HUD Required to Renew Project-Based Section 8 Contracts After Foreclosure

A new law requiring the U.S. Department of Housing and Urban Development (HUD) to renew project-based Section 8 contracts after foreclosure could change the landscape for properties facing potential foreclosure. Last month President Bush signed into law H.R. 3058, the “Transportation, Treasury, and Housing and Urban Development (HUD), the Judiciary, the District of Columbia, and the Independent Agencies Appropriations Act, 2006.”

Section 311 of H.R. 3058 may provide some assistance to housing advocates and tenants fighting to maintain project-based Section 8 contracts following foreclosure. Section 311 requires that in fiscal year 2006 the HUD secretary “shall maintain any rental assistance payments under Section 8 of the United States Housing Act of 1937 that are attached to dwelling units in the property” when disposing of multifamily property owned or held by HUD.

Previously Section 204 of the Department of Veterans Affairs and Housing and Urban Development and Independent Agencies Appropriations Act of 1997, commonly referred to as the “Flexible Authorities Provision,” allowed the HUD secretary to “manage and dispose of multifamily properties owned by the Secretary, … and multifamily mortgages held by the Secretary on such terms and conditions as the Secretary may determine, notwithstanding any other provision of law.” HUD interpreted this provision to mean that it had total discretion over the disposal of project-based Section 8 properties, notwithstanding any other law, including federal fair housing laws, and its decision was not subject to judicial review.

While the new law is an improvement on the Flexible Authority Provision, it still allows the HUD secretary to opt not to maintain the project-based Section 8 contract if it “is not feasible … based on a consideration of costs of maintaining such payments for that property or other factors.” However, if the secretary elects not to maintain project basing, the secretary must consult with the tenants of the property before deciding whether to contract with owners of other existing project-based Section 8 housing or provide other rental assistance, such as Housing Choice Vouchers.

Locally the troubled Lawndale Restoration project on Chicago’s West Side may benefit from the new law. The initial lawsuit filed last May by the Sargent Shriver National Center on Poverty Law, the Housing Preservation Project in Minnesota, and Sachnoff & Weaver Ltd. was dismissed two months ago for lack of subject-matter jurisdiction. The court, agreeing with HUD’s interpretation of the Flexible Authority Provision, ruled that this provision gave HUD unbridled discretion to dispose of these projects irrespective of other laws, including the Fair Housing Act and the National Housing Act, and that HUD’s action precluded judicial review. The plaintiffs appealed the case to the Seventh Circuit. In light of the change in law, the case was remanded back to the district court.