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Saving Project-Based Section 8 Housing

The material below is intended for tenants who are at risk of losing their affordable housing through prepayment of the mortgage on the building by the owner.

The information contained here will tell you what your rights are as a tenant living in a subsidized building. You will learn about laws that have been passed to help you save your home, you will learn about what your landlord is required to do, and you will learn what steps you can take to save your affordable housing.

Most importantly, you will see that there are many options available to you. Although the many options may seem confusing, they are actually exciting opportunities for you to take control of the circumstances surrounding your housing. What action you take depends on the decisions you, as tenants working together, make!

What is prepayment?

In the 1960’s the government offered subsidies as an incentive to encourage businesspeople to develop affordable housing for low to moderate income people. Many businesspeople jumped at this opportunity because they could use the newly developed housing as a tax shelter, a loophole to hide income and save money on their taxes.

The housing built with these incentives was built under the Section 221(d)(3) and Section 236 government programs. The agreement was that in exchange for the subsidies, the owners would agree to keep the rents affordable for low to moderate income tenants for a period of 40 years. Prepayment is the option the owners have to pay the balance of the mortgage after only 20 years and end all promises to keep the rents affordable. Today, tenants across the country are faced with the possibility that the owners of the buildings they live in will prepay their mortgage and rent affordability will end.

How am I affected?

When an owner is allowed to prepay his mortgage he ends the promise to the government to provide housing that low to moderate income people can afford. At that time, the owner can:

  1. Raise the rent.
  2. Sell the building in order to make a profit.
  3. Tear the building down and sell the land.

Any of these options will probably force a low to moderate income person out of his/her housing. So if your owner is permitted to prepay the mortgage on the building you live in, the possibility that you will lose your home is a very real one.

ELIPHA vs. LIPRHA

Owners first began prepaying their mortgages because it was no longer advantageous for them to hold on to the properties. Most of the owners were not interested in housing, they were interested in making money. A new tax law was passed that closed the loophole that allowed the owners to use the buildings as a tax shelter.

When the government first made the offer of subsidies to owners they thought that the need for low to moderate income housing was only a temporary need. They didn’t realize that the economic climate of the country would make the need more urgent as the years went by. As owners across the country began prepaying their mortgages, the government became very concerned about the loss of thousands of units of low to moderate income housing, and realized that they had made a mistake in allowing the option to prepay. As a result, Congress decided to pass laws that would affect the owners’ ability to prepay. These are the laws that will allow you to save your home!

The Emergency Low Income Housing Preservation Act, or ELIPHA, was the first law that Congress passed in 1987 to try and slow down the rapid loss of affordable housing units through prepayment. In 1990, Congress passed another law, called the Low Income Preservation and Resident Homeownership Act, or LIHPRHA. Which law your building owner has to follow is dependent upon when your building’s prepayment date is and when the owner files his/her notice of intent to prepay. If the prepayment date is before September 30, 1991 and the owner files a notice of intent to prepay his/her mortgage between November 1987 and December 31, 990, the owner is eligible to proceed under ELIPHA.

Although an owner is eligible to proceed under ELIPHA, s/he may choose instead to follow the guidelines found in LIHPRHA. Tenants whose business are qualified under ELIPHA may decide that they want to try to convince their owner to choose to follow LIHPRHA. Many feel that LIHPRHA is a stronger law that gives tenants more opportunity to participate.

The following sections outline some basic differences between ELIHPA and LIHPRHA.

How do I save my home under ELIPHA?

If your building’s prepayment date is before September 30, 1991 and the owner files a notice of intent to prepay between November 1987 and December 31, 1990, the owner may choose to proceed under ELIPHA.

If your building’s owner decides to use ELIPHA, the owner has the choice of the following:

  1. Prepay the mortgage and raise rents.
  2. Stay in as the owner and apply for additional subsidies from the government. If the owner picks this option, the rents must stay low for 20 years.
  3. Do nothing and continue to run the building as it is until the contract with the government runs out.

If the owner decides that s/he wants to prepay the mortgage and end the affordability requirements, the owner must file a notice of intent to prepay (NOI) with HUD. The owner is not obligated under ELIPHA to notify the tenants of his/her intent. After filing the NOI, the owner submits a plan of action to HUD. If the owner’s plan of action is approved by HUD, the owner can prepay the mortgage and raise the rents. The tenants have the right to comment on the action plan after HUD approves the plan.

If the owner decides to stay as the owner and accept additional subsidies, the owner must file a notice of intent to stay in. Under ELIPHA, the owner is not obligated to notify the tenants of his/her intent. After filing the NOI, the owner must submit a plan of action. If HUD approves the plan of action, the owner must keep rents low for the rest of the mortgage.The tenants have the right to comment on the action plan after HUD approves the plan.

The tenants’ right to participate in the process is limited under ELIPHA. ALthough a landlord may be eligible to proceed under ELIPHA, s/he may choose to proceed under LIHPRHA. Under LIHPRHA, not only can the tenants participate in the steps involved, but under LIHPRHA the tenants have the options of buying their building or choosing a qualified purchaser to support in their efforts to purchase the building. One of the first steps you may want to take after determining the prepayment date of your building, is meeting with your building owner and as a group requesting that s/he choose to proceed under LIHPRHA. If you are able to do so, read the next section, “How do I save my home under LIHPRHA?”

If you are unable to convince the owner of your building to proceed under LIHPRHA, you should try to affect the plan of action by making your concerns known to HUD. The tenants in your building should meet on a regular basis to discuss different ways of putting pressure on HUD. You may want to think about enlisting the assistance of friendly elected officials, the media, community leaderes, or a tenant organizer. Elected officials are accountable to you and they may have influence on HUD. The media can help to research and publicize the issue, which can result in added support for your cause. A tenant organizer can meet with you to give you technical support in helping you to develop a strategy, identify targets, and decide what tactics to use.

How do I save my home under LIHPRHA?

If the owner of your building has chosen to proceed under LIHPRHA, s/he can do one of the following:

  1. Prepay the HUD mortgage and raise rents.
  2. Stay in as the owner of the building and apply for additional subsidies from the government. If the owner chooses this option, the rents must stay low for the life of the building.
  3. Sell the building to a qualified purchaser, who will agree to keep the rents low for the life of the building.
  4. Do nothing and continue to run the building as it is until the contract with the government runs out.

Under options 1, 2, and 3 the owner begins the process by submitting a notice of intent (NOI) not only to HUD, but also to the tenants. Receipt of any notice of intent should be a signal to tenants in your building to get together and meet to talk about the opportunities available to all of you.

The first NOI will indicate whether the owner’s interest is to sell, stay-in, or prepay. Regardless of the owner’s intent there is a lot for the tenants to do. The following is an explanation of the steps the owner is required to take under each scenario, and the steps the tenants can take to have a positive impact on the outcome.

Option 1: Owner wants to sell

Timeline:

After the NOI is filed HUD has two months to inspect the complex. This is called the Capital Needs Assessment, or DNA for short. You have the right to participate in the DNA. This is an opportunity for the tenants to tell HUD what repairs need to be done and what changes you would like to see. After the CNA is completed, HUD uses the information you have given them to determine a dollar value of the building; this is called the appraisal. The owners also get their own appraisal. If the owners and HUD don’t agree, a third independent appraisal is required. An agreed-upon appraisal must be reached within 9 months of the NOI. Within one month of the appraisal, the owner must submit a second notice to sell. After you receive this second notice, you can be sure that the owners want to sell. After the owner submits the second NOI, s/he can begin to take offers only from “priority purchasers,” such as a resident group or a nonprofit that has your support. After 6 months the owner can accept offers from any “qualified purchaser,” that is, anyone who agrees to keep the rents low for the life of the building. Once the owner accepts an offer, the prospective purchaser has two months to submit a plan of action. Tenants and other interested parties have 2 months after submission of a plan of action to give their comments to HUD. After the 2 month comment period, HUD has 3 months to approve the sale.

The role of tenant participation is greatest when your building’s owner wants to sell. Not only can you take part in the Capital Needs Assessment and get needed repairs and amenities, but you can also help decide who buys your building. Your group of tenants could even purchase your building as a limited equity cooperative or condominium association!

As soon as the NOI to sell is filed, the tenants in your building should begin to meet as a group. You can identify individuals and agencies who can offer your group assistance. The first issue your group will focus on is the CNA. Pass out questionnaires asking about the condition of individual units and common areas, ask your local housing inspector to inspect your building. After deciding what repairs need to be made and what amenities you want added to your complex (one complex got a new playground!) meet with HUD to let them know.

After the appraisal is completed and the second notice of intent to sell is filed, your group needs to begin discussing whether you are interested in pursuing a self-purchase. HUD has money and technical assistance for tenant groups who want to purchase their building.

If your group is not interested in self-purchase, you need to begin to identify a qualified purchaser. One may come forward. In order to be considered a “priority purchaser,” they need your support. You should meet with them to determine whether or not they would be a good owner.

Once a purchase offer is made, if it is one that you support, let your current owner know. Let your owner know if it is an offer you do not support. If your owner accepts the offer, work with the prospective purchaser in developing a plan of action. Use the comment period to let HUD know what you think about the plan.

Option 2: Owner wants to stay-in

Timeline:

After the NOI is filed HUD has two months to inspect the complex. This is called the Capital Needs Assessment, or DNA for short. You have the right to participate in the DNA. This is an opportunity for the tenants to tell HUD what repairs need to be done and what changes you would like to see. After the CNA is completed, HUD uses the information you have given them to determine a dollar value of the building; this is called the appraisal. The owners also get their own appraisal. If the owners and HUD don’t agree, a third independent appraisal is required. An agreed-upon appraisal must be reached within 9 months of the NOI. Within six months of the appraisal, the owner must submit a plan of action. The tenants have the right to comment on this plan of action. After a 2 month public comment period, HUD can decide to approve or deny the plan. If HUD approves the plan, HUD has 3 months to make incentives available to the owner. If HUD misses the deadline, the owner can prepay his/her mortgage. If HUD does not approve the plan, the owner has the option of either starting the process over again, or continuing to operate the building as it is for the rest of the mortgage.

If an owner wants to stay-in as the landlord and apply for additional subsidies, the role of tenants’ participation is more limited than if the owner wants to sell — nonetheless, there is still a lot for the tenants to do!

As soon as a NOI to stay-in is filed, the tenants in your building should begin to meet as a group. You can identify individuals and agencies who can offer your group assistance. The first issue your group will focus on is the CNA. Pass out questionnaires asking about the condition of individual units and common areas, ask your local housing inspector to inspect your building. After deciding what repairs need to be made and what amenities you want added to your complex, meet with HUD to let them know.

After the appraisal is completed, your tenant group will probably meet to discuss what you would like to see in the owner’s plan of action. You may want to meet with the owner to discuss the plan of action. Remember, the owner would like you to support his/her plan of action; consequently, you are in a good position to negotiate with him/her. For instance, if you have management problems in your building you may want to offer your owner the support of your tenant group during the public comment period in exchange for tenant representation on the management hiring committee. As a group of tenants working together you have more power than an individual tenant working alone. Make a “wish list,” and don’t be afraid to make demands!

Once your building’s owner submits his/her plan of action, your group has 2 months to either support the plan or give evidence to HUD why it should not be supported. If your owner has refused to meet with you or has broken a lot of promises in the past, you should let HUD know.

After the 2 month comment period, and within 6 months of submission of the plan, HUD can either approve or deny the plan. If they approve the plan, HUD must make the subsidies available within 3 months. If HUD fails to make the subsidies available within 3 months, the owner can prepay his/her mortgage and raise the rent. It’s important to make sure that you have contact with a HUD representative to ensure that HUD meets the deadline. If HUD denies the plan of action, the owner can either choose to run the complex as it has been run, or s/he can begin the whole LIHPRHA process again.

Option 3: Owner wants to prepay

Timeline:

Owner first files a notice of intent to terminate. HUD then has six months to notify the owner and tell them what they need to submit in order for HUD to approve the conversion. After receiving the information from HUD, the owners have 6 months to submit a plan of action to HUD. The plan of action will attempt to prove that there is no need for affordable housing in your area. The two months following the submission of the plan of action is the public comment period. HUD must approve or deny the plan of action within 6 months of its submission. If HUD approves the plan, the rents can go up to market rate housing. If HUD doesn’t approve the plan the owners have the choice of running the complex as it was or beginning the process again to try to sell or stay-in.

The role of tenant participation in the process is most limited when an owner is trying to prepay his/her mortgage. Unfortunately, the need for tenant participation is greatest when this is the case. Although your participation is limited to commenting on the plan of action, that doesn’t mean you shouldn’t utilize that opportunity. As soon as the plan of action is filed, your tenants group should go over it as carefully as possible. You will need to try to disprove what they say in their plan. You should also meet with as many elected officials, social service agencies, and media representatives as you possibly can. When you meet with them, you should tell them why your owner should not be allowed to prepay his/her mortgage. You should also ask people who you meet with to issue their concerns with HUD.

Posted: Sunday, December 19, 2004