LEGISLATION; HOUSING (GENERAL);

HOUSING - FINANCE;

Federal laws/regulations; Other States laws/regulations; Connecticut laws/regulations;

You asked what other states have laws similar to that proposed in sHB 6516, AAC the Preservation of Federally-Assisted Housing, and if any of those states have been sued as a result.

SUMMARY

Eight states, California, Illinois, Maryland, Maine, Minnesota, Rhode Island, Texas, Washington, and the District of Columbia have laws similar to that proposed in sHB 6156, which requires advanced notice to and options for tenants of federally subsidized housing when an owner plans to pre-pay or opt-out of the subsidy, according to the National Housing Law Project’s (NHLP) website. Several cities also have laws that seek to preserve federally subsidized housing, according to NHLP. NHLP is a tax exempt, national housing and legal advocacy organization.

Although we found several lawsuits involving prepaying or opting out of federal subsidies, only one case involves an owner suing the state (Minnesota). The court found that federal law did not preempt the state’s law.

THE PRESERVATION OF FEDERALLY ASSISTED HOUSING

Proposed Legislation

sHB 6516 requires owners of housing developments that (1) received government assistance under certain Department of Housing and Urban Development (HUD) programs and (2) intend to stop making their rental units affordable to low- and moderate-income people to:

1. notify tenants and various entities two years before terminating a subsidy for the development of their right to first refusal to purchase the development;

2. provide lease extensions and relocation assistance (i. e. , payments) to tenants, including those receiving federal Section 8 vouchers; and

3. notify tenants and various entities one year before an intended termination of subsidy, including a detailed offer to sell.

The bill invalidates the termination of a development's subsidy when an owner fails to provide and file the notice it requires and subjects violators to civil action. Under the bill, an owner is an individual, partnership, corporation, association, joint venture, or business entity with a HUD contract for a mortgage, mortgage assistance, mortgage insurance, or rent subsidy, and includes any person or entity that receives rent for the development.

Legislative History. On March 18, the Housing Committee reported the bill to the Planning and Development (P&D) Committee. P&D favorably reported the bill on April 2. The House referred the bill (File 374) to the Judiciary Committee, which favorably reported it on May 2. The House referred it to the Finance Committee on May 13, which favorably reported it (File 374) on May 15.

Federal Law

According to NHLP, Congress authorized unrestricted prepayment of many federally subsidized mortgages in 1996. Owners must give between 150 days and 270 days notice to HUD, tenants, and local government that they may end the subsidy by prepayment.

When an owner decides not to renew a project-based Section 8 contract, he must give one-year notice to HUD and tenants. Owners who fail to give proper notice when a contract expires may (1) renew the contract for up to one year or (2) allow tenants to pay the same share of the rent that they paid under the subsidy until one year after he serves proper notice (42 USC 1437f(c)(8)).

In both pre-payment and non-renewal instances, when the owner gives proper notice, tenants are eligible for enhanced vouchers (which give them an opportunity to qualify for more expensive but reasonable rents or remain in their unit at the market rent level). But the vouchers have limitations according to NHLP, such as losing the enhancement when a tenant moves.

MINNESOTA CASE LAW

Although we found several lawsuits involving prepaying or opting out of federal subsidies, only one involves an owner suing the state. The others involve tenants and housing advocates suing to block prepayment by an owner. Attachment 1 is a list of the cases, or for more information click NHLP: Housing Preservation.

In Forest Park II v. Hadley, et al. , (Minn. 203 F. Supp. 2d 1071), the owner of a HUD-subsidized apartment building sued Minnesota’s Housing Finance Agency commissioner and others to prepay his loan.

The court found that federal law did not preempt Minnesota’s statutes. Minnesota law requires an owner to give notice and an impact statement before prepaying a federally subsidized housing loan. The court prohibited Forest Park II Apartments from prepaying its federally subsidized mortgage until it provides the notice required by Minnesota law and a year passes after the notice (Minn. Stat. § 471. 9991 & 504B. 355). Attachment 2 is a copy of the case.

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