DominoesOn December 29, 2014, Benjamin Metcalf, HUD Deputy Assistant Secretary for Multifamily Assisted Properties, issued a memo to HUD Multifamily directors and contract administrators clarifying the impact of medical marijuana use on the admissions process and ongoing occupancy of Multifamily assisted properties located in states that have decriminalized marijuana.  The Metcalf memo echoes similar guidance issued by Sandra Henriquez, former Assistant Secretary for Public and Indian Housing, in 2011 to HUD field offices and public housing agencies regarding the Public Housing and Housing Choice Voucher programs.

Essentially, the guidance confirms that notwithstanding actions by states to decriminalize marijuana or permit the use of medical marijuana, under the federal Controlled Substances Act marijuana is illegal.  As such, marijuana users cannot be admitted to federally assisted housing.  Upon occupancy, the tenant lease provisions shall allow the owner the right to terminate tenancy for use of a controlled substance, including marijuana.  The HUD guidance indicates owners of federally assisted housing have some discretion in addressing the use of marijuana following occupancy.

Pursuant to Section 577 of the Quality Housing and Work Responsibility Act of 1998, an owner of public housing or federally assisted housing may consider whether the use of the controlled substance “interfere[s] with the health, safety, or right to peaceful enjoyment of the premises by other residents.”  As the Henriquez memo points out, a decision regarding termination of tenancy can be made on a case by case basis and in situations where termination is deemed necessary, can decide whether to terminate the offending resident or the entire household.  All decisions must be made in accordance with a written policy established by the public housing agency or multifamily owner.

OHouse in Globen Monday, the United States District Court for the District of Columbia issued a scathing opinion that struck down HUD’s disparate impact rule. The disparate impact rule, also referred to as a “discriminatory effects” standard, established liability under the Fair Housing Act (FHA) for the discriminatory effect of a housing practice, even in the midst of no discriminatory intent. Although many other circuits had found that disparate impact liability did exist under the FHA, in American Insurance Association v. United States Department of Housing and Urban Development, the DC District Court found that such a standard was contrary to the plain language of the FHA.  In an opinion that was very critical of HUD’s strategy for interpreting the Fair Housing Act, the DC District Court noted that most of the other Circuit Courts assessed the question of whether there is disparate impact liability under the FHA only before the U.S. Supreme Court in Smith v. City of Jackson set forth guidance for determining whether such liability exists under the FHA.

In the past few years, the U.S. Supreme Court has agreed to hear three cases that ask the question of whether a disparate impact cause of action exists under the FHA. The first two cases were settled before the Supreme Court could review the question. Last month, however, the Supreme Court agreed to hear the third case, Inclusive Communities Project v. Texas Department of Housing and Community Affairs, which involves a claim that low-income housing tax credits are allocated for non-elderly sites in a manner that has a disparate impact on persons of color.

The DC District Court likely wanted to issue its opinion before the Supreme Court hears the Texas Department of Housing and Community Affairs case; in its opinion this week, the DC District Court stated:

“This is, yet another example of an Administrative Agency trying desperately to write into law that which Congress never intended to sanction…it is nothing less than an artful misinterpretation of Congress’s intent that is, frankly, too clever by half…Fortunately for us all, however, the Supreme Court is now perfectly positioned in Texas Department of Housing to finally address this issue in the not-too-distant future.”

A summary of the American Insurance Association case is available on Ballard Spahr’s website.

JuryA lawsuit was recently filed alleging that the U.S. Department of Treasury (Treasury) and Office of Comptroller of the Currency (OCC) perpetuated racial segregation in the City of Dallas in their administration of the Low Income Housing Tax Credit (LIHTC) program. The plaintiff alleges that the agencies’ conduct violated their duty to affirmatively further fair housing under the Fair Housing Act.

The plaintiff, Inclusive Communities Project, is a group that assists low-income families eligible for Section 8 vouchers.  They claim that current LIHTC policies effectively foster poor, blighted, racially segregated neighborhoods in Dallas. The claims are based on the disparate impact theory of liability, in which the plaintiff uses statistics to show that racial minorities are harmed by the policies; no intentional discrimination has to be proven.

The plaintiff argues that the manner in which Treasury regulates the LIHTC program and the OCC regulates national banks that invest in such projects violates the Fair Housing Act. The plaintiff alleges that the defendants have condoned continued racial segregation through their LIHTC program administration. As a result, according to the lawsuit, LIHTC non-elderly units are disproportionately located in minority census tracts plagued by problems that include high rates of crime, poverty, and unemployment, as well as adverse environmental conditions.

Further discussion of this and related cases can be found on the Ballard Spahr website. Our recent webinars on this topic, “Fair Housing and Accessibility: Multiple Standards and Compliance Difficulties” and “Hot Topics in Fair Housing and Accessibility,” are also available on our website.

MoneyHUD’s Office of Inspector General (OIG) issued an audit of HUD last week pertaining to awards of asset repositioning fees (ARF), the funds that public housing authorities (PHAs) may receive in connection with demolishing or disposing of public housing units in certain circumstances.  The audit examined ARF awards to 14 PHAs and determined that 10 of those 14 PHAs were awarded inaccurate ARF amounts between 2008 and 2013.   The OIG indicates the mistakes in ARF awards were largely due to arithmetic errors, unfamiliarity with the ARF calculation process by PHA and HUD field office staff, and the process by which ARF funding requests are made and verified.

Among its remedies, the audit recommends that HUD:

  • Recaptures $6.2 million in operating subsidies awarded to 7 of the PHAs reviewed
  • Reimburses 5 PHAs $1.5 million in ARF that was underfunded

The OIG conducted a similar audit of the predecessor to ARF, commonly called “phase-down subsidy” in 2006, which caused HUD to seek recoupment of many millions in subsidy that OIG alleged was improperly awarded.

ScaleHUD’s Office of Public and Indian Housing (PIH) recently issued PIH 2014-20 (PIH Notice) providing guidance to public housing authorities (PHAs), PHA affiliates and instrumentalities, mixed-finance owners and owners of Section 8-assisted properties regarding the implementation of the final rule entitled Equal Access to Housing in HUD Programs Regardless of Sexual Orientation or Gender Identity (the Equal Access Rule). The PIH Notice confirms the Equal Access Rule also applies to PHAs who are Moving to Work agencies or participating in the Rental Assistance Demonstration program.

Most PHAs and owners are already likely complying with the Equal Access Rule, however, the PIH Notice describes steps PHAs must take to implement the Equal Access Rule, including updating its Annual Plan, Section 8 Administrative Plan and Public Housing Tenant Selection Policies. Definitions used in those materials  – specifically the definition of “family” – must be consistent with the Equal Access Rule.  In particular, a PHA or owner cannot refuse to consider an unmarried and/or same-sex couple as a family for purposes of admissions or modifications to household composition, nor can gender identity be considered in connection with the determination of what constitutes a family.

Given that the Equal Access Rule requires that housing be made available without regard to actual or perceived sexual orientation, gender identity or marital status, PIH advises that PHAs or owners of PHA-assisted properties may not inquire about an applicant’s or participant’s sexual orientation or gender identity when making housing available, although individuals may voluntarily self-identify their gender identity or sexual orientation. PHAs and owners are prohibited from making decisions, taking actions, or refusing to take actions based on an applicant’s or resident’s actual or perceived sexual orientation or gender identity.  Also, a PHA may inquire about an applicant’s or participant’s sex in certain circumstances (e.g., to determine the number of bedrooms for which the household is eligible).

PIH explains that violations of the Equal Access Rule can result in sanctions or corrective actions. The PIH Notice also describes certain scenarios in which a violation of the Equal Access Rule may occur as well as ways in which the Fair Housing Act may be implicated in violations of the Equal Access Rule.  Keep in mind that many local or state fair housing law already directly prohibit discrimination based on sexual orientation or gender identity, thus violations of the Equal Access Rule may also violate those laws as well.

SpreadsheetIf you have ever issued (or borrowed the proceeds of) bonds then you should know about the Municipalities Continuing Disclosure Compliance Initiative (the “Initiative”) and take the appropriate steps to determine your compliance with Rule 15c2-12 under the Securities Exchange Act of 1934 (the “Rule”).

The Rule generally prohibits underwriters from purchasing or selling municipal securities unless the issuer has agreed to provide continuing disclosure to the marketplace regarding annual financial information, certain operating information and certain events in the form of annual reports and event notices. The Rule also requires that an offering document prepared for a primary offering of municipal securities include a description of any material noncompliance with any prior continuing disclosure undertaking in the last five years.

The Securities and Exchange Commission (“SEC”) recently launched the Initiative, which was designed to motivate municipal issuers (defined in the Initiative to include obligated persons) and underwriters of municipal securities to police themselves.  The Initiative encourages self-reporting related to possible material misstatements in offering documents regarding issuers’ compliance with past continuing disclosure undertakings for what the SEC deems to be “favorable settlement terms.”  The Initiative’s settlement terms expire on September 10, 2014.

On July 8, 2014 the SEC announced its first cease and desist order under the Initiative.  The SEC found that the Kings Canyon Joint Unified School District of California (“District”) made a material misstatement in a 2010 official statement.  The SEC alleged that the District incorrectly represented that it had not failed to comply in all material respects with its continuing disclosure agreements in the previous five years, and found the failure to comply itself to be material.

Participants in the municipal market, including housing authorities which have issued bonds or borrowed the proceeds thereof, should begin reviewing (or hire a third party to review) their compliance with any continuing disclosure undertakings over the past decade and ascertain if such compliance was accurately reported in all primary offerings in the past five years.  If any noncompliance is found, you should consult with counsel to determine the potential repercussions of self-reporting or not self-reporting. Ballard Spahr will continue to monitor the Initiative and stands ready to address your questions or explore these issues with you in greater detail.

Calculator TapeA new HUD Office of Inspector General (OIG) audit published last week levied intense criticism at HUD’s implementation of public housing asset management.  Focusing on HUD’s methodology and monitoring of asset management and other fees and central office cost centers – the cornerstone of HUD’s public housing asset management requirements – the OIG audit recommends the reversal of key provisions of asset management.

HUD’s public housing asset management requirements represent a heavily negotiated, but also very controversial, overhaul of the way that public housing is operated and managed.  With the publication of a final rule in 2005, housing authorities were required to transition to project-based based budgeting and to use a fee allocation system to support centralized office functions.  Housing authorities were required to overhaul their financial systems and reporting mechanisms in order to comply.  Housing authorities have now fully transitioned to the asset management model.  Compliance with the asset management requirements was compulsory, but one “carrot” given to housing authorities to incentivize participation was the defederalization of fee income earned to support central office costs. 

Among the recommendations of the OIG report were for HUD to do the following:

  • Refederalize the Operating Fund’s program management and bookkeeping fees and the Capital Fund program’s management fees
  • Eliminate asset management fees
  • Reassess management and bookkeeping fees periodically
  • Develop automated controls and written procedures to augment HUD oversight

The OIG audit’s recommendation to re-federalize these funds would be a significant departure from the representations made to housing authorities by HUD and would also significantly increase HUD’s oversight responsibilities.  HUD’s response to the OIG audit (included at the back of the report) strongly disagrees with the OIG’s findings, so it will be interesting to see how HUD and the OIG work to resolve the findings, as well as its impact on housing authorities.

UniversityIncreasingly, students with disabilities bring service animals to college campuses. This means that educational institutions must sort through an array of competing federal and state laws governing the use of such animals in school communities. The Americans with Disabilities Act, Section 504 of the Rehabilitation Act, and the Fair Housing Act have implications for which animals are permitted in different parts of campus, and what school officials may request of students with disabilities. State laws also contain requirements regarding the accommodation of service animals. Some states may have narrow definitions of services animals, while others are more permissive.

The Americans with Disabilities Act’s strict interpretation of the definition of a service animal may result in a wheelchair-bound student with a service dog receiving less onerous treatment than a student with bipolar disorder seeking to live in student housing with an assistance animal under the FHA and HUD’s interpretation of the ADA and Section 504.

The ADA, Section 504, and the FHA prohibit discrimination on the basis of disability and require educational institutions to provide access to, or accommodate to some degree, animals used by students with disabilities in school communities. HUD has interpreted the FHA to cover residence halls or dormitory rooms, and in United States v. University of Nebraska at Kearney, a district court sided with HUD’s position. In ruling on the government’s and university’s cross-motions for summary judgment, the court concluded that the university’s student housing is a “dwelling” within the meaning of the FHA.

The ADA defines a “service animal” as a dog that is individually trained to do work or perform tasks for the benefit of a person with a disability, including a physical, sensory, psychiatric, intellectual, or other mental disability. Examples of tasks or work include alerting individuals who are deaf or hard of hearing to the presence of people or sounds, assisting an individual during a seizure, and retrieving items for people with mobility impairments. The ADA also creates an exemption for certain miniature horses that have been similarly trained. Animals other than dogs and miniature horses, however, are not service animals under the ADA. The U.S. Department of Education has indicated that it interprets Section 504 in a manner consistent with the ADA, but has not provided detailed guidance.

This narrow definition of service animals contrasts sharply with HUD’s inclusiveness under the FHA and Section 504. HUD interprets the FHA and Section 504 to require the provision of reasonable accommodations to individuals with disabilities who have “assistance animals.” Assistance animals, like service animals, work and perform tasks for the benefit of individuals with disabilities. Assistance animals may, however, also provide emotional support to persons who have a disability-related need for such support. Assistance animals do not need to be trained or certified; they also may be animals other than dogs and miniature horses, according to HUD’s most recent guidance.

Educational institutions therefore find themselves in a position where they must apply differing rules and analyses depending on whether a student brings a dog, miniature horse, or reptile on campus and to residence halls.

A student who is blind and uses a trained service dog on campus enjoys broad access. If it is “readily apparent” that the dog is trained to perform a task related to the student’s disability―for example, school staff observe the dog guiding the student on campus—the ADA prevents the school from making any inquiries about the student’s right to have the dog on campus. The service dog generally is entitled to access to the campus unless the student is unable to control the dog or it is not housebroken. If it is less clear that the dog is a service animal, school staff may ask only two specific questions of the student – whether the dog is a service animal required because of a disability and what work or task the dog is trained to perform.

The regulations get confusing, however, when animals other than dogs are involved. If, for example, the student brings a miniature horse rather than a service dog to campus, the school may interact more with the student and ask further questions to obtain necessary information. A student with a reptile, in contrast, is excluded from protection under the ADA but potentially could be permitted in student housing under the FHA and Section 504.

HUD’s guidance states that housing providers should use general reasonable accommodation principles in evaluating requests to bring assistance animals into covered housing.This means that educational institutions may inquire whether the individual seeking to use the animal has a disability and a disability-related need for the animal. If so, the person with a disability may live with and use the assistance animal unless doing so would impose undue financial and administrative burdens or would fundamentally alter the nature of the housing provider’s services. In some cases, the school may ask the individual with a disability for supporting documentation, including medical documentation, or exclude animals that pose a direct threat to the health or safety of others if the threat cannot be reduced or eliminated through another reasonable accommodation.

These conflicting regulations place educational institutions in the position of having to be more permissive in residence halls than they are in other areas of campus. While it may make sense that federal laws allow students, particularly those with mental and emotional disabilities, to live with emotional support animals in their dormitories, it may be difficult to restrict these animals to residence halls when other individuals with disabilities are permitted broad access for their service dogs and, perhaps, horses.

Educational institutions are advised to develop or clarify policies and procedures for the treatment of service and assistance animals on campus, including how to address situations where other students with disabilities (such as certain students with allergies) have competing rights. Training also should be provided to staff in disability services offices and residence halls regarding the requirements of these laws.


Last week, HUD’s Office of Multifamily Housing issued a new notice explaining the procedures its field leadership should use in initiating proceedings to disqualify FHA-insured multifamily borrowers, including the principals of borrower entities, from program participation using Limited Denials of Participation (LDPs). The procedures are intended to comply with current HUD regulations for issuance of LDPs. The LDP bars a person or entity from participating in one or more federal programs for a specific period of time and within the geographic jurisdiction of the HUD office that issued the LDP. LDPs last for up to 1 year. A publicly available list of all currently excluded parties is kept by HUD.

Why did HUD issue the notice? Risk mitigation. According to HUD, the goal of the notice is to increase the use of the LDP process in particular for multifamily borrowers who made claims against the FHA Insurance Fund. Although HUD’s Active Partners Performance System (APPS) will “flag” bad borrowers, HUD has flexibility as to whether to continue to do business with a flagged individual or entity. The LDP, in contrast, is mandatory. HUD indicates that increasing LDPs for borrowers and their principals will thus help mitigate the risk of future claims against the Insurance Fund.