis of FHA-protected characteristics and disparate impact because the algorithms affect Facebook users differently on the basis of their membership in protected classes.
HUD Finalizes New MOR Scheduling Protocol
Section 8 properties are subject to audits and inspections known as Management & Occupancy Reviews (MORs). HUD has recently introduced a new risk-based management and occupancy review schedule. The new schedule is designed to streamline and reduce the number of MOR reviews. The final rule implementing this new schedule comes seven years after the proposed rule and goes into effect on September 26. Based on HUD data, most sites have historically received "satisfactory, "above average, or "superior MOR scores. Therefore, there is no need to review properties as frequently as in the past. The new MOR schedule establishes a frequency for completion of MORs based on a site s previous MOR score and the site s rating or classification under a risk-based model. The frequency of MORs described here will begin with the first MOR scheduled on or after September 26. The final rule changes MOR scheduling for the following Section 8 Programs: New Construction;Substantial Rehabilitation;State Housing Agencies;New Construction financed under Section 515 of the Housing Act of 1949;Loan Management Set-Aside;HAP Program for the Disposition of HUD-Owned Projects; andSection 202/8 Program The schedule does not apply to restructured Mark-Market properties. Classifications The new MOR schedule establishes a frequency for the completion of MORs based on a site s previous MOR score and its risk classification. The risk classifications are: Not Troubled;Potentially Troubled; orTroubled The risk rating considers the site s financial characteristics such as low debt service coverage ratio, recent defaults, excessive vacancies, low REAC scores, tenant input provided directly to HUD, and pending foreclosure or partial claim payments. The New Schedule Section 8 sites that are "Potentially Troubled or "Troubled will automatically be reviewed annually. The new scheduling changes apply only to sites with a risk classification of "Not Troubled. If a site s risk classification is "Not Troubled and the MOR review conducted on September 26 or later is "Unsatisfactory or "Below Average, the next MOR will be conducted within 12 months.If a site s risk classification is "Not Troubled and the MOR review conducted on September 26 or later is "Satisfactory, the next MOR will be conducted within 24 months.If a site s risk classification is "Not Troubled and the MOR review conducted on September 26 or later is "Above Average or "Superior, the next MOR will be conducted within 36 months. Implementation Owners and managers will know the timeframe for the site s next review at the first MOR following September 26. In addition to the noted schedule change, the final rule states that a MOR must be conducted within six months of a management or ownership change regardless of the results of the previous MOR. It should be noted that MORs are not the same as REAC physical inspections, which are not affected by the new rule.
A. J. Johnson to Host Live Webinar on Interviewing Skills for Affordable Housing Managers
A. J. Johnson will be conducting a webinar on September 29, 2022, on Interviewing Skills for Affordable Housing Managers. The Webinar will be held from 1:00 PM to 4:00 PM Eastern time. One of the most important skills any affordable housing manager can possess is the ability to interview applicants and residents and obtain the information required to determine eligibility - this is also one of the greatest weaknesses of most affordable housing managers. This training has been developed to address that weakness. This three-hour session focuses on the interview process and provides concepts and tools that will aid managers as they conduct their interviews. Techniques apply to all interview settings including initial eligibility interviews, interim certifications, and annual recertifications. The primary emphasis is on the initial eligibility interview since it is so critical to the housing process. The skills taught during this session will also assist managers in detecting fraud and in dealing with third parties when resolving discrepancies. Those interested in participating in the Webinar may register on the A. J. Johnson Consulting Services website (www.ajjcs.net) under "Training Schedule.
IRS Final Regulation on Average Income Set-Aside Nearing Release
The IRS has sent final regulations relating to the Average Income (AI) test to the U.S. Office of Management & Budget for review. The final regulations were received by OMB on September 12, 2022. This is the final step before the publication of the regulation by the IRS. The Treasury Department and IRS first proposed these regulations in October 2020, and parts of the proposed reg faced harsh criticism from the LIHTC industry. It is hoped that the industry recommendations relative to the rule will be incorporated in the final regulation. OMB has provided no timeframe for their review, but it is hoped that the final regulation will be published shortly, and we can move forward with more certainty on exactly what will be required relative to AI compliance. OMB typically reviews proposed regulations within 60 days, which would mean final publication sometime in November. However, since the Biden Administration has committed to finalizing the proposed rules for the AI set aside as part of its Housing Supply Action Plan, a shorter timeframe is possible.