In an announcement on January 12th, the U.S. Department of Housing and Urban Development (HUD) published a significant third revision to the Rental Assistance Demonstration (RAD) Notice (PIH 2012-32/ H 2017-03 Rev-3). According to HUD, the RAD notice was revised in order to maintain the increased pace of RAD transactions in a manner that is consistent and flexible. The revised notice is effective upon its forthcoming publication in the Federal Register, though several eligibility criteria will remain subject to a 30-day public comment period. Some of the substantive changes to the RAD Notice include the following:

  • Project-Based Voucher (PBV) Unit Cap

The revised RAD notice eliminates the standard 25% limit so that there is no longer any cap on the number of units in a project that may receive PBV assistance.  Before this latest modification, RAD allowed up to 50% of the units in a project to receive PBV assistance; provided 100% of the units could receive such assistance if at least 50% of the units were occupied by (i) elderly or non-elderly disabled households or (ii) families receiving supportive services.

  • Resident Notification

The revised RAD notice expanded the notification requirements public housing authorities (PHAs) must give residents at a project identified for conversion. Most significantly, before submitting a RAD application, PHAs must now disclose to residents any preliminary intent to (i) include a transfer of assistance; (ii) partner with a third party entity that will have a general partner/managing member interest in the new project owner; (iii) make changes in the number or configuration of any assisted units; (iv) impose any  change potentially impacting the household’s ability to reoccupy the unit; (v) the scope of work; and (vi) implement any deminimis reduction of units vacant for more than 24 months at the time of the RAD application. PHAs must issue a RAD Information Notice and General Information Notice (if required) according to the RAD Fair Housing, Civil Rights, and Relocation Notice (H/PIH 2016-17)  to inform residents of their rights in connection with the conversion. PHAs are also required to have an additional resident meeting prior to submitting its Financing Plan, and conduct subsequent meetings with residents to discuss any material changes to utility allowance calculations or substantial changes to the conversion plan.

  • Right to Return & Rescreening

Under the new RAD notice, existing public housing residents at a project converting to RAD who will occupy non-RAD PBV units or non-RAD PBRA units following conversion are protected against post-conversion occupancy exclusion due to revised rescreening, income eligibility, or income targeting policies.  Thus, even those public housing residents that will reside in non-RAD units post-conversion will preserve this right to return.

  • Use of PHA Acquisition Proceeds

Any cash acquisition proceeds a PHA receives in excess of seller take-back financing must be used for “Affordable Housing Purposes.” The definition of “Affordable Housing Purposes” is now set out in the definitions section of the Notice and applies in more instances.  The revised RAD Notice defines “Affordable Housing Purposes” as those activities that support the predevelopment, development, or rehabilitation of other RAD conversions, public housing, Section 8, Low Income Housing Tax Credits (LIHTC) or other federal or local housing programs that either (i) serve households with incomes at or below 80% of the area median income or (ii) provide services or amenities that will be used primarily by low-income households as defined by the United States Housing Act of 1937.

  • Expanded Criteria for Ownership or Control Requirement

The latest revisions to the RAD Notice describes further circumstances under which a public or non-profit entity acting directly or through a wholly owned affiliate can meet the ownership or control requirements, including if it (i) holds a fee simple interest in the land; (ii) is the ground lessor pursuant to a ground lease with the project owner; (iii) has legal authority to direct the financial and legal interests of the project owner with respect to the RAD units; (iv) owns 51% or more of the general partner/managing member interest in a limited partnership or limited liability company; (v) owns less than 51% of a general partner/managing member interest but holds certain HUD-approved control rights; (vi) owns 51% or more of the total ownership interests and holds certain HUD-approved control rights; or (vii) enters other ownership and control arrangements as approved by HUD.

  • Maximum Developer Fee

For LIHTC transactions, undeferred portions of earned developer fee are now capped at the greater of (a) 15% of total development costs less acquisition payments to the PHA, developer fees and reserves; and (b) the lesser of (i) $1 million and (ii) 15% of the total development costs without any offsets for acquisition payments to the PHA, developer fees and reserves. Developer fee limits applicable under the prior version of the RAD Notice continue in effect for all transaction in which the RAD Conversion Commitment (RCC) was issued within 60 days following the current revisions to the Notice and which close prior to the later of 60 days after the revised Notice and 60 days after the RCC.

Developer fee remains subject to the LIHTC allocating agency’s schedule for payment. For non-LIHTC deals, the total earned developer fee can be up to 10% of total development costs less any acquisition costs, reserves, or developer fee payments. The revised RAD Notice also states that earned developer fee is also not subject to any federal restrictions, whereas RAD Notice Rev-2 only stated that it was not to be counted as program income.

  • Capital Needs Assessment (CNA) Exemptions

The revised RAD Notice allows HUD to exempt projects from the need to conduct a Capital Needs Assessment where the total number of RAD and other PBV-assisted units constitute less than 20% of total units at project, or a higher amount at HUD’s discretion. It is also important to note that under this revision, all CNA exemptions listed are discretionary not automatic, and must be confirmed with the assigned RAD Transaction Manager for the project conversion.

To review additional changes made in the latest version of the RAD Notice, HUD has also offered a blackline comparison to Revision 2.  

HUD has been quite active this month publishing a variety of new rules and housing notices. The following is a list of some of HUD’s most recent guidance.

For certain public housing authorities (PHAs) with less than 250 public housing dwelling units, this notice offers guidance on the flexible uses of capital and operating funds for large improvements and other eligible expenditures.

For certain metropolitan areas experiencing high housing choice voucher (HCV) concentrations, this final rule allows rents to be determined by zip codes instead of the 50th percentile formula for the entire metropolitan area. According to HUD, using zip codes to define the Small Area Fair Market Rent (FMR)  will allow the agency to provide a more accurate subsidy to reduce the number of voucher families residing in areas of high poverty concentration. The rule also implements the Housing Opportunity through Modernization Act of 2016 (HOTMA) provisions related to FMRs and regulatory changes to the HCV program payment standard adjustments.

This rule amends HUD regulations to include the requirements of the 2013 reauthorization of the Violence Against Women Act (VAWA), which extended VAWA protectections beyond public housing to tenant-based and project-based Section 8 programs as well.

See our recent blog post for more detailed information on these updated RAD civil rights and reolocation requirements.

This PIH notice discusses revisions to form HUD-52725 used to report executive compensation. For calendar year 2015 compensation data collection, PHAs must complete the HUD-52725 form online and submit it electronically by December 9, 2016.

On a case by case basis, HUD will allow for the amendment and restatement of a property’s LIHPRHA Use Agreement to allow the project owner to receive proceeds from the refinance of the property, unlimited annual distributions from surplus cash, and funds accumulated in a residual receipts account. This notice outlines the circumstances under which HUD will allow such amendment and restatement, and approve LIHPRHA preservation transactions.

Pursuant to this notice, HUD allocated $500 million in CDBG-DR funds to assist long-term recovery efforts in Louisiana, Texas, and West Virginia. The notice also outlines the grant award process, and describes eligible disaster recovery activities, alternative requirements, and applicable waivers available to potential grantees.

This rule extends HUD’s equal access protections to HUD’s Native American and Native Hawaiian program regulations to ensure that eligible persons and families have access to housing programs regardless of sexual orientation, gender identity, or marital status.

 

Yesterday HUD published the much anticipated RAD Notice Regarding Fair Housing and Civil Rights Requirements and Relocation Requirements Applicable to RAD First Component – Public Housing (the “Notice”).  The Notice is intended to provide guidance regarding key fair housing and civil rights statutory and regulatory requirements, explain the situations in which HUD is requiring front-end fair housing and civil rights reviews, and provide information regarding the types of information that must be submitted to facilitate HUD’s review of certain fair housing and civil rights requirements in connection with public housing conversions under the First Component of RAD.  The Notice is  also intended to provide guidance in response to requests for clarity among RAD participants on the review process, including how HUD evaluates whether or not to further invest on a particular site.

The Notice is effective immediately and applies to all projects that have applied for conversion under the First Component of RAD but have not yet converted. The Notice will not affect any front-end civil rights approvals provided by HUD prior to November 10, 2016. However, with respect to relocation activities, where a Financing Plan has been submitted and accepted for full review as of November 10, 2016, an exception from the Notice can be sought and the project may continue to be governed by Notice H 2014-09/PIH 2014-17 with respect to relocation activities, but not with respect to fair housing and civil rights requirements.

HUD is hosting a webinar on the Notice on Thursday, November 17th at 2PM ET and you can register to participate via the following link: https://attendee.gotowebinar.com/register/4139672652250681347

HUD also published a Solicitation of Comment seeking public comment on the Notice with a focus on the clarity of the information provided in the Notice.  Comments are due December 14, 2016.

Ballard Spahr will be undertaking a review of the Notice and anticipates posting additional material on the substance of the Notice, as well as submitting comments as necessary.  We welcome thoughts of our clients and friends who may be interested in compiling joint comments.

Ballard Spahr is committed to facilitating and leading the conversation within the affordable housing community, which makes us thrilled to announce our Eleventh Annual National Housing Conference in Washington, D.C., from November 3 to 4. This two-day, complimentary event features engaging discussions, panel presentations, special insights, and networking opportunities with the key influences and power players of the affordable housing industry.

Day one is our Housing Authority Summit. Housing authority executives will join us to discuss the most critical issues and challenges they face and explore solutions to help push your housing authority into the future. Panels and roundtables will cover various topics, including property tax exemptions, strategic relationship development, financing strategies, fair housing, and RAD transactions. Registration for the Summit is limited to those in leadership roles at housing authorities; however we will curate blog content around the pertinent matters that will be covered. If you would like additional information on attending the Summit, please contact Jennifer Boehm.

Day two will feature our National Housing Symposium, an open event where our high-powered lineup of presenters will explore today’s housing market and look into the future, now that post-recession demand is driving exciting programs and initiatives. In addition to the popular Heard on the Hill discussion, panels will discuss the latest in RAD projects, fair housing problems, demographic trends, Year 15 issues, and multifamily housing bonds. Registration is free, and our detailed program description is available.

We are excited to provide an informative and collaborative forum for dialogue, exploration, and networking within an industry about which we feel so passionate. Though we will certainly blog about conference updates and insights, we hope you will join us in person!

Last week, HUD issued new guidance confirming that persons with limited English proficiency (LEP) are protected under the Fair Housing Act (FHA). LEP includes a limited ability to read, write, speak, or understand English.  The guidance reasons that LEP persons are covered by the FHA because of their close nexus with the protected class of national origin.

The new guidance confirms that discrimination against LEP persons may include intentional discrimination or disparate impact, the latter of which involves facially neutral policies that have a discriminatory effect.  Examples of prohibited or potentially discriminatory practices include:

  • Refusing to rent to or to renew a lease for a person who speaks a certain language, but renting to those who speak another language
  • Refusing to allow translation of housing-related documents, such as leases or mortgages
  • Lending on unfair terms to certain LEP groups who share national origin
  • Restricting a renter’s or borrower’s use of an interpreter
  • Requiring an English speaker to co-sign a mortgage

This prohibition on LEP discrimination in the housing context is an expansion of HUD’s regulations to assist LEP persons in programs receiving federal financial assistance. Under those regulations, recipients of federal financial assistance have an obligation under Title VI of the Civil Rights Act to assist LEP persons to access to federally funded programs, such as public housing, housing choice vouchers, and other subsidized housing. The new HUD guidance, in contrast, interprets LEP discrimination under the FHA, which applies much more broadly to most rental and home sales whether or not federal assistance is involved, as well as lending activity.  Further discussion of the new guidance is available on Ballard Spahr’s website.

 

This week, HUD issued a final rule that creates liability under the Fair Housing Act (FHA) for housing providers for occurrences of “quid pro quo harassment” or “hostile environment harassment.” The new rule takes effect on October 14, 2016.

The rule prohibits both quid pro quo and hostile environment harassment because of a resident’s protected class which, under the Fair Housing Act (FHA) includes race, color, religion, sex, familial status, national origin, or disability.

The most concerning section of the rule for housing providers relates to direct liability exposure for any type of discriminatory housing practice. The rule creates three categories of direct liability for housing providers—liability for the housing provider’s own conduct; liability for failing to take prompt corrective action relating to the conduct of its employees or agents; and liability for failing to take prompt corrective action for the conduct of a third party (such as another resident). As a result, providers could be liable for behavior among tenants if the housing provider “knew or should have known of the discriminatory conduct and had the power to correct it.” This potentially interjects housing providers into disputes among tenants related to harassing behavior.  See Ballard Spahr’s e-alert on the rule for more discussion of the new rule and it’s implications.

 

After several years of litigation, the U.S. District Court for the Northern District of Texas recently dismissed disparate impact claims filed against the Texas Department of Housing and Community Affairs (TDHCA) in the fair housing case, The Inclusive Communities Project, Inc. v. The Texas Department of Housing and Community Affairs.

The Inclusive Communities Project (ICP) claims alleged that TDHCA’s procedures for allocating low-income housing tax credits had a disparate impact on racial minorities and thus violated the Fair Housing Act (FHA). Following the District Court’s initial ruling that ICP made a successful prima facie showing of disparate impact, the case was appealed to the Fifth Circuit and U.S. Supreme Court. Even though the Supreme Court held that disparate impact claims were cognizable under the FHA, the case was remanded so ICP’s claims and TDHCA’s defenses could be reassessed in light of the standards in the Supreme Court verdict and new U.S. Department of Housing and Urban Development regulations for evaluating disparate impact claims.

On August 26, 2016, the District Court held that ICP failed to make a prima facie showing of disparate impact under the current standard because its claims (i) did not identify any specific, facially neutral policy that caused the disparate impact, (ii) were in essence claims disparate treatment, and (iii) failed to demonstrate that TDHCA’s policies actually caused the statistical disparities asserted by ICP. For more information, see the Housing Group’s e-alert on this verdict.

On Monday, HUD published new guidance for landlords conducting criminal background checks as a condition of renting housing.  This guidance is applicable to all providers or operators of housing and real estate related transactions subject to the Fair Housing Act (including private and nonprofit landlords).  Generally, HUD cautions that, while using criminal background checks in screening applicants for housing, landlords must be careful in their use of criminal convictions and must consider them on an individualized basis with a focus on the nature, severity, and recency of the conviction as it relates to the legitimate and substantial interests of the housing provider. Otherwise, landlords may face allegations that their actions had a disparate impact on protected groups.  The use of arrest records as a sole factor for denying tenancy is also prohibited.  Further discussion of the guidance is available on Ballard Spahr’s website.

 

On March 23, 2016, HUD published a notice in the Federal Register to announce the issuance of an Affirmatively Furthering Fair Housing Assessment Tool for Public Housing Authorities (the “PHA Assessment Tool”).

Under the Affirmatively Furthering Fair Housing (“AFFH”) final rule published on July 16, 2015, program participants are required to conduct an Assessment of Fair Housing (“AFH”), which replaces the Analysis of Impediments previously required. To help participants complete the AFH, HUD committed to providing a fair housing assessment tool that could “be used by program participants to evaluate fair housing choice in their jurisdictions, to identify barriers to fair housing choice at the local and regional levels, and to set fair housing goals to overcome such barriers and advance fair housing choice.”

The PHA Assessment Tool is the last of three tools issued by HUD for use when completing the AFH. The other tools are the Local Government Assessment Tool and State and Insular Area Assessment Tool. Local Government Assessment Tool is final, while the State and Insular Area Assessment Tool is currently in its initial comment period. Click here to access additional information about the three tools.

Click here to access the PHA Assessment Tool, which will be used by PHAs undertaking the AHF on their own or when collaborating with other PHAs. A comparison of the PHA Assessment Tool to the final Local Government Assessment Tool, which can be used by PHAs when collaborating with local governments, is available here.

The PHA Assessment Tool will be subject to two comment periods: the current 60-day comment period ending May 23, 2016, and a subsequent 30-day comment period following a second HUD notice once the first round of comments has been considered.

In particular, HUD solicits comments on the following topics:

1) Whether the PHA Assessment Tool’s instructions are effective in explaining the terminology used and in explaining the analysis required by the tool. If commenters believe the instructions could be improved to provide more clarity for PHAs that are inexperienced in using data to assess fair housing issues, please specify ways in which HUD could revise the instructions or give more detailed guidance in the AFFH Rule Guidebook to provide more clarity for inexperienced PHAs about the HUD-provided data and the required analysis.

2) Whether PHAs and Qualified PHAs, expect to collaborate when submitting an AFH and, if so, the types of entities that they expect to collaborate with – i.e., states, local governments, or other PHAs.  In addition, HUD seeks comment on the ways in which the PHA Assessment Tool can facilitate a collaborative AFH by a PHA and one or more Qualified PHAs. How could a joint or regional assessment using the PHA Assessment Tool be structured in a way to fulfill a regional analysis for Qualified PHAs in different types of areas, e.g. within metropolitan statistical areas, or in non-metro areas, including rural areas?

3) Whether adding sections focused on PHA programs will better facilitate the fair housing analysis PHAs must conduct, or, whether these questions should be combined with the “Other Publicly Supported Housing Programs’’ subsection, using a structure similar to what was used in the Local Government Assessment Tool.

4) Whether conducting the new ‘‘Fair Housing Analysis of Rental Housing’’ for all PHAs will result in a more robust analysis of fair housing in the PHA’s service area and region, even for PHAs that only administer public housing. HUD seeks comment on whether this section should apply only to PHAs that administer HCVs and, if so, asks commenters to provide the reasoning.

5) Whether the PHA-specific contributing factors listed in the PHA Assessment Tool, including: restrictions on landlords accepting vouchers, impediments to portability, and policies related to payment standards, FMR, and rent subsidies, are the most relevant contributing factors for PHAs for purposes of conducting a fair housing assessment and setting fair housing goals and priorities. Commenters are asked to state if there are contributing factors that are not relevant for PHAs, and to please identify them and provide an explanation for why they are not relevant to a PHA’s fair housing analysis. Commenters are also asked if additional contributing factors should be included, and to please provide the factor and an explanation of why it is relevant to a PHA’s fair housing analysis.

6) Whether the reordering of sections in the proposed PHA Assessment Tool to list the Disability and Access Analysis section before the Publicly Supported Housing Analysis will better facilitate the PHA’s fair housing analysis.

7) Whether there is an efficient manner which HUD could use to obtain information about each PHA’s service area without causing unnecessary burden. In order to provide data to assist PHAs in conducting their AFH, HUD will need to obtain information about each PHA’s service area in order to provide relevant data to the PHA, but HUD does not currently have data broken down by service area for all PHAs.

8) Whether PHAs have relevant information related to families on their waiting lists to determine how fair housing issues may affect such families, and whether HUD is asking the appropriate questions with regards to this population or are there alternative considerations that PHAs should be asked to consider as part of the analysis.

Beyond these specific areas, HUD also seeks comments on the following general areas:

1) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility.

2) The accuracy of the agency’s estimate of the burden of the proposed collection of information.

3) Ways to enhance the quality, utility, and clarity of the information to be collected.

4) Ways to minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.

This morning, HUD is scheduled to publish its proposed tool for affirmatively furthering fair housing (AFFH) for use by states and insular areas as they implement the new AFFH rule.  Public comment is solicited for 60 days.  This tool is separate from the tool to be used by participating jurisdictions, about which Ballard Spahr previously posted.

Ballard Spahr is reviewing the proposed rule and continues to monitor developments in fair housing.