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Understanding the Federal Fair Housing Testing Program

Since its creation in 1991, the Department of Justice s (DOJ) Fair Housing Testing Program has used covert testing to uncover evidence of discrimination and unlawful treatment by landlords, lenders, places of public accommodation, and others in all 50 states and the District of Columbia. As a result of the Testing Program s efforts over the past three decades, the DOJ has resolved over 100 federal civil rights cases and has obtained over $14,000,000 in monetary relief, including damages for those hurt by discrimination and penalties paid to the United States. In the warm early Spring of 1995 in southeastern Florida, a young Black man was looking for an apartment. The garden-style complex he visited was just a short walk to US Highway 1 and the Metrorail. It was an inviting property with winding walkways, palm trees and a swimming pool. Inside the management office, the property seemed just as inviting as the outside. The rental agent nodded when the man explained his reason for coming and smiled knowingly as if unsurprised that his housing search brought him to the Kendall House Apartments. But then came the let-down: unfortunately, the agent told him, they had no available units at the moment. The man returned to his car and turned off his tape recorder. What the rental agent did not know was that the DOJ s Fair Housing Testing Program had initiated an investigation of potential discrimination against Black home seekers in the greater Miami, Florida area. And the tests at Kendall House Apartments conducted in conjunction with the locally-based Housing Opportunities Project for Excellence revealed a troubling pattern. Although an individual prospective renter would have no way of knowing for sure, testing demonstrated that white home seekers were invited to consider available units while Black home seekers were told that there were no units available. As the DOJ learned from former employees during discovery, even if Black applicants submitted rental applications, the owner instructed agents to color in the letters "O" and "P" of the words "Rental Application" as code for their race. This practice allowed the owner to disregard Black applicants without the prospective renters ever suspecting they were being treated differently. Through testing, the DOJ also learned that the owners and agents discriminated on the basis of familial status, including by telling prospective tenants that children were not allowed to live in the complex and that the apartments were too small for children. The experience of the young man described above who was told that no apartments were available for rent was just one of many similar examples that would later form the basis of the DOJ s complaint in United States v. Kendall House Apartments (S.D. Fla. 1995) and lead to a $1,000,000 court-approved settlement the following year. Documents of this kind that memorialize settlement terms are called consent decrees or consent orders. In this case, the consent decree required the apartment owners and managers to pay $750,000 in damages to those who experienced discrimination, a $100,000 civil penalty to the United States, and $150,000 to further fair housing and achieve other reforms required by the settlement. At the time, it was the largest monetary amount obtained for a case developed by the Testing Program. Overview of the Testing Program The Testing Program is a specialized unit of the DOJ s Civil Rights Division located in the Housing and Civil Enforcement Section. Since conducting its first tests in 1992, the program has used covert testing to uncover discrimination in central aspects of life, including access to housing, lending, and places of public accommodation. The Testing Program currently conducts testing for potential violations of the following statutes: The Fair Housing Act, which prohibits discrimination in all types of housing, including apartments, RV and mobile home parks, townhouses, and single-family homes; Title II of the Civil Rights Act of 1964, which prohibits discrimination in places of public accommodation, including hotels and restaurants; The Equal Credit Opportunities Act , which prohibits discrimination in lending and credit, including in home mortgages and auto financing; The Americans with Disabilities Act , which prohibits discrimination against persons with disabilities, including in access to transportation, employment, and medical services; and The Servicemembers Civil Relief Act , which provides protections to active-duty members of the military. Although the primary focus of the Testing Program has been to uncover discrimination based on race, color, and national origin, the Testing Program also tests for discrimination against all protected classes under these statutes, including religion, disability, familial status, sex (including sexual orientation and gender identity), and status as a servicemember. Where discrimination is hidden or hard to detect, the Testing Program provides an indispensable tool for uncovering and exposing discriminatory policies and practices. For example, a landlord who wants to rent only to white tenants might tell a Black applicant that there are no units available even when units are in fact available and would be offered to a white applicant. The Black applicant may have no way of knowing that the landlord provided inaccurate information, or that the landlord s actions were motivated by the applicant s race. In such cases, testing provides the perfect tool a framework for determining whether discrimination is at work. Key to the Testing Program s structure is "matched-pair tests." These are tests in which two individuals one acting as the "control group" (e.g., white male) and the other as the "test group" (e.g., Black male) pose as similarly-situated prospective customers. Testers are assigned similar personal and financial characteristics, and the Testing Program compares the testers experiences in seeking housing or other services. Differences between the testers can provide evidence that similar customers are being treated differently because of their race or other protected characteristics. Case Highlights To illustrate the Testing Program s work over the past three decades, I am outlining just a few of the Testing Program s many investigations. By focusing its resources on key areas including identifying and remedying discrimination based on race, national origin, disability, familial status, and sex the Testing Program has achieved meaningful and lasting results. Identifying & Race Discrimination Combatting race discrimination has been a central focus of the Testing Program throughout its tenure. Testing has the unique power to reveal race discrimination that would otherwise elude detection in housing, lending, and public accommodations and the Testing Program has developed testing expertise in all three of these contexts. For this article, I will focus on testing in the area of multifamily housing. In northern New Jersey, the Testing Program gathered evidence that supported a number of DOJ cases alleging violations of the Fair Housing Act, including United States v. Chandler Associates (D.N.J. 1997). In that case, testing evidence exposed striking differences in the experiences of Black and white testers seeking apartments at Pleasant View Gardens in Piscataway, New Jersey. On multiple occasions, Black testers were told by rental agents that no units were available to rent. White testers, however, were repeatedly told not only that units would be available to rent, but also that they could take advantage of special offers, including a discount of $300 on move-in costs or half-price rent for the first five months of their leases or longer. The defendants paid a total of $1,500,000 to resolve the DOJ s case, providing $750,000 to compensate victims of discrimination, $550,000 to fund a fair housing program at the Seton Hall University School of Law Center for Social Justice, and $200,000 to the United States in a civil penalty. Notably, the DOJ obtained a supplemental consent decree the following year after discovering that the defendants were also discriminating against families with children. National Origin Discrimination based on national origin may be related to a person s country of birth or from where their ancestors originated. One of the most famous national origin cases that originated from testing is United States v. Pine Properties (D.Mass 2008). Lowell, Massachusetts has one of the largest concentrations of Cambodian Americans in the United States. After learning of allegations that Cambodian Americans in the Lowell area were facing rental discrimination based on their national origin, the Testing Program began to investigate. In 2005, the Testing Program entered into a contract with a local Cambodian civic organization, the Cambodian-American League of Lowell (CALL), to help recruit local volunteers from the Cambodian-American community. The Testing Program then trained these volunteers as housing testers. One of the housing providers tested was Pine Properties, a real estate management company that owned and operated nine rental properties in Lowell and three rental properties in nearby New Hampshire. During the testing, rental agents for Pine Properties told Cambodian-American testers that they had to complete a rental application and have their employment and/or credit verified prior to being able to see an available apartment. They were also informed that they would have to call back after completing the application and after their employment and credit were verified to schedule a separate appointment to see available apartments. In contrast, rental agents showed available apartments to white testers without requiring a rental application, employment or credit verification, or a second appointment. After six months of settlement negotiations, the United States and the owners and managers of Pine Properties reached an agreement to resolve the case. The consent order required the defendants to adopt non-discrimination policies, train employees on the Fair Housing Act, and pay $114,000 to compensate victims as well as $44,000 as a civil penalty. This was the first-ever case generated by the Testing Program that alleged discrimination against Asian Americans. Discrimination Against the Disabled Another type of discrimination in housing starts long before a prospective renter interacts with a housing agent. "Design and construction" investigations concern multifamily housing projects that fail to meet the Fair Housing Act s accessibility requirements for people with disabilities. This may result in doorways that are too narrow for people who use wheelchairs to get through, entrances that require people to climb steps, and walkways that are too steep or narrow to be useable by everyone - in addition to many other inaccessible features selected by builders, architects, and developers. Newly constructed multifamily housing projects are now required to have minimum accessible features to allow individuals with disabilities to maneuver about their apartments and the property s common areas independently. The DOJ typically learns about violations of these requirements only after properties have been built. But in United States v. Edward Rose & Sons (E.D. Mich. 2005), the DOJ was, for the first time, able to halt construction on inaccessible multifamily housing while it was being constructed. In the early 2000s, Edward Rose and Sons, headquartered in Michigan, was one of the largest real estate developers in the Midwest and was responsible for the construction and/or management of at least 49 apartment complexes across 15 states. The Testing Program identified this developer as a target for testing based in part on its size and the geographic scope of its properties. During testing, the DOJ gathered evidence that some features of Edward Rose and Sons properties were inaccessible to persons with disabilities. Testers observed that, at a typical building, the front entrance could only be accessed by going down half a flight of stairs. At most of the properties, the only way for persons using wheelchairs to access the building was through the back entrances, which were considerably farther away from the parking lot than the front entrances. Testers also found that inside the units, kitchens and bathrooms did not have enough space for a wheelchair to turn, doorways were too narrow for persons using wheelchairs, thermostats and environmental controls were too high for persons using wheelchairs, and bathroom walls lacked reinforcement for potential installation of grab bars. Common areas, such as the rental office, parking lots, clubhouse, and recreational facilities, were also not accessible to persons with mobility disabilities. Defendants were in the process of building 19 new apartment complexes in Michigan and Ohio with these inaccessible features. The initial complaint, filed in January 2001, was followed by a 2003 order granting a preliminary injunction to stop construction at the 19 apartment complexes until they could be redesigned or retrofitted to be brought into compliance with the Fair Housing Act. On September 30, 2005, the parties settled the case, and the court entered a consent order. The settlement required that the defendants make more than 5,400 ground-floor apartments accessible to persons with disabilities, pay $950,000 to a fund for persons harmed by the inaccessible features at the defendants apartment complexes which ultimately compensated 37 aggrieved persons and pay a $110,000 civil penalty to the United States. Families with Children The Fair Housing Act prohibits discrimination based on familial status, which includes families with minor children, people in the process of obtaining legal custody of a minor child, and those who are pregnant. One of the most famous familial status cases was brought against the owner of Royal Park Apartments, a complex consisting of eight buildings and 224 rental units in North Attleboro, MA.  Testing at Royal Park revealed a clear policy of segregating families with children by assigning them to certain buildings located in the back of the property or certain floors within each building. A rental agent explained to a tester that "the only buildings with kids are five, seven, and eight; one, two, three, four and six are adults. You will see some kids there cause if they are born there, I can t throw them away." In accordance with the policy, a tester without children was offered units in buildings and on floors that were not offered to a tester with children. The DOJ simultaneously filed a complaint and consent order in United States v. J & R Associates (D. Mass. 2015) to resolve its claims involving Royal Park Apartments. In the settlement, the defendant agreed to create a $135,000 fund to compensate people harmed by its discriminatory practices, pay a $7,500 civil penalty to the United States, adopt non-discrimination policies and procedures, and take other actions to ensure that families with children no longer experienced discrimination when seeking apartments.  In 2017, the DOJ entered into a subsequent settlement agreement with J & R Associates after an investigation revealed evidence of discrimination based on national origin and race. Specifically, the DOJ alleged that rental agents steered applicants of South Asian descent to certain buildings at the apartment complex. Sexual Harassment In addition to identifying violations of law that may warrant enforcement actions, the DOJ also uses testing after a case is resolved. Testing in this "compliance" phase ensures that defendants abide by settlement terms and follow through on policies that prevent discriminatory practices from continuing. A recent sexual harassment case shows how DOJ uses compliance testing in preventing future discrimination. United States v. Waterbury (N.D.N.Y. 2019) In 2018, the DOJ filed a lawsuit against Douglas and Carol Waterbury for discriminating against female tenants and applicants for a period of over 30 years by subjecting them to severe, pervasive, and unwelcome sexual harassment. The Waterburys agreed to relinquish managerial control of their properties to an independent manager, in addition to other remedies. However, the United States discovered, partly due to the efforts of the Testing Program, that the Waterburys were not meeting these obligations. Relying on testing and other evidence, the court found that the defendants failed to comply with the settlement by failing to use an independent manager and by continuing to remain involved in the management of residential properties. The court held the defendants in contempt, sanctioned them, and ordered them to pay the United States $15,000 for violating the settlement terms. The Future of Fair Housing Testing As discrimination becomes more subtle, and as industries and consumers adopt new ways of doing business, the Testing Program continually evolves and employs new methods to fulfill its mission of gathering evidence to uncover unlawful discrimination, particularly based on race or national origin. Owners and managers should expect new testing techniques, such as expanded use of phone and email testing. Bottom Line Many owners and landlords object to testing, feeling that it is unfair entrapment. This is not the case. Landlords who operate their housing in accordance with fair housing laws cannot be "trapped" into a discriminatory act. Regular fair housing training for all staff and remembering to market the "property," and not the residents or the type of people you think should live at the property are two of the best ways to ensure that your property will never be put in a bad situation due to testing. In short, remember two things: (1) Talk about your property - not the people who live there or who you think would like to live there; and (2) consider everyone who calls or comes to your property to be a tester.

Guest Cards - A Fair Housing Best Practice

Housing operators are constantly looking for ways to prevent fair housing complaints, and when the inevitable complaints do come, managers need to apply an effective defense. One of the best (and most overlooked) tools for defense against a fair housing complaint is the tried and true "guest card." Every apartment community should have a guest card policy, and these cards should include information beyond just the name and contact information of the prospect. Timing is often an important issue in fair housing complaints. Unit availability can change on a day-to-day and even an hour-to-hour basis. Noting the date and exact time that staff was notified of an upcoming vacancy can provide an effective defense in the case of an accusation that management provided different information regarding unit availability based on a protected characteristic. This is especially the case in the event of an on-site "test" by paired testers. If a guest card is completed for every prospect that calls or visits the property, then a card also will have been prepared when the "testers" visited. This information can contribute to an effective defense when the timing of vacancies is an issue. Always note the unit size and type that a prospect is interested in. This will determine the units that must be shown to prospects.  For example, if a prospect is only eligible for a two-bedroom unit due to family size, this information will help in defeating a complaint that vacant one-bedroom units were not shown. The same is true if a prospect states that they only want a downstairs unit. If they complain later that they were not shown vacant upstairs units, the guest card will show why that was the case. The guest card should always note the specific units that were shown to a prospect. If you offer to show a unit to a prospect and they decline to look at it, note this on the card. When do they want to move in? If they will not be ready to move for two months, this should be noted. This will assist your defense if the prospect claims that you rented a vacant unit to someone else who came in after the prospect. If the second visitor was ready for an immediate move-in, such action is justified. One of the most forgotten elements of a guest card is the prospect signature. Getting their signature is evidence that the information on the card is accurate. If the prospect decides to move in, note when that decision was relayed to you on the guest card. The same goes if they decide not to move in; note when you got that information. Ask them why they decided not to move in and note that on the card also. Finally - it is always a good idea to include the Fair Housing logo or slogan on the guest card. Bottom Line: Guest cards are an inexpensive and effective tool that will both assist managers in the marketing of a property and provide a defense against some fair housing complaints.

How Public/Private Partnerships Increase the Stock of Affordable Housing

Some of the most successful affordable housing projects in the United States are the result of public/private partnerships. An integrated approach to affordable housing leads to the most thriving developments. This "integrated approach" amplifies the connective role that housing plays in a community. Housing is a building block of a community s infrastructure, a factor in public safety, a component of the healthcare continuum, a driver of employment, a solution to addressing climate change, and a bridge to economic mobility. While affordable housing is generally defined as housing on which the occupant is paying no more than 30 percent of income for housing costs, such housing must also be decent, safe, and located in proximity to adequate employment and transportation options. In addition to the major affordable housing programs (Section 42, Section 8, public housing), we should not overlook the Department of Housing & Urban Development (HUD) Community Planning & Development (CPD) programs, as well as state and local programs. CPD programs form a strong secondary group of housing options for affordable housing developers and include: Community Development Block Grant (CDBG): The CDBG program provides funding to states, cities, and counties, principally for low and moderate-income persons. Housing-related eligible activities include the acquisition of real property, clearance/demolition, infrastructure, rehabilitation, conversion, and in limited circumstances, new housing construction. HOME Investment Partnerships (HOME): HOME is a flexible funding program designed specifically to meet the affordable housing needs of low-income renters and homebuyers/owners. Eligible activities include costs associated with housing acquisition, new construction, and rehabilitation as well as tenant-based rental assistance. HOME funds are often used in conjunction with the Low-Income Housing Tax Credit (LIHTC) Program, Housing Trust Fund (HTF): The HTF program provides grants to states to develop and preserve affordable housing - primarily rental housing for extremely low-income households. Eligible activities include housing acquisition, new construction, and rehabilitation, along with operating subsidies to ensure the long-term financial stability of assisted projects. Section 108 Loan Guarantee (Section 108): This program enables CDBG grantees to leverage the annual CDBG grant and can be used for a number of housing activities, including housing rehabilitation, acquisition, site preparation, and, under limited circumstances, new construction. How Can These Funds Be Accessed? With the exception of Section 108 funds, annual CPD programs provide grants on a formula basis to qualifying jurisdictions. Private owners and landlords have no access to these funds - except through the qualifying jurisdictions. State and local governments must develop and submit a Consolidated Plan every three to five years. As part of this plan, jurisdictions are required to (1) conduct an evaluation of its housing market and needs; (2) identify public policies at the local jurisdiction level that serve as barriers to affordable housing and identify the strategy to remove or ease the negative impact of such policies; and (3) comply with the affirmatively furthering fair housing mandate that sets out a framework for CPD grantees to take meaningful actions to overcome historic patterns of segregation. Partnerships in CPD-Funded Housing Development Annual CPD programs often serve as key components in development deals; for example, gap financing, commitment letters to secure private financing, or "last-in" dollars to finalize deal closings. The key role of local government is to foster cooperation between public agencies and the private sector. To effectively layer the multiple funding sources often required in affordable housing developments, local administrators must understand the regulatory, eligibility, and reporting requirements of each source, as well as their operational limits. Unfortunately, many local officials do not possess this level of understanding and it falls on private sector actors to educate the locality about how the programs can work together. Following is a discussion of some of the financing tools that can be funded through the annual CPD programs. Bridge Loans (CDBG, HOME, HTF, 108) Certain private funders (e.g., LIHTC investors) may be able to offer better terms if their contribution to a project is delayed significantly (the "time/value" of money). By offering low-cost "bridge" loans, government agencies can help developers access these improved terms by covering development costs during the delay period. Bridge loans are CPD eligible but uncommon given the lengthy affordability restrictions associated with HOME and HTF, in particular. Capital Subsidies (CDBG, HOME, HTF, 108) Capital subsidies refer to grants and long-term forgivable or low-cost/cash flow loans that may be used as permanent sources in a development project. By reducing the amount of conventional financing required by a project, these subsidies can reduce project costs beyond the actual dollar amount contributed to the project. CPD funds may also be used to refinance existing mortgages in order to reduce interest payments in existing developments. For LIHTC developments, federal grants may cause a reduction in the project s eligible basis, which can result in a decrease in overall funding available for the project. For this reason, many communities provide federal subsidies to LIHTC projects in the form of low-cost loans - which are includable in eligible basis. Operating Subsidies (HTF) For projects that serve the lowest-income households, where rents are insufficient to cover operating expenses and debt service, government-provided operating subsidies can boost that revenue, thus increasing the project s ability to leverage conventional financing. This may take the form of annual payments to affordable housing owners for the ongoing operation of a housing development serving extremely low-income households. The concept is similar to the public housing operating subsidy program. Property Acquisition & Pre-Development Loans (CDBG, HOME, HTF, 108)** These loans subsidize upfront costs. They work by providing low-cost or deferred payment loans for developers to cover early development costs before other long-term funding is available. **Pre-development loans are not an eligible use for any of the CPD programs except for HOME Community Housing Development Organization (CHDO) funding. Such funding is not available for private developers or public agencies. Rental Assistance (HOME) Rental assistance makes units more affordable to a wider group of households, thus contributing to higher occupancy levels and faster lease-up; it may improve the reliability of rental payments; and in instances where the subsidized rent payment is higher than what the unit would generate without the subsidy, it increases rental revenue for the property. Both project- and tenant-based rental assistance programs, such as Housing Choice Vouchers, are available through HUD s Office of Public and Indian Housing and can complement CPD-funded assistance. Although project-based rental assistance is not CPD-eligible, tenant-based assistance is HOME eligible. Revolving Loans (CDBG, HOME, HTF, 108) Revolving loans are repayable low-interest loans made to private developers. Repaid funds are then used to create a revolving loan fund that can be committed to different projects or developers. Revolving loans only require a government s initial investment to be established, after which they become self-sustaining. Since they are not forgivable loans, they tend to give developers limited flexibility when used as pre-development funding. LAYERED FUNDING STREAMS: OPTIONS TO LEVERAGE ANNUAL CPD FUNDING Complex financing is typical in affordable housing deals. Successful developments often leverage annual CPD funds with other public and private sources. Here are some of the most commonly used sources for development that may be paired with CPD funding: Federal Home Loan Bank (FHLB) Affordable Housing Program (AHP) The AHP is a competitive funding program for the production and preservation of affordable housing (both rental and homeownership), funded by the government-sponsored FHLB system. AHP funds can be either grants or low-interest loans and are often combined with LIHTC proceeds. Awards are made directly to the development team and do not go through a local government. However, localities often assist in shaping the resulting projects by collaborating with developers early in the process. Historic Tax Credits (HTC) HTCs provide capital funds for developers undertaking a substantial rehabilitation of a historic asset. Funds can be used to rehab historic residential buildings or adaptive reuse of other historic structures. Housing Finance Agency (HFA) Risk Sharing - Section 542(C) This state-administered program provides low-cost capital to spur the development of rental housing through risk-sharing arrangements between HUD and HFAs. Investment Tax Credits (ITCs) and Other Energy Efficiency Funding These are commonly referred to as "solar tax credits." ITCs and other funding mechanisms such as utility rebates, energy performance contracts, and Property Assessed Clean Energy (PACE) programs can be used as part of the funding stack for housing projects that commit to certain levels of energy efficiency and renewable energy generation. These financial incentives can provide a bonus benefit for LIHTC projects that are required to include energy conservation components by state allocation plans. Low-Income Housing Tax Credit (LIHTC) This is the big Kahuna of affordable rental housing programs. A huge percentage of affordable deals rely on the LIHTC as the lynchpin of feasibility. While the awards are made directly to developers, local governments often work with and lend their support to local developers to help shape the proposed project and make the applications more competitive. New Markets Tax Credits (NMTCs) Local organizations called Community Development Entities (CDEs) apply for NMTCs from the Community Development Financial Institution (CDFI) fund and invest the proceeds into public interest projects (including affordable housing construction) in qualified low-income communities. Opportunity Zones (OZs) OZs offer a tax incentive for people and corporations to invest in distressed communities across the country. Affordable housing development may be structured in a way to leverage these incentives when proposing housing in an OZ. Tax-Exempt Bonds These bonds are issued by state or local government agencies, often in conjunction with an award of low-income housing tax credits. Tax-exempt bonds function like loans that are contracted by governments and then passed along to developers. With tax-exempt bonds, the investor who purchases the loan is exempt from federal income taxes on the interest earned from that loan. This results in higher returns for the investor when compared to many taxable bonds. The terms of the loan for tax-exempt bonds are typically more favorable to the borrower than the terms of taxable loans. This is basically a low-interest mortgage loan, which results in the potential lowering of rents since debt service is less. Developing Creative Affordable Housing Models In addition to the traditional housing development models noted above, a creative approach to funding strategies and a broad perspective on how that funding may be obtained is required. Following are some potential affordable housing models that both developers and localities should consider as they move forward with the creation of new ways to develop this much-needed resource. Community Land Trusts (CLTs) A CLT is an affordable homeownership or rental housing model in which a single entity, typically a non-profit or quasi-governmental organization (such as a PHA) maintains ownership of the land when a household (or developer) purchases that home that is on the land. The developer or homeowner pays a nominal amount to the CLT on a monthly or annual basis to lease the land. Long-term affordability is created by removing the cost of the land from the value of the development and by entering into long-term agreements that require the maintenance of affordability. Funding sources for the establishment of CLTs include CDBG, HOME, and HTF. Employer-Assisted Housing (EAH) Programs Development of EAH projects typically involve the subsidy of housing costs for employees who live in proximity to the workplace. Government agencies may offer incentives, such as dollar-for-dollar match of funds, encouraging the implementation of such programs, and maximizing the impact of the programs. Land Banks Land banks are quasi-public entities that acquire, manage, repurpose, and sell vacant or abandoned real estate. While not a financial mechanism in the strict sense, land banking can translate into significantly less expensive development of housing due to lower acquisition costs. For example, in Richmond, VA, the Richmond Land Bank (a program of the Maggie Walker Community Land Trust) receives vacant or tax-delinquent property from the City of Richmond and then transfers those properties to affordable housing developers. Similar land banks can be found across the United States. Social Impact Bonds This is a public-private partnership in which a government entity issues bonds that are purchased by investors. The funds provided by the investors are for projects that are expected to have a positive social impact and are repaid by the government when that impact is achieved. These bonds are often used for new or rehabbed affordable housing and supportive housing units. This type of partnership will often include metrics that go beyond the delivery of physical units, such as populations to be served, specific communities to be invested in, and employment opportunities generated. Project Profiles The following project profiles demonstrate how communities layer various funding sources, including CPD programs, and employ creative models into planning and developing their own affordable housing. Avondale Trace - High Point, NC The City of High Point used $650,000 of Section 108 funds as leverage to obtain $10.4 million in private capital in order to build this 72-unit affordable housing complex. The use of the 108 funds enabled the city to preserve its HOME funds, which were originally used to secure the 9% LIHTC for the project. 108 funding must follow similar rules to the CDBG program, which includes restrictions on the construction of new rental housing. After paying for site acquisition and improvements using, in part, the Section 108 funds, the city conveyed the property to the owner of the project. Other funding sources include -NCHFA Rental Production Loan;NCHFA Workforce Housing Loan; and A conventional first mortgage loan. Both the rental program loan and the 108 loan are structured as "soft debt" for the project. The development includes a clubhouse, playground, and picnic area. Residents earn between 40% and 60% of the area median income. Erin Park - Eastpointe, MI This project is an example of how deed-restricted homeownership provides an affordable housing option in an area of single-family homes and duplexes, where a multifamily structure would not have blended with the neighborhood. To increase homeownership opportunities, a "lease-purchase" program has been implemented. The project has 52 two- and three-bedroom units in one and two-story buildings. 18 of the units have Project-Based Vouchers provided by the Michigan State Housing Development Authority. There are also eight Section 811 units. The total development cost was $16 million with some of the gap financing provided by a $560,506 allocation of HOME funds. Incomes range from 30% to 80% of AMGI, but most residents are below the 60% income level. Residents enter into 15-year lease-to-purchase contracts. In year 13, the owner will begin discussions with residents giving them the option to purchase their units. At the end of the compliance period, residents will have the option to purchase the units at an affordable price. Residents who do not wish to purchase may remain as renters and when they move out, the unit will be sold for affordable homeownership. Brewster Woods at the Cape - Cape Cod, MA The development is located on a formerly vacant lot in Cape Cod and is targeted at those who work in the community but cannot afford to live there, such as teachers, service workers, and healthcare workers. This is a common problem in resort communities. The project will have seven project-based vouchers (there are 29 total units) to serve households below 30% of AMI in addition to three Section 811 supportive housing units. With a total development cost of $12 million, multiple funding layers were required, including local, state, and federal funding.A $1.68 million Massworks grant funded site clearing and infrastructure - roads, sidewalks, and utilities;The local building fees were waived, and the permitting process, which is normally very difficult for multifamily housing, was expedited by the state, which allows for more flexible zoning rules;$2.4 million loan from the Massachusetts Housing Partnership;$1 million in Affordable Housing Trust Funds from MassHousing;$450,000 loan from the Community Economic Development Assistance Corporation;$550,000 in Brewster Community Preservation Act money; and $800,000 in local and state HOME funding ($250,000 from the local HOME Consortium and $550,000 from the state s Department of Housing & Community Development HOME funds. Lincoln Place - Rutland, VT Lincoln Place is an example of increasing affordable housing supply through the development of public property. The development was originally a school, which was abandoned and deteriorating. This historic structure now provides 19 units of affordable housing. Historic tax credits were obtained, which enabled the developer (Housing Trust of Rutland) to preserve elements of the former school. The Rutland Housing Authority provides project-based vouchers and the development also used Housing Trust Fund money, HOME funds, and CDBG. Westview Village - Ventura, CA These 286 affordable units were developed with a mix of funding, including CDBG, and are part of a RAD conversion. The property serves seniors, individuals, and families, including "entry-level" households. Westview Village replaced the city s oldest public housing development which was built in the 1950s. It was co-developed by the Housing Authority of the City of San Buenaventura and BRIDGE Housing Corporation. 34 single family homes are provided for "entry-level" families that will be deed restricted. The old public housing project had 180 units, so this new deal actually adds 106 units to the affordable housing stock. The RAD program guarantees a return to the property for those displaced by the construction. Of the resident households that were temporarily displaced, 79 have already opted to move back to the property once construction has been completed. The remaining households are either choosing to remain in the public housing complexes to which they were relocated, purchasing their own homes, or accepting tenant-based rental assistance. The total development costs are estimated to be $192 million of which $960,111 are HOME funds and $5,335,055 in CDBG funds. The Connection Between Affordable Housing & the Community Affordable housing is not just bricks and sticks - it is the point at which all community sectors come together and the backbone of our neighborhoods. The development of affordable housing impacts every element of a community s development, from infrastructure to economic mobility. Let s review some of the key elements of any community development program and see how affordable housing impacts those elements. Infrastructure Affordable housing contributes to communities in important ways, both as a physical asset and a form of economic activity. Affordable housing development is often accompanied by infrastructure improvements that affect the larger community in positive ways. Among these benefits are improving neighborhood walkability and accessibility by updating sidewalks and streetscapes, increasing the availability of green and open spaces, and bringing transportation hubs and economic investment to areas with traditionally low investment or declining neighborhoods. Environmental advocates, chambers of commerce, and transportation planners often support affordable housing development by understanding its value as a conduit for improved infrastructure. Public Safety A lack of decent, affordable housing can have wide-ranging impacts on the security of a community as a whole and the safety of its most vulnerable members. The availability of affordable housing may correlate to a reduction in crime. Eliminating barriers to housing for persons with correctional backgrounds can lead to reduced recidivism, which is why proper development of criminal screening procedures is so important. Housing chronically homeless individuals leads to reduced incarceration and reliance on emergency medical care, with substantial monetary savings to local taxpayers. Healthcare Housing has long been recognized as one of the social determinants of health and well-being. Housing stability and affordability, the quality of one s home, and neighborhood characteristics such as walkability, safety, and environmental quality all impact the overall health of residents. When people have increased access to medical services, rather than having to rely on emergency room care as is often the case with people experiencing homelessness, healthcare costs decrease for both the individual and the healthcare system. It is becoming increasingly common for affordable housing developments, particularly for seniors and more vulnerable populations, to include a healthcare component such as a clinic. Workforce Housing Partnering with large neighborhood or area employers to develop workforce housing can be very successful if local employers are brought into the effort. Convincing local employers to participate is possible since it is in the best interest of the employers to have available affordable housing. Two critical elements are important to employers: Workers need a place to live. When that place is affordable, connected to amenities, safe, and close to their workplace, workers tend to have higher job satisfaction and employers have better retention. The availability of affordable housing near places of employment can boost recruitment efforts and attract more talent as the available worker pool increases. Shorter commutes can also mean more predictability and reliability for employers and employees alike. Amazon has already figured this out with their "Amazon Housing Equity Fund." Amazon provides low-rate loans, grants, and partnerships to local governments and nonprofit agencies. The fund is providing more than $2 billion in below-market loans and grants to preserve and create more than 20.000 affordable homes for individuals and families earning moderate to low incomes in communities where the company has a large presence. Climate Resilience Housing and transportation are huge contributors to the total domestic carbon footprint affecting U.S. households. The federal government incentivizes affordable housing developers to incorporate green, energy efficiency attributes into new communities. The energy efficiency upgrades also reduce costs of heating and cooling, increasing long-term affordability for residents. Modern designs also provide for better stormwater management, structural improvements, and updated emergency systems. Economic Mobility Safe, stable, affordable housing - whether rented or owned - improves long-term outcomes for low-income children in educational attainment, family stability, and future earnings. Bottom Line: Developers (both for-profit and non-profit) and operators of affordable housing should take a hard look at the possible public options that are available to assist in making housing development and operations more feasible. As noted in this article, there are various financing tools that can be assisted using HUD s Community Planning & Development Programs. HUD-funded annual CPD programs provide critical financing options to increase the supply of new affordable housing. These programs are certainly worth a look by those in the business of creating and managing affordable housing.

Understanding Lump Sum Payments and Income from Investments

Introduction to Lump Sum Payments and Investments The Department of Housing and Urban Development (HUD) has specific guidelines for determining annual income when it comes to lump sum payments and income from investments. These guidelines help establish eligibility for housing assistance and are essential for both residents and property owners to understand. Lump Sum Payments: When to Count as Income In most cases, lump-sum amounts received by a family, such as inheritances, insurance settlements, or proceeds from the sale of property, are considered assets and not income. However, there are certain situations where lump sum payments are counted as income: Social Security or SSI benefit income paid in a lump sum as a result of deferred periodic payments is excluded from annual income. For Section 8 tenants only, deferred Department of Veterans Affairs (VA) disability benefits received in a lump sum or prospective monthly amounts are excluded from annual income. Settlement payments from claim disputes over welfare, unemployment, or similar benefits may be counted as assets. Lump sum payments caused by delays in processing periodic payments for unemployment or welfare assistance are included as income. How To Treat Lottery Winnings Lottery winnings are treated differently depending on the payment structure. If the winnings are paid in one lump sum, they are considered assets. However, if the winnings are paid in periodic payments, they must be counted as income. Income from Investment Withdrawals The withdrawal of cash or assets from an investment received as periodic payments should be counted as income. Lump sum receipts from pension and retirement funds are counted as assets. If benefits are received through periodic payments, any remaining amounts in the account should not be counted as an asset. Conclusion Understanding HUD Occupancy guidelines for lump sum payments and income from investments is essential for both residents and property owners when determining annual income and eligibility for housing assistance. It s crucial to familiarize yourself with these guidelines to ensure compliance and maximize the benefits available under the housing assistance programs.

A. J. Johnson Partners with Mid-Atlantic AHMA for May Training on Affordable Housing

During the month of May 2023, A. J. Johnson will be partnering with the MidAtlantic Affordable Housing Management Association for three training sessions intended for real estate professionals, particularly those in the affordable multifamily housing field. The three sessions will be presented via live webinars. The following sessions will be presented: May 9: Acquisition/Rehabilitation of LIHTC Properties - Critical Issues for Success - This 1.5-hour session focuses on the issues that are critical to the success of any LIHTC acquisition/rehab project. The training focuses on tenant qualification, unit qualification, and first-year credit delivery. There will be a full discussion of determining the first-year applicable fraction, differentiating between the acquisition credit and rehab credit, transferring households between units during rehab, temporary relocation, the timing of resident qualifications, the meaning of the "safe-harbor" rule, re-syndication and previously qualified households, and 8609 issues. May 10: Critical Compliance Issues for LIHTC Properties - This full-day session takes compliance requirements up a notch from basic LIHTC compliance training. In addition to a comprehensive discussion of resident eligibility requirements (income and student status), the session will feature a review of how compliance failures affect a property s tax credits. There will also be a review of the top physical violations reported to the IRS by State Agencies and an in-depth discussion of affordability requirements - including rents, utility allowance, and fees. The training will conclude with an outline of Section 42 rules relating to eligible basis - including the pitfalls relating to the use of common areas. The session is intended for LIHTC managers and compliance staff. May 17: Interviewing Skills for Affordable Housing Managers - One of the most important skills any affordable housing manager can possess is the ability to interview applicants and residents and obtain the information required to determine eligibility - this is also one of the greatest weaknesses of most affordable housing managers. This training has been developed to address that weakness. This three-hour session focuses on the interview process and provides concepts and tools that will aid managers as they conduct their interviews. Techniques apply to all interview settings including initial eligibility interviews, interim certifications, and annual recertifications. The primary emphasis is on the initial eligibility interview since it is so critical to the housing process. The skills taught during this session will also assist managers in detecting fraud and in dealing with third parties when resolving discrepancies. These sessions are part of the year-long collaboration between A. J. Johnson and MidAtlantic AHMA that is designed to provide affordable housing professionals with the knowledge needed to effectively manage the complex requirements of the various agencies overseeing these programs. Persons interested in any (or all) of these training sessions may register by visiting either www.ajjcs.net or https://www.mid-atlanticahma.org.

HOTMA Final Rule - Impact on HOPWA Program

The Department of Housing & Urban Development (HUD) has released a Final Rule implementing the Housing Opportunity Through Modernization Act of 2016 (HOTMA). This final rule was published in the Federal Register on February 14, 2023. With the exception of changes relating to Non-Public Housing Over Income families (which take effect on March 16, 2023), this final rule takes effect on January 1, 2024.  The Housing Opportunity Through Modernization Act (HOTMA) was signed into law on July 29, 2016, amending many aspects of Multifamily Housing programs (as well as programs administered through the Offices of Public and Indian Housing and Community Planning and Development). HOTMA was intended to streamline processes and reduce burdens on housing providers. On September 17, 2019, HUD issued a proposed rule to update its regulations according to HOTMA s statutory mandate. The final rule, published on January 9, 2023, considers public comment received on the proposed rule and provides additional guidance for implementing Sections 102, 103, and 104 of HOTMA. Which Programs will be Affected by the Final Rule?  The Section 8 PBRA (including RAD), Section 202/811 PRAC, 202/8, 202/162 PAC, Senior Preservation Rental Assistance Contract (SPRAC), and Section 811 Project Rental Assistance (811 PRA) programs will see changes due to HOTMA. This is the eighth in a series of articles I am writing on the sweeping changes that will be made to HUD affordable housing programs. This article will focus on the revised rules regarding the Housing Opportunities for People with Aids (HOPWA) Program. Since the AIDS Housing Opportunity Act requires that HOPWA rental assistance "be provided to the extent practicable in the manner of" the Section 8 Program, the final rule revises the HOPWA regulations to track the changes in the final rule regarding income determinations, income examinations, income reexaminations, net family asset requirements, and de minimis errors for the HCV program, the Section 8 program that is the most practicable for the largest share of HOPWA-funded projects to track. However, HUD has determined that some changes are not practical for HOPWA implementation. These exceptions follow: The value of a home of a HOPWA participant receiving short-term mortgage or utility assistance or other assistance for which homeowners are eligible under the HOPWA program will not be considered as an asset. Unlike the Section 8 program that makes hardship exemptions for childcare and medical expenses mandatory, the final rule allows HOPWA grantees to make their own determination on whether to grant hardship exemptions. If a grantee elects to allow hardship exemptions, the hardship requirements of the Section 8 program must be followed. Income verifications must align with the requirements of the HCV program (to the extent possible). The final rule allows a HOPWA grantee to provide a family with retroactive rent decreases in the event that the family fails to provide a grantee with timely information about a decrease in income that would trigger an interim reexamination. As in the HCV program, grantees will have the option of retroactively adjusting rent as of the date of the change leading to the interim reexamination of family income or the effective date of the family s most recent interim or annual reexamination (or initial examination if that was the family s last examination). Other than the changes noted above, so significant changes have been made to the HOPWA program.

HOTMA Final Rule - Impact on the Housing Trust Fund (HTF) Program

The Department of Housing & Urban Development (HUD) has released a Final Rule implementing the Housing Opportunity Through Modernization Act of 2016 (HOTMA). This final rule was published in the Federal Register on February 14, 2023. With the exception of changes relating to Non-Public Housing Over Income families (which take effect on March 16, 2023), this final rule takes effect on January 1, 2024.  The Housing Opportunity Through Modernization Act (HOTMA) was signed into law on July 29, 2016, amending many aspects of Multifamily Housing programs (as well as programs administered through the Offices of Public and Indian Housing and Community Planning and Development). HOTMA was intended to streamline processes and reduce burdens on housing providers. On September 17, 2019, HUD issued a proposed rule to update its regulations according to HOTMA s statutory mandate. The final rule, published on January 9, 2023, considers public comment received on the proposed rule and provides additional guidance for implementing Sections 102, 103, and 104 of HOTMA. Which Programs will be Affected by the Final Rule?  The Section 8 PBRA (including RAD), Section 202/811 PRAC, 202/8, 202/162 PAC, Senior Preservation Rental Assistance Contract (SPRAC), and Section 811 Project Rental Assistance (811 PRA) programs will see changes due to HOTMA. This is the seventh in a series of articles I am writing on the sweeping changes that will be made to HUD affordable housing programs. This article will focus on the revised rules regarding the Housing Trust Fund (HTF) Program. In the final rule, HUD clarifies that for the HTF Program, the definition of Live-in Aide, foster adult, foster child, full-time student, and net family assets will be the same as the meaning of these terms for the HUD multifamily housing programs. Use of Annual Income in the HTF Program HTF grantees use the annual income of families to determine eligibility for: (1) occupancy of HTF-assisted rental units; (2) purchase of a homeownership unit; and (3) receiving homebuyer downpayment assistance. In the final rule, HUD is amending the HTF regulations to align with HOTMA s income and net family assets provisions in order to reduce the administrative burden of calculating income when HTF funds are layered with other HUD programs. The final rule specifies that if a family is applying for or living in an HTF-assisted rental unit, and the unit is assisted under the Public Housing Program, the HTF grantee must accept the PHA s determination of income and adjusted income in accordance with the requirements of the PH program. The same is true if the family is assisted under a Federal tenant-based rental assistance program. Likewise, if a family applying for an HTF unit is living in a project with a Federal or State project-based rental subsidy, the grantee must accept the PHA, owner, or rental subsidy provider s determination of the family s annual and adjusted income under that program s rules. While HTF grantees must enter into regulatory agreements with owners, developers, or sponsors of HTF-assisted rental housing, HUD is recommending that grantees also enter into agreements with PHAs, owners, or rental subsidy providers in order to facilitate the sharing of income and rent determinations to ensure the project is able to meet the HTF rental occupancy requirements established in the HTF written agreement and other HTF program requirements. Also, although the HTF program has no asset limitations, families that are participating in a program with asset limitations noted in the final rule may be denied assistance under that program. However, if such families are eligible based on the regulations of the HTF program, they may not be excluded from an HTF unit - even if they are denied Federal rental assistance. If the family has assistance terminated by the operator of the rental assistance program, the grantee must determine the family s income in accordance with HTF requirements. For HTF units not assisted through another HUD program, grantees must (1) continue to comply with the HTF requirements to determine the annual income of families by examining at least two months of source documents at initial occupancy and every six years of the HTF affordability period; (2) project the prevailing rate of income of the family; and (3) specify which of three methods to determine annual income (i.e., source, self-certification, written statement) will apply to subsequent income determinations (other than at initial occupancy and every six years) during the HTF affordability period. The final rule does incorporate revisions to the definition of net family assets that are applicable to other HUD programs - i.e., income to assets will not be imputed unless the assets exceed $50,000. Imputing will be based on the HUD Section 8 imputed rate. Grantees will also be able to accept self-affidavits of assets if the household assets do not exceed $50,000. Unless an HTF unit is layered with other HUD funding that is subject to this final rule, an HTF grantee has the option to use either the definition of adjusted gross income contained in the IRS Form 1040, or the definition of annual income used in the Section 8 program. The final rule clarifies that income determinations made in the HTF program are valid for six months. This will not apply if the income determination is being made in accordance with the rules of another program at the property. Finally, while not a new provision, HTF regulations already specify that for projects with project-based rental subsidies, the HTF grantee may continue to permit the project owner to charge the maximum rent permitted under the Federal or State project-based rental subsidy program. Bottom Line: While not extensive, the changes made to the HTF program by the final rule are substantive and both grantees and operators of HTF -assisted rental projects should familiarize themselves with these new rules -- keeping in mind that they do not go into effect until 2024.

Nondiscrimination Policies for Persons with Disabilities in Housing

Under Section 504 of the Rehabilitation Act and the Fair Housing Act, owners are prohibited from following policies or practices that discriminate against persons with disabilities. This includes policies or practices that have a disparate impact on persons with disabilities. Discriminatory Policies and Practices Examples of discriminatory policies and practices include requiring tenants with disabilities to carry personal liability insurance when it is not required of tenants without disabilities, and prohibiting tenants from having live-in aides or using assistive devices in certain parts of the premises. Owners must not have policies that overtly discriminate on the basis of disability. Neutral Discrimination Policies Owners must also modify any neutral policies that have the effect of discriminating on the basis of disability. For instance, an owner must modify a "no animals" policy to allow a tenant with a disability who needs an assistance animal to have that animal. However, housing policies that owners can demonstrate are essential to the project will not be regarded as discriminatory if modifications to such policies would result in a fundamental alteration in the nature of the housing program or activity or undue financial and administrative burden. Reasonable Accommodations Owners must not fail to provide reasonable accommodations when such accommodations may be necessary to afford a person with disabilities equal opportunity to use and enjoy a dwelling unit and the public and common areas. This includes modifying policies and procedures as necessary to ensure nondiscrimination and promote accessibility. Disparate Impact Owners must ensure that their policies and procedures do not have a disparate impact on persons with disabilities. Disparate impact is a situation where a policy or practice appears neutral but has an adverse effect on a particular group, such as persons with disabilities. Provision of Supportive or Other Services Owners are not required to provide supportive or other services that fall outside the scope of the applicable housing program for the property. The test for what the owner must provide is whether, with appropriate modifications, the applicant can achieve the purpose of the program offered. Conclusion Owners must comply with nondiscrimination policies and practices for persons with disabilities in housing. This includes modifying policies and procedures to ensure accessibility and providing reasonable accommodations when necessary. Disparate impact on persons with disabilities must be avoided, and supportive or other services are not required unless they fall within the scope of the applicable housing program.