The U.S. Department of Housing and Urban Development (“HUD”) oversees billions of dollars in federal government spending given to private landlords providing subsidized housing under Housing Assistance Payments (“HAP”) contracts for Project-based Section 8 apartments. As a general matter, Project-based Section 8 apartment complexes are a privatized version of low-income public housing, where tenants pay rent based on their income (paying something between zero and full market rent) for the apartment each month, while the federal government pays the difference to the private landlord.
Unlike Section 8 vouchers, the federal subsidy applies to the apartment itself (it is not something that the tenant can take with him/her) and is historically a much more broad and stable form of funding. So it is not surprising to find private landlords holding such apartment complexes (which often represent millions of dollars in private investment) with a vested and critical interest in the federal government’s ability to make the HAP contract payments timely and in full.
While payments to these landlords appear to be safe in 2013, approximately 11,000 HAP contracts are subject to receive less than the expected 12-months of funding this year from HUD. Specifically, federal payments effective January 2014 under those HAP contracts will be subject to Congress passing, and the President signing, either a budget or a continuing budget resolution (in plain terms, a stop-gap law that funds the government for a period of time).
This is important, because – as past years have shown – Congress and the President have struggled to pass a budget into law. For this reason, landlords with these 11,000 HAP contracts should immediately start planning for January 2014, including:
- Conducting a full evaluation of their HAP contracts to identify the landlord’s and HUD’s respective rights and obligations,
- Understanding what the landlord can do if HUD does not timely make HAP payments, and,
- Indentifying how to respond if such an event does occurs.
Before we dig deeper into the key points of HUD’s memorandum, we thought we would provide some “plain-English” definitions of words used in it:
Sequestration = This is another word for a 2011 law that Congress passed – and the President signed – that required automatic spending cuts if Congress and the President could not pass a budget (or other law funding the federal government) that established how the federal government would spend money. They did not pass a budget or any laws that resolved all of the required spending cuts, in particular cuts to HUD’s budget. Most of these automatic spending cuts went into effect on March 1, 2013.
Fiscal Year (“FY”) = The federal government’s fiscal year is not a calendar year; rather, it runs from October 1 to September 30.
FY 2013 = We are now in FY 2013, which started on October 1, 2012 and runs until September 30, 2013.
FY 2014 = The next fiscal year, which starts on October 1, 2013 and runs until September 30, 2014.
Appropriation = This is another word for the authority to spend money, from a budget, continuing resolution, or some other law authorizing an arm of the federal government to spend money.
Now, onto key language directly from the HUD memorandum dated March 11, 2013 from Marie D. Head, HUD Deputy Assistant Secretary:
In order to minimize the potential impact of the Sequestration, and to assure that HUD is able to fund all HAP payments coming due during the current fiscal year, the Department has developed the following plan of action:
- All Section 8 contracts expiring in FY 2013 will be renewed if eligible under current program rules and will receive full twelve month funding.
- All existing multi-year contracts that expire after FY 2013 and have anniversary dates in the first quarter of FY 2013 (October-December) will receive full twelve month funding, assuring sufficient funding to carry them into the first quarter of FY 2014.
- All other multi-year Section 8 contracts will receive less than 12-month funding, but will be provided sufficient funding to carry them into the first quarter of FY 2014.
There are about 11,000 Section 8 contracts that fall in this last category, and on average, they will receive roughly 8.5 months of funding. The actual amount will vary, depending on anniversary date. For example, a multi-year contract funded in March 2013 might receive ten months of funding (March-December), while a contract funded in September 2013 might receive four months (September-December).
The overall goal is to avoid payment disruptions during FY 2013 or early in FY 2014. Funding after that point will depend on Congressional appropriation action for FY 2014.
As noted above, the 11,000 HAP contracts not getting full 12-month funding are ensured payments at least through December 2013. While it is unlikely that such HAP payments will cease altogether, they could be delayed, and such cash flow interruption could be just as significant. Landlords should not plan for the best, and then have to react to the worst; rather, they should plan for the worst, and enjoy not having to implement any such plan if everything works out.
Contact your landlord attorney for assistance in evaluating your HAP contract for the necessary planning, particularly if you have one of the 11,000 HAP contracts that will not receive a full 12-month funding this year.
Quick Tip:
Heads up – the opposing team is busy recruiting.
As you all know, summary process cases (“evictions”) can be challenging. Even those based on your tenant’s failure to pay rent can often get time consuming and expensive. And, while this should not be the normal experience (as the law is designed to expedite court proceedings to determine possessory rights to the unit); there are always exceptions that require more time and attention to resolve.
Well readers, prepare yourselves as these exceptional cases may soon become more commonplace.
Just recently, I obtained an email circulated by the legal services organizations in CT recruiting volunteer attorneys to create an “Eviction Defense Army.” This “Army” of new lawyers will be mentored and trained by various legal services programs within CT to defend eviction cases brought against low income residents in the state.
What does that mean for you? That depends. If you are documenting your files (as we’ve instructed in our seminars and in past newsletters), it will mean very little. You can go about business as usual and perhaps expect an occasional skirmish with the “Eviction Defense Army”. However, if your operations are not up-to-par, and your documentation not up-to-date, interactions with this new “Army” may be more frequent than you’d think.
The time to address any deficiencies is now; else expect those unwanted skirmishes to last longer, and to happen more frequently in your future.
Quick Tip:
“Source of income” discrimination remains illegal in CT.
Whether you agree to the premise, or just don’t like it, the fact remains – you cannot turn away applicants simply because they receive disability benefits or are enrolled in some sort of assistance program. For those of you who didn’t know (or just didn’t believe us), we’re hoping a recent decision will help close the gap.
According to a May 15, 2013 story released by The Hartford Courant, a Hartford landlord’s bank account will be at least $150,000.00 lighter after having settled a CHRO case brought against them for “source of income” discrimination. The Courant story reported that:
Between December 2009 and April 2010, a dozen people pretending to be prospective housing applicants called [the landlord’s] companies as part of a fair housing investigation. According to the suit, those who said they were unemployed but received disability benefits or were enrolled in assistance programs were turned away. Others who claimed to be employed or did not bring up the issue of employment were offered the option of scheduling an appointment.
We have iterated and reiterated that such policies and practices are illegal. We have further warned that fair housing advocates often “investigate” such practices by pretending to be protected class applicants and recording their finding for purposes of pursing litigation (as was the case in this situation).
Hopefully this will serve a brief, but stark reminder that fair housing violations will result in some unpleasant consequences. And unfortunately, as this landlord learned, sometimes those consequences come with large financial penalties.
Quick Tip:
National trends reflect positive outcomes for rental housing.
Good times continue for landlords. Reis, Inc. recently reported that the national apartment vacancy rate dropped from 4.5{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} in Q4 2012 – to 4.3{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} in the Q1 2013. In addition, the national average monthly rent increased 3.4{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} year-over-year to land at $1,054 in the 1st Quarter of 2013. Across the 79 markets that Reis tracks, only Washington, D.C. realized a declining average monthly rent in the 4th Quarter of 2012. Good news for landlords.
In another survey, the MacArthur Foundation found 75{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} of Americans believe that the housing crisis still continues, and may actually get worse. 66{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} of the respondents stated that they wanted to see federal policy support both rental housing and home ownership equally (the long-term trend has been to focus solely on home ownership) and a majority believed that renters could accomplish the American Dream just as often as homeowners. More good news.
So, where does all this good news leave landlords? We recommend that you revisit our August 2012 article “Making changes when times are good” to identify ways to take tangible action now, during these positive national trends, to address those difficult policy and procedure changes that you have wanted to make for some time, particularly those surrounding your rent collection and legal action policies.
Contact your landlord attorney to talk about taking advantage of the good times to make the future even brighter.
Quick Tip:
Sequestration and landlords with Federal Section 8 voucher tenants.
As many of you are aware, individual tenant Federal Section 8 vouchers are administered by local public housing authorities or other contractors, generically called Section 8 Administrators. Recently, Section 8 Administrators responded to the HUD spending cuts realized by the “sequestration” that became effective March 1, 2013.
With the announcement of their response, Section 8 Administrators are notifying landlords about the prospect of rent reductions in the Housing Choice Voucher program. In other words, they are preparing landlords for negotiation on the contract rent amount for future Housing Assistance Payment (“HAP”) contracts. This is a big deal for landlords as an otherwise acceptable landlord-tenant rent arrangement made with a Section 8 tenant, may soon become unacceptable as the landlord is faced with the prospect of collecting a lower contract rent.
A pair of immediate questions that may come to mind include:
- Must landlords accept such reduced contact rents? In short, no. However,
- Can landlords charge the difference between the old and proposed new contract rent to the Section 8 tenant to “avoid” the issue? Unfortunately, also no. This requires some work.
Landlords must squarely plan for and address such a proposal made by a Section 8 Administrator, particularly with an existing Section 8 voucher tenant. For example, if the landlord cannot successfully reach a renewal agreement on a HAP contract, the tenant will have to move to another apartment if the tenant wants to retain the Section 8 voucher. This is often easier said then done, and organizing this effectively – to ensure that the landlord is not left with a tenant and no Section 8 subsidy payment – is critical.
In an accompanying article, we discuss the impact of HUD spending cuts – and future budget uncertainty – on landlords with Project-based Section 8 apartments (which is where the federal subsidy is attached to the apartment itself, and not given to the tenant on an annual basis). Those landlords must also plan for and address HUD spending cuts.
In either case, the point remains the same: Federal funding deficits are likely here to stay for at least the next several years, and landlords must plan accordingly. Contact your landlord attorney to determine the scope of your exposure to federal spending cuts and funding deficits, and begin the planning process now.
DISCLAIMER:
The reading of this newsletter does not form an attorney-client relationship. The contents of this newsletter are for informational purposes only and do not constitute legal advice. Nothing in this newsletter is intended to imply or predict the outcome of any legal matter that you may be considering or be involved in. The Landlord Law Firm makes no warranties of any kind regarding the information contained in this newsletter.