News

New HUD Income Exclusion - ABLE Accounts

On May 6, 2019, HUD published Notice H-2019-06 and Notice PIH 2019-09, Treatment of ABLE Accounts in HUD-Assisted Programs. Background The Achieving Better Life Experience (ABLE) Act was signed into law on December 19, 2014. The ABLE Act allows states to establish and maintain a program under which contributions may be made to a tax-advantaged ABLE savings account to provide for the qualified disability expenses of the designated beneficiary of the account. The designated beneficiary must be a person with disabilities, whose disability began prior to his or her 26th birthday and who meets the statutory eligibility requirements. Per the mandate of the ABLE Act, for the purpose of determining eligibility and continued occupancy, HUD will disregard amounts in the designated beneficiary s ABLE account. Applicability This income exclusion applies to the following programs: Housing Choice Voucher (including all special voucher types);Public Housing;Project-Based Section 8;New constructionState Agency financedSubstantial rehabilitationSection 202/8Rural Housing Services Section 515/8Loan Management Set-Aside (LMSA)Property Disposition Set-AsideRental Assistance Demonstration Project Based Rental Assistance (RAD/PBRA)Section 202/162 Project Assistance Contract (PAC);Section 202 Project Rental Assistance Contract (PRAC);Section 202 Senior Preservation Rental Assistance Contracts (SPRAC)Section 811 PRAC;Section 811 Project Rental Assistance (PRA);Section 236 (including RAP); andSection 221(d)(3)/(d)(5) Below Market Interest Rate (BMIR) Since the Low-Income Housing Tax Credit Program (LIHTC) is required to follow the rules of the Section 8 program relative to the definition of income, this new exclusion also applies to LIHTC projects. The entire value of the individual s ABLE account will be excluded from the household s assets. This means actual or imputed interest on the ABLE account will not be counted as income. Distributions from ABLE accounts are also not counted as income. Contributions Made by the Designated Beneficiary If the beneficiary has a portion of his/her wages directly deposited into his/her ABLE account, then all wage income received, regardless of which account the money is paid to, is included as income. Pre-tax employer contributions to an ABLE account (that are not deducted from wages) are excluded. If the designated beneficiary subsequently deposits any amount previously included as income into his/her ABLE account, that deposited amount must not be included in the household s asset calculation or counted as income again when the beneficiary receives a distribution from the account. I.e., the distributions from the account should not be counted as income until the full amount deposited by the beneficiary has been withdrawn. Contributions Made by Others into the ABLE Account If someone other than the designated beneficiary contributes directly to the able account, that contribution will not be counted as income to the designated beneficiary. E.g., if a relative provides a recurring gift of $100 per month directly to the beneficiary, the recurring gift is considered income. If a relative deposits the $100 per month directly into the ABLE account, then it will not be counted as income. Verification In accordance with program requirements, PHAs and owners should verify the amount held in the ABLE account. PHAs and owners should develop a policy and procedure for verifying ABLE accounts that obtain the following information: The name of the designated beneficiary; andThe State ABLE program administering the account to verify that the account qualifies as an ABLE account. Owners participating in the programs noted above should obtain a copy of the Notice and ensure a full understanding of this new income exclusion.

Non-Profit Right of First Refusal on Section 42 Project - Relevant Court Case

Many nonprofit organizations participate in the development of Section 42 Low-Income Housing Tax Credit (LIHTC) properties on the condition that the nonprofit has a right of first refusal to purchase the project at the end of the Section 42 compliance period. What constitutes a right of first refusal and the circumstances that apply to such rights has been the subject of much discussion and some controversy over the years. A recent court decision out of the Western District of Washington state may help clarify some of the issues. On March 27, 2019, the court released its "Findings of Facts and Conclusions of Law" in the case (Housing Assistance Group v AMTAX Holdings 260, LLC, et al., W.D. Wash. No C17-1115 RSM").The court held that an exercise of right of first refusal (ROFR) under 42(i)(7) must also comply with applicable state law requirements that generally apply to a ROFR. In order to encourage non-profit participation in the LIHTC program, 42(i)(7) allows a nonprofit partner to hold a contractual ROFR to purchase the LIHTC property at the statutory minimum price, which is often referred to as "debt plus taxes." This price is often below market value. The dispute in this case was whether the nonprofit Senior Housing Assistance Group (SHAG) validly triggered and exercised its ROFR on four disputed properties in order to take advantage of the beneficial ROFR price allowed in Section 42. The court ruled in a bench trial that SHAG s attempt to exercise its ROFRs was insufficient as a matter of law and that SHAG failed to prove that it was entitled to declaratory relief because of its "unclean hands." Without delving into all the facts of the case, the basic concept that the court relied on in reaching its decision was that in order for a 42(i)(7) ROFR to be properly triggered, it must also comply with applicable state common law requirements. The court looked at the following ROFR principles under Washington state law, which are similar to the laws of other states: The owner must have a genuine intent to sell the property;The owner must receive a "bona fide offer from a third party, acceptable to the property owner;"To constitute a bona fide offer, the offer must be "made in good faith, without fraud or deceit" and must be "sincere" and "genuine," (i.e., not designed simply to trigger the ROFR); andEven if a third party s interest in the property is genuine, to constitute an offer the communications in question must be enforceable and not merely an expression of interest or invitation to negotiate. In this case, the court held that SHAG s attempted exercise of its ROFRs failed at least one of the principles noted above. According to the court, SHAG "could only exercise its ROFR if all the elements necessary to trigger the ROFR under common law had been satisfied." Even though the investor partner had agreed to give up consent rights as the limited partner in connection with SHAGs exercise of its ROFRs, the court noted a distinction between a ROFR and an option, effectively holding  that SHAGs treatment of the ROFR would impermissibly convert the ROFR into an option. The court also found SHAG to have unclean hands because they solicited sham offers or otherwise attempted to induce offers in bad faith solely to trigger the ROFR. While this ruling does provide an indication of how state courts may interpret the requirements relating to exercising a ROFR, the Massachusetts Supreme Judicial Court in Homeowner s Rehab, Inc. v. Related Corporate V SLP, L.P., 479 Mass. 741 (Mass. 2018) concluded that no bona fide offer was required in order to trigger the ROFR. Exercising of ROFRs is an evolving area of the law, but this recent Washington case provides a clear indicator of how future courts may interpret disputed efforts with regard to ROFRs. Any nonprofit with a ROFR clause in their partnership agreement should carefully review both these cases prior to exercising a ROFR.

Senior Housing – What the Law Requires to Exclude Families with Children from Multifamily Housing

When the Fair Housing Amendments Act of 1988 passed, amending the Fair Housing Act, it added protections for families with children as well as for the disabled. The familial status provisions made it unlawful to discriminate against applicants or residents because they have, or expect to have, a child under 18 in the household. The children may live with (1) a parent; (2) an individual with legal custody; or (3) an individual who has the written permission of the parent or custodian. The protections also apply to pregnant women and anyone in the process of securing legal custody of children under 18. Congress did permit one exception to the protection for families with children - senior housing or housing for older persons. There are three types of communities that are eligible for the senior housing exemption: Publicly funded senior housing communities: These are communities where HUD has determined that the dwelling is specifically designed for and occupied by elderly persons under a federal, state, or local government program;62 and older communities: Every resident in the community must be 62 or older; or55 and over communities: At least one person age 55 or older must live in at least 80% of the occupied units and it must be clear that the intent of the property is to serve only people age 55 and older. Basic Rules for Qualifying as Senior Housing Comply with the technical requirements for the senior housing exemption - complying with the law governing the 62+ exemption is easy; everyone living in the community must be 62 or older. For example, a 62 year old man with a 59 year old wife would not be eligible. The 55+ rule is more difficult to understand and comply with. To qualify, a property must meet each of the following requirements: (1)at least 80% of the occupied units must have at least one occupant who is 55 or older; (2) the community must publish and adhere to policies and procedures that demonstrate the intent to operate as "55 or older" housing; and (3) the community must comply with HUD s regulatory requirements for age verification of residents. Each of these three requirements must be fully understood in order to ensure compliance with the law.The 80% Rule: at least one person age 55+ must live in 80% of the occupied units. The law does not restrict the age of the other occupants in those units. The "occupied" rule applies to temporarily vacant units if the primary occupant has resided in the unit in the past year and intends to return on a periodic basis. It is a good idea to always have more than 80% of units occupied by someone 55+ so that if an older person with a younger spouse dies, the surviving spouse will not have to move.Intent to operate as senior housing: a community must publish and adhere to policies and procedures that demonstrate its intent to operate as housing for older persons. For example, (1) written rules, regulations, lease provisions, etc., are clearly intended for seniors; (2) the actual practices of the community enforce the rules; (3)the advertising should be clearly intended to attract only seniors; and (4)the community must have age verification procedures and be able to prove required occupancy.Verification of occupancy: through the use of reliable surveys and affidavits, owners must be able to produce verification of compliance with the 80% rule. The age verification procedure should be part of the move-in process and then once every two years. While HUD will accept a certification signed by any household member age 18+ that at least one person in the unit is 55+, it is best to have actual verification of age in the file (e.g., birth certificate, driver s license, passport, immigration card, etc.).Market the community as senior housing - advertising and marketing are a critical element of a property s ability to qualify as senior housing. The property must demonstrate a clear intent to provide housing for older persons. Using the wrong words to describe the property could undercut a property s ability to demonstrate an intent to operate as "55 or older" housing. For example, properties should avoid terms such as "active adult," "empty nester," or "adult only." However, the use of one of these terms, by itself, does not destroy the community s ability to meet the intent requirement. All the elements of the project s marketing and operation are taken into consideration. However, better terms are "senior housing," "55 and older community," "retirement community."Don t discriminate based on race or other protected characteristics - e.g., a senior facility that gives preference to applicants of a certain religion would be in violation of the law.Enforce rules to prevent harassment by or against residents - bullying or any other form of harassment based on protected characteristics should not be tolerated. The following case is instructive in this area:Wetzel v. Glen Street Andrews Living Community, August 2018.Facts:The resident alleged that she endured months of physical and verbal abuse by other residents at an Illinois retirement community due to her sexual orientation.Despite her complaints, the community did nothing to stop it, and in fact retaliated against her because of her complaints.The resident was able to prove that (1) she had endured unwelcome harassment based on a protected characteristic, and (2) the harassment was severe or pervasive enough to interfere with her tenancy.Ruling: A federal court has reinstated the case, ruling that employment discrimination based on sexual orientation qualifies as discrimination based on sex and the same is true for housing claims. The court also ruled that the harassment was severe and pervasive - it lasted for 15 months and involved threats, slurs, derisive comments about her family, physical violence, and spit. If the court determines that management knew of the harassment and was indifferent to it, the Fair Housing Act will have been violated. It should be noted that this court ruling applies in Illinois, Indiana, and Wisconsin. Another federal court in Missouri found that discrimination based on sexual orientation is not sex discrimination (Walsh v. Friendship Village of South County, January 2019). Ultimately, unless a senior housing community rents only to persons age 62 or older, great care must be taken with regard to advertising, programs, and procedures to ensure that the property clearly intends only to rent to older persons.

HUD Publishes 2019 Income Limits

On April 24, 2019, HUD published the 2019 income limits for HUD programs as well as for the Low-Income Housing Tax Credit and Tax-Exempt Bond programs. The limits are effective on April 24, 2019. The limits for the LIHTC and Bond projects are published separately from the limits for HUD programs. HUD has indicated that the U.S. median income limit is higher this year than it was in 2018. The median has increased by 5.01% and is now $75,500. LIHTC and Bond properties use the Multifamily Tax Subsidy Project (MTSP) limits and are held harmless from income limit (and therefore rent) reductions. These properties may use the highest income limits used for resident qualification and rent calculation purposes since the project has been in service. HUD program income limits are not held harmless. Projects in service prior to 2009 may use the HERA Special Income Limits in areas where HUD has published such limits. Projects placed in service after 2008 may not use the HERA Special Limits. Projects in rural areas that are not financed by tax-exempt bonds may use the higher of the MTSP limits or the National Non-Metropolitan Income Limits (NNMIL). According to HUD, the NNMIL have gone up 3.8% from 2018 to 2019. Owners of LIHTC projects may rely on the 2018 income limits for all purposes for 45 days after the publication date of the newly issued limits. This 45-day period ends on June 8, 2019. The limits for HUD programs may be found at www.huduser.gov/portal/datasets/il.html. The limits for LIHTC and Bond programs may be found at www.huduser.gov/portal/datasets/mtsp.html

HUD Guidance On Voluntary Conversion of Small PHA Public Housing to Section 8

            On March 21, 2019, HUD issued Notice PIH 2019-05 (HA), creating a streamlined procedure for Public Housing Agencies (PHAs) with 250 or fewer public housing units to convert the public housing to Section 8 assistance. PHAs may receive Tenant Protection Vouchers (TPVs) which must be offered to tenants as tenant-based assistance but may be project-based in the tenant agrees.             This notice revises the current Section 22 requirements to make it easier for small PHAs to convert public housing to Section 8. Section 22 allows PHAs to convert public housing to Section 8 Housing Choice Voucher assistance if the conversion: (1) is not more expensive than continuing to operate public housing; (2) principally benefits residents, the PHA, and the community; and (3) has no adverse impact on the availability of affordable housing in the community. The regulations require that PHAs conduct a conversion assessment including a cost analysis, market value analysis, rental market analysis, and an impact analysis.             In order to make the process more feasible for small PHAs, the Notice exempts small PHAs from the conversion assessment requirement, except they must still provide an impact analysis. In order to qualify, the PHA must convert all of its public housing units through Section 22 and close out its public housing program. If a PHA without a voucher program wishes to participate, it must find a willing PHA with a voucher program to administer the vouchers.             Applications will be processed by the PIH Special Applications Center (SAC) and must include: Environmental Review;Impact Analysis, including the impact on available affordable housing, concentration of poverty and other neighborhood impacts;Resident consultation;PHA Plan/Significant Amendment;Local Government Review; andPlan for the future use of the project Conversion requirements include: Income screening - only families at or below 80% of the area median income qualify for HCV assistance;Relocation - the Uniform Relocation Act (URA) applies. PHAs must provide relocation assistance to all displaced families, including over-income families who do not qualify for TPVs; andDavis-Bacon Wage Rates apply to any work associated with demolition or rehabilitation. If the converted public housing continues to operate as rental housing, residents must be provided the opportunity to remain using a voucher. PHAs may only project-base the voucher assistance if the tenants provide informed, written consent after the PHA holds an informational briefing for families at which HUD personnel are present - either in-person or on the phone. Families must be given at least 30-days to decide whether or not to provide consent, and project-based HAP contracts must exclude any units occupied residents with tenant-based vouchers if the resident elects not to allow conversion to project-based assistance.             Small PHAs interested in such conversion should carefully review the HUD Notice and contact HUD at SACTA@hud.gov for additional information.

HUD Conciliation Agreement for Discrimination Based on Sex with Regard to Domestic Violence Victim - March 2019

            On March 12, 2019, HUD entered into a Conciliation Agreement with a domestic violence victim and Essex Property Trust, Inc (and others). This is an important case because it indicates that victims of domestic violence may have a fair housing claim when landlords do not take reasonable steps to protect the victim. Facts of the Case On August 13, 2018, the complainant filed a complaint with HUD against Essex Property Trust and others (including the individual property manager, assistant community manager and regional portfolio manager associated with the property the complainant lived at (Lawrence Station Apartments in Sunnyvale, CA).The complaint alleged that the respondents discriminated against the resident on the basis of her sex when they declined to respond to her multiple requests to have the locks changed and to have her then husband s name removed from the lease.The respondents denied all allegations but agreed to resolve the claims by entering into a voluntary conciliation agreement. Terms of the Agreement Essex Property Trust will pay the complainant $20,000;Management personnel involved in the decision-making relating to the requests will attend fair housing training;The owners will implement at all properties they own or manage a policy regarding how to address the safety and housing needs of tenants who have experienced or are experiencing domestic violence; andAll employees or agents of the company will be given a copy of the Domestic Violence Policy and will be given guidance on the implementation of the policy. Summary             This is an important case because, while it did not go to trial, it makes clear that HUD will pursue cases of owners and managers not taking reasonable steps to protect residents in cases of domestic violence. Also, since it was brought on the basis of sex discrimination, it indicates that since the overwhelming majority of domestic violence cases occur against women, HUD may consider such actions to have a disparate impact based on sex. Lesson             Owners and managers of housing properties - including those not required to comply with the requirements of the Violence Against Women Act (VAWA)- should implement policies regarding how to deal with domestic violence situations. At a minimum, such policies should include provisions requiring that at the request of domestic violence victims, owners will consider the steps that may be taken to reasonably protect such victims.

GAO Recommends Improvements to REAC - March 2019

            At the end of March 2019, the Government Accountability Office (GAO) issued a report titled, "REAL ESTATE ASSESSMENT CENTER - HUD Should Improve Physical Inspection Process and Oversight of Inspectors."             The 2017 Consolidated Appropriations Act, Joint Explanatory Statement, included a requirement that the GAO conduct a review of REAC s policies and processes; this study has been issued in response to that requirement.             The report discusses, among other things, (1) REAC s process for identifying physical deficiencies and (2) REAC s selection, training, and monitoring of contract inspectors and its own qualify assurance inspectors.             GAO has made 14 recommendations to HUD to improve REAC s physical inspection process and its selection, training, and monitoring of contract and quality assurance inspectors, among other things. What GAO Found             The primary overall finding is that the REAC standardized procedures to identify physical deficiencies at HUD multifamily and public housing properties has a number of weaknesses. For example, REAC has not conducted a comprehensive review of its inspection processes since 2001. Also, REAC does not track its progress toward meeting its inspection schedule for certain properties.             REAC uses contractors to inspect properties; these contract inspectors are trained and supervised by quality assurance inspectors hired directly by REAC. However, REAC s processes to select, train, and monitor both contract inspectors and quality assurance inspectors have weaknesses. Selection: REAC does not verify the qualifications of contract inspector candidates before they are selected to begin training to become certified inspectors.Training: REAC lacks formal mechanisms to assess the effectiveness of its training program for contract and quality assurance inspectors, and there are not continuing education requirements for inspectors.Monitoring: REAC has not met management targets for the number and timeliness of its inspection oversight reviews of contract inspectors. REAC has not met its target of conducting three quality assurance reviews of poor-performing contractors per quarter. In addition, REAC s performance standards for its quality assurance inspectors have not been updated to reflect their broader job duties, such as conducting inspector oversight reviews and coaching and mentoring contract inspectors. Background             HUD created REAC in 1997 to obtain consistent information on, among other things, the physical condition of its public and multifamily properties. REAC generally inspects properties every one to three years, using a risk-based schedule. REAC developed a standardized protocol to inspect properties, referred to as the Uniform Physical Condition Standards (UPCS). REAC s data system automatically generates an overall inspection score for the property from 0 to 100 based on the information an inspector records.             REAC primarily uses contractors - who are trained and certified in REAC s UPCS protocol - to conduct inspections of multifamily and public housing properties.             To procure inspections of HUD-assisted properties, REAC primarily uses an auction process to award contracts either to eligible contract inspectors or to companies that employ contract inspectors. REAC Roles & Responsibilities             REAC is situated within the Public & Indian Housing (PIH) branch of HUD. Several departments within REAC are involved in facilitating the physical inspection process: Physical Assessment Subsystem (PASS): The PASS Physical Inspection Operations division coordinates the procurement of inspections. The PASS Quality Assurance division evaluates and monitors REAC s inspection program to ensure reliable, replicable, and reasonable inspections. The PASS Inspector Administration division monitors the performance of inspectors.Research & Development: This division produces data analysis and statistical reports on REAC s information products.PIH: This office helps low-income families by providing rental assistance through three programs. The GAO review focused on physical inspections of the public housing program.Multifamily Housing: This office manages HUD s portfolio of multifamily properties and provides rental assistance through several programs, including Section 8 project-based rental assistance, in which HUD contract with private property owners to rent housing units to eligible low-income tenants for an income-based rent.Department Enforcement Center: This division is located within HUD s Office of General Counsel and works to ensure that program funds are used according to federal regulations. The 91-page report identified a number of REAC weaknesses. REAC s inspection process has some weaknesses that may hinder its ability to identify physical deficiencies;REAC has not conducted a comprehensive review of its inspection process since 2001;REAC may not be identifying all properties in need of more frequent inspections or enforcement actions;REAC lacks comprehensive or organized documentation of sampling methodology;REAC does not always meet its schedule for inspecting multifamily properties or track progress toward meeting scheduling requirements;While REAC is piloting a process for hard-to-staff inspections, it has no plans to evaluate the success of the pilot project;HUD has made only limited progress in implementing recommendations from an internal HUD review of REAC;REAC s procedures for selecting, training, and developing inspectors have weaknesses;REAC sets but does not verify qualification requirements for contract inspector candidates;Training for contract inspectors is not consistent with key attributes of effective training and development programs;Quality assurance inspector training requirements may not cover all job duties and are not documented;REAC does not require continuing education for contract and quality assurance inspectors;REAC has not met management targets for reviews of contract inspectors;REAC s Quality Control Group has not yet implemented procedures for inspector oversight;Performance standards for Quality Assurance Inspectors do not fully align with job duties; andHUD s threshold for issuing notices for property owners in inconsistent with requirements of Congressional legislation. Conclusions The GAO study found areas for improvement in the REAC inspection process and made the following 14 recommendations to HUD: Conduct a comprehensive review of the physical inspection process;Calculate sampling errors associated with the physical inspection score for each property;Develop comprehensive and organized documentation of REAC s sampling methodology;Track on a routine basis whether REAC is conducting inspections of multifamily housing properties in accordance with federal guidelines for scheduling;Design and implement an evaluation plan to assess the effectiveness of the Indefinite Delivery/Indefinite Quality pilot program to ensure timely and quality inspections for properties in hard-to-staff geographic areas;Expedite implementation of the recommendation from the Rapid Response and Resolution Team;Follow through on REAC s plan to create a process to verify candidate qualifications for contract inspectors;Develop a process to evaluate the effectiveness of REAC s training program;Revise training for quality assurance inspectors to better reflect their job duties;Develop continuing education requirements for contract and quality assurance inspectors;Develop and implement a plan for meeting REAC s management targets for the timeliness and frequency of quality control reviews;Ensure that quality control s policies and procedures for overseeing quality assurance inspectors are implemented;Review quality assurance inspector performance standards and revise them to better reflect the skills and supporting behaviors that such inspectors need; andReport to Congress on why the Agency has not complied with the 2017 and 2018 legislative requirements to issue notices to properties when the REAC score is 60 or below. As with most GAO reports, actual implementation of the recommendations may take some time. However, as with the recent REAC change to a 14-day inspection notification, owners and managers of HUD multifamily properties should be proactive in managing properties in a way that will not create a negative outcome when (not if) these recommendations ultimately go into effect.

HUD Charges Facebook with Fair Housing Violations

On March 27, 2019, the Department of Housing & Urban Development (HUD) formally charged Facebook with violating the Fair Housing Act by encouraging, enabling, and causing housing discrimination through the company s advertising platform. The action follows HUD s investigation of complaints against Facebook that began in August 2018. HUD alleges that Facebook unlawfully discriminates based on race, color, national origin, religion, familial status, sex, and disability by restricting who can view housing-related ads on Facebook s platform and across the Internet. Further, HUD claims that Facebook mines extensive data about its users and then uses that data to determine which of its users can view housing related ads based, in part, on the protected characteristics. According to HUD s charge, Facebook enables advertisers to exclude people that Facebook classified as parents; non-American- born; non-Christian; interested in accessibility; interested in Hispanic culture; or a wide variety of other interests that closely align with the protected classes of the Fair Housing Act (FHA). HUD is also charging that Facebook enabled advertisers to exclude people based on where they live by drawing a red line around those neighborhoods on a map and to show ads to only men or only to women. The charge further asserts that Facebook also uses the protected characteristics of people to determine who will view ads regardless of whether an advertiser wants to reach a broad or narrow audience. HUD claims Facebook combines data it collects about user attributes and behavior with data it obtains about user behavior on other websites and in the non-digital world. Facebook then uses machine learning and other prediction techniques to classify and group users to project each user s likely response to a given ad, and in doing so, may recreate groupings defined by their protected characteristics. The Charge concludes that by grouping users who have similar attributes and behaviors (unrelated to housing) and presuming a shared interest or disinterest in housing-related advertisements, Facebook s mechanisms function just like an advertiser who intentionally targets or excludes users based on their characteristics. HUD s charge will be heard by an Administrative Law Judge unless any party to the charge elects to have the case heard in federal court. This is an important case and may well impact how other Internet platforms such as Google and Twitter operate in the future.