News

Biden Administration Introduces "Renters Bill of Rights"

In late January 2023, the Biden administration released a Blueprint for a Renters Bill of Rights. This blueprint describes federal actions around five guiding renter protections: Safe, Quality, Accessible, and Affordable Housing; Clear and Fair Leases; Education; Enforcement and Enhancement of Renters Rights; the Right to Organize; and Eviction Prevention, Diversion, and Relief. The Federal Housing Finance Agency (FHFA) announced it will identify the opportunities and challenges of adopting and enforcing tenant protections, including policies that limit egregious rent increases at properties with Government Sponsored Enterprise (GSE) backed mortgages going forward. FHFA is also going to publish a GSE Look-Up Tool to determine if a property is backed by Fannie Mae or Freddie Mac financing and requires a 30-day notice to vacate for non-payment of rent. HUD will also issue a notice of proposed rulemaking requiring that PHAs and owners of project-based rental assistance properties provide no less than a 30-day notice of lease termination due to nonpayment of rent. The blueprint also recommends that local governments take the following actions: (1) immediately seal eviction filings and only unseal them in the case of a decision against the tenant; (2) provide the right to counsel in eviction proceedings; and (3) prohibit source of income discrimination. Following is a description of the "five principles" outlined in the Blueprint. First Principle: Access to Safe, Quality, Accessible, and Affordable Housing Renters should have access to housing that is safe, decent, and affordable and should pay no more than 30 percent of household income on housing costs. Owners of rental housing and state and local governments should ensure that homes for rent meet habitability standards and are free of health and safety hazards, such as lead or mold. In addition, owners should provide services and amenities as advertised or included in the lease (such as utility costs and functional appliances) and ensure that the residential housing unit is well maintained (including common areas). Renters should face minimal barriers when applying for housing and receiving housing assistance, which includes minimally burdensome application and documentation requirements and fair and equal tenant screening. Increases in rents should be reasonable, with the acknowledgment that rents may need to increase to cover operating costs. These increases should be transparent and fair to protect against gouging. In 2019, almost 25% of renters spent half their income on rent. Nationally, rents rose 26% during the pandemic. Limited housing supply has created more competition for fewer available units, which gives owners even more leverage in deciding to whom to rent to, what lease terms to offer, and whether and how much to raise rents. At the same time, the housing stock in America is aging, and more rental housing is facing obsolescence or poor housing conditions. Perhaps in recognition of the fact that private owners who do not operate under any programmatic regulations (i.e., conventional housing) are not responsible for making housing affordable. These owners operate rental housing for the profits that can be made from such housing. Offering incentives for affordability is the responsibility of the government, at the federal, state, and local levels. To accomplish this, the Biden Administration has proposed the largest expansion of the Housing Choice Voucher program in decades. In addition to this step, the Administration has proposed the following: The Federal Trade Commission (FTC) will explore ways to expand the use of its authority under the FTC Act to take action against acts and practices that unfairly prevent consumers from obtaining and retaining housing. As announced in November, the Federal Housing Finance Agency (FHFA), an independent agency, will increase affordability in the multifamily rental market by classifying multifamily loans with loan agreements that restrict rents at levels affordable to households with incomes between 80 and 120 percent of Area Median Income as "mission-driven." In 2023, FHFA required that at least 50 percent of all Freddie Mac and Fannie Mae purchases of multifamily loans be mission-driven. In 2022, Freddie Mac and Fannie Mae purchased a combined $142 billion in multifamily loans supporting over one million units. If the same activity holds in 2023, this will mean an investment in approximately 700,000 affordable units. Second Principle: Clear & Fair Leases Renters should have a clear and fair lease that has defined rental terms, rights, and responsibilities. Leases should not include mandatory arbitration clauses, unauthorized terms, hidden or illegal fees, false representations, or other unfair or deceptive practices. A lease should provide a transparent policy regarding security deposits, with those deposits being appropriately sized and placed in an interest-bearing account for the duration of the lease. The lease should also provide reasonable advance notice of actions related to the unit, including notice of entry for inspection by the housing provider and significant changes to the unit. Finally, the lease terms should be written in simple and clear language accessible to the renter, and the leasing process should ensure tenants understand the terms of the lease through a plain-language briefing. A lease establishes the foundation for the housing provider and tenant relationship, highlighting the rights, responsibilities, and recourse that exists for both parties. A lease covers the terms for what is likely the largest single expense a household makes each month and over the course of a year. The trend of more leases with problematic provisions can be partially attributed to the increased use of shared forms, which are easily accessible through the internet and may include terms that are not legally enforceable in the state or locality in which the property is located. To ensure fair leases to the greatest extent possible, the Administration is announcing the following new actions: USDA will institute a broad set of actions that will advance clear leases and ensure tenants can seek compliance with lease terms without facing retaliation across its portfolio of 400,000 units of multifamily rental housing. Specifically, USDA is developing a clear and fair lease that is similar to the model lease used in HUD Section 8 properties. USDA will also create a tenant grievance FAQ outlining clear steps for tenants appealing a management decision and will distribute it to owners and management agents, and ask for distribution to tenants and tenant advocacy groups. Further, USDA Rural Development is working to create a Tenant Rights and Responsibilities brochure modeled after the HUD Multifamily brochure for assisted housing residents, increasing consistency between the two agencies and clarifying Rural Development tenants rights and responsibilities. USDA will explore updating its regulations to require borrowers with federal credit from the department s Rural Housing Service to utilize the brochure. Owners and managers in the RD Section 515 Program should be prepared for this upcoming change. A good starting point is a review of the current HUD Model Lease for Multifamily Housing and the HUD Rights & Responsibilities Brochure. This will give operators of Section 515 housing an idea of what may be coming down the road. Third Principle: Education, Enforcement, and Enhancement of Rights The Administration position is that Federal, state, and local governments should do all they can to ensure renters know their existing legal rights and to protect renters from unlawful discrimination and exclusion that can take many different forms. The Fair Housing Act (FHA) bans discrimination based on race, color, religion, sex (including sexual orientation and gender identity), disability, familial status, and national origin, including practices that have an unjustified disparate impact on a protected class. The Administration proposes to expand the FHA to prohibit discrimination based on source of income. In order to implement this third principle, HUD is finalizing a rule to clarify that the Fair Housing Act continues to bar practices with unjustified discriminatory effects notwithstanding efforts to weaken its reach. In addition, HUD has published a proposed Affirmatively Furthering Fair Housing rule to strengthen and better align grantee planning efforts to advance fair housing goals. The federal government has advanced other rights beyond those protected by the Fair Housing Act. For example, discrimination against a holder of a Housing Choice Voucher is banned in the federal Low-Income Housing Tax Credit (LIHTC) program, which is the largest affordable housing production program in the country. The Administration has announced the following new actions: Tenant Background Checks: The Consumer Financial Protection Bureau (CFPB) has said it will identify guidance or rules that it can issue to ensure that the background screening industry adheres to the law and coordinate law enforcement efforts with the FTC to hold tenant background check companies accountable for having reasonable procedures to ensure accurate information in the credit reporting system. HUD, FHFA, FTC, and USDA have said they will work with CFPB to release best practices on the use of tenant screening reports, including the importance of communicating clearly to tenants the use of tenant background checks in denying rental applications or increasing fees and providing tenants the opportunity to address inaccurate information contained within background screening reports. HUD, FHFA, and USDA have said they will strongly encourage property owners in their respective portfolios to align with these best practices and inform them of any additional relevant legal requirements in their respective portfolios. HUD will also release guidance addressing the use of tenant screening algorithms in ways that may violate the Fair Housing Act. Source of Income Discrimination: Discrimination based on a person s source of income is not expressly prohibited under the Fair Housing Act. There are several ongoing agency actions that will be enhanced, consistent with agency authorities, to reduce such discrimination going forward. Consistent with existing LIHTC rules, the Treasury Department reiterates that LIHTC building owners should lease units in a manner consistent with HUD s nondiscrimination rules and are prohibited from refusing to lease units to prospective tenants due to their status as holders of Housing Choice Vouchers or certificates of eligibility. The Treasury Department will meet with tenants, advocates, housing providers, and researchers to discuss ways to further the goals of tenant protections, including those around source of income, as well as broader issues of affordability and eviction prevention with respect to the LIHTC incentive.  HUD will explore opportunities to address source of income discrimination through guidance. Fourth Principle: The Right to Organize The Administration believes that renters should have the right to organize without obstruction or harassment from their housing provider or property manager and should not risk losing housing over organizing. Tenants in different types of HUD and RD programs have recognized rights to organize. The Administration is not proposing that the government impose this requirement on non-assisted properties. They are taking the following steps: The Department of Defense (DoD) commits to ensuring that military members living in DoD s government-owned, government-controlled, or privatized housing have the right to organize and affirms their right to report housing issues to their chain of command and/or Military Housing Office without fear of retribution or retaliation. HUD s Office of Multifamily Housing is developing a Notice of Funding Opportunity (NOFO) to distribute appropriated funds to support tenant capacity-building activities, including tenant education and outreach. HUD s Office of Multifamily Housing will build on existing training and technical assistance strategies to promote engagement with residents and implementation of the Rental Assistance Demonstration (RAD) resident protections, including grievance procedures, by owners of RAD-converted properties. This will include fact sheets and similar public resources, targeted outreach to owners of recently converted properties, and measures to refresh awareness of program expectations following the completion of the conversion process. It should be noted that these actions will not apply to LIHTC properties. Fifth Principle: Eviction Prevention, Diversion, and Relief Before the pandemic, roughly 900,000 evictions were completed against tenants every single year. In order to reduce the number of evictions, the Administration is taking the following actions: HUD will issue a notice of proposed rulemaking, to build upon the previously issued Interim Final Rule, which will propose to require that PHAs administering a public housing program and owners of project-based rental assistance properties provide no less than 30 days advanced notification of lease termination due to nonpayment of rent. HUD will award $20 million for the Eviction Protection Grant Program in fiscal year 2023, which will fund non-profits and governmental entities to provide legal assistance to low-income tenants at risk of or subject to eviction. FHFA, Freddie Mac, and Fannie Mae have indicated their commitment to publishing information about the Enterprise Look-Up Tools, which allow tenants to determine if their property is backed by Fannie Mae or Freddie Mac financing and requires the 30-day notice to vacate for non-payment of rent. The Enterprises will continue to publish this information and assess how the individual tools might be enhanced to improve utility. Bottom Line - This "Renters Bill of Rights" will have a direct impact on federally assisted housing, with some minor effects across the non-federal universe of rental housing. The most immediate impact will be felt in the rural housing community due to the Rural Development Service development of a Model Lease and "Rights & Responsibilities" brochure. At the same time, the push to create "best practices" relative to applicant background screening should lead landlords to examine current practices - before they are forced to do so by state or local agencies. With regard to the LIHTC program, The Treasury Department will meet with tenants, advocates, housing providers, and researchers to discuss ways to further the goals of tenant protections, including those around source of income, as well as broader issues of affordability and eviction prevention with respect to the LIHTC incentive. 

HOTMA Final Rule - Limitation on Eligibility for Assistance Based on Assets

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 fifth 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 income from assets. HOTMA and the final rule specifically include "actual" income from assets in the definition of income. Therefore, any actual income received must be counted as family income. Imputed income on assets of a combined value of more than $50,000 must be calculated if no actual income can be computed. In a major procedural change, if the actual income can be computed for some assets, but not all assets, housing providers must compute the actual income for those assets, calculate the imputed income for all remaining assets where the actual income cannot be computed, and combine both amounts to account for assets with a combined value of more than $50,000. Notice the significant difference from the current rule where income from assets in excess of $5,000 is the greater of the total actual income or total imputed income. Actual and imputed income are never combined. PHAs or owners may determine the net assets of a family based on a certification by the family that the net family assets do not exceed $50,000, without taking additional steps to verify the accuracy of the declaration. Note that for LIHTC purposes, HFAs may have different requirements in this area. Any such declaration must include the amount of income the family expects to receive from the assets. Limitation on Eligibility for Assistance Based on Assets The final rule includes a restriction on the eligibility of a family to receive assistance if the family owns real property that is suitable for occupancy by the family as a residence or has assets in excess of $100,000, as adjusted annually for inflation. An exception to the restriction against owning real property suitable for occupancy by the family as a residence is in place if the property does not meet the disability-related needs of all members of the family, including physical accessibility requirements. There are various circumstances where a property may not be suitable for occupancy for a household with a household member with disabilities. Other examples include, but are not limited to, a disability-related need for additional bedrooms, proximity to accessible transportation, etc. Other examples of "suitable for occupancy" include (1) the property is geographically located so that the distance or commuting time between the property and the family s place of work or educational institution would create a hardship for the family {as determined by the PHA or owner}, and (2) the property s physical condition poses a risk to the family s health and safety and the condition of the property cannot be easily remedied. The real property restriction also does not apply if the family is unable to sell the property based on State and local laws of the jurisdiction where the property is located. It also does not apply if a member of the family jointly owns real property with another non-household member that does not reside with the family if the non-household member lives in the jointly owned property. A new provision was added to the final rule that, for purposes of the asset limitation, a property that a family may not reside in under State or local law is not a property that is suitable for occupancy. Examples would be condemned property or commercial property that cannot legally be occupied as a residence, such as a convenience store. However, such property would be considered an asset to the household. With regard to the $100,000 asset limitation, the value of retirement accounts that are recognized by the IRS will not be counted toward a family s assets. Therefore, managers will no longer have to worry about determining whether a household has "access" to a retirement account in determining whether to treat such accounts as assets. Only the actual periodic payments from these accounts will be counted as income. When recertifying the income of a family that is subject to the real property and $100,000 asset limitation, a PHA or owner may choose not to enforce the restrictions or may establish exceptions to the restrictions based on eligibility criteria. Such exceptions may be based on family type or other factors such as age, disability, income, the ability of the family to find suitable alternative housing, and whether supportive services are being provided. Delay of Eviction or Termination of Assistance A PHA or owner may delay for a period of not more than six months the initiation of eviction or assistance termination proceedings of a family based on violation of the real property or $100,000 asset rule. LIHTC Applicability While these provisions apply to Public Housing and Section 8 (tenant-based and project-based), only the $50,000 "imputing" provision automatically applies to LIHTC properties. This is the case since the tax credit program is required to follow HUD rules in the "determination" of income, and this new rule is related to that determination. The $100,000 limitation does not apply to the LIHTC program.

Rural Development to Implement Model Lease for Section 515 Program

The Biden Administration has instructed the U.S. Department of Agriculture to institute a broad set of actions with regard to leases in the Rural Development (RD) Section 515 program. Specifically, RD is developing a "model" lease for the Section 515 program, similar to the HUD Model lease for the HUD multifamily programs. RD is also creating a tenant grievance FAQ outlining clear steps for tenants appealing management decisions and will distribute it to owners and management agents. The Agency will also ask that the FAQ be provided to tenants and tenant advocacy groups. In addition, RD is working on a Tenant Rights & Responsibilities brochure modeled after the HUD Multifamily brochure for assisted housing residents, increasing consistency between the two agencies and clarifying the rights of Section 515 residents. It is likely that RD regulations will be updated to require Section 515 borrowers to utilize the brochure. Owners and managers of RD Section 515 properties should be prepared for this upcoming change. A good starting point is a review of the current HUD Model Lease for Multifamily Housing and the HUD Rights & Responsibilities Brochure. This will give operators of Section 515 housing an idea of what may be coming down the road.

HOTMA Final Rule - Educational Assistance

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 fourth 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 student financial assistance. HOTMA mandates the exclusion of certain earned income for full-time dependent students and grant-in-aid or scholarship amounts for such students. The HUD proposed rule regarding HOTMA implementation was unclear regarding what constitutes financial assistance, so HUD is hoping that the final rule achieves clarity. One thing HUD has concluded is that it cannot codify through rulemaking the Section 8 student financial assistance limitations provided annually as part of HUD appropriations. While these limitations will continue to apply to funds from any year in which the limitations are enacted in an appropriations act, it will be a year-to-year determination as to what portion - if any - of educational assistance will be counted as income for students receiving Section 8 assistance. The final rule is clear that any income specifically excluded by the Higher Education Act (HEA) is excluded income for all HUD programs. The rule also excludes student financial assistance for tuition, books and supplies, room and board, and other fees required and charged to a student by an institution of higher education. Note the difference from the current rule where money for books, supplies, and room and board are not excluded. The confusion with regard to educational assistance is the result of HUD appropriations bills which for more than a decade have included a provision making an exception to the HEA exclusion of all assistance provided to students - including assistance in excess of tuition and required fees and charges. For example, the FY2022 Appropriations Act states that "for purposes of determining the eligibility of a person to receive assistance under Section 8 of the United States Housing Act of 1937, any financial assistance (in excess of amounts received for tuition and any other required fees and charges) that an individual receives under the Higher Education Act of 1965, from private sources, or from an institution of higher education, shall be considered income to that individual, except for a person over the age of 23 with dependent children." So, for any year that this language appears in HUD appropriations, it requires that certain assistance, including assistance under Title IV of the HEA, in excess of tuition and other required fees and charges, be included in income calculations for Section 8 students who are age 23 and under or without dependent children. HUD has interpreted this limitation as applying when the student is the head of household or spouse, but not when the student resides with parents in a Section 8 unit. The result of all this is that for any funds from a year where HUD s appropriations acts include Section 8 student financial assistance limitations similar to those in FY2022, those limitations will still apply with respect to Section 8 participants, even if the appropriations contradict the HEA. This requirement is going to create significant difficulty for owners and PHAs who are likely to be unaware of the provisions of any particular annual appropriations act. For this reason, HUD plans to issue guidance regarding how to treat student financial assistance in income calculations. Adding to the complexity of this issue is the fact that student financial assistance can take a variety of forms and come from a variety of sources to both full and part-time students. For example, not all assistance provided to students is assistance covered by the HEA or through the Bureau of Indian Affairs. So, the final rule provides that student financial assistance means a grant or scholarship received from the federal government, a State, Tribal, or local government, a private foundation registered as a Section 501(c)(3) nonprofit, a business entity (such as a corporation, general partnership, limited liability company, limited partnership, joint venture, business trust, a public benefit corporation, or nonprofit entity), or an institution of higher education. A grant would include a qualified tuition payment, reduction, waiver, or reimbursement (i.e., amounts received as reimbursement for the student s paid costs of tuition, books, and fees, etc.) by the educational institution, such as for an employee of the institution or an eligible family member of that employee. A grant would also include assistance provided by an employer as part of an employee educational assistance program or tuition reimbursement program. The final rule makes clear that assistance provided under the HEA or Bureau of Indian Affairs student assistance programs is automatically excluded. The final rule clarifies that student financial assistance that is excluded from income must be for educational expenses and does not include payments obtained through work-study, money from friends or family, or funds that exceed the actual education expenses to the student. Amounts received under work study may still be excluded if provided under Title IV of the HEA or if the work-study is being performed by a dependent full-time student. Student loans are not considered student financial assistance. In the final rule, amounts in excess of actual educational assistance will no longer be excluded from income - even for persons over age 23 with dependent children. This means that such income will now be counted for everyone - regardless of whether the household receives Section 8. In other words, this income will now be counted for non-Section 8 households (such as LIHTC). Keep in mind - all assistance under the HEA is excluded from income, regardless of whether those amounts exceed actual educational costs. This new rule is so cumbersome, examples are warranted. Example #1 Assume a student received $26,000 in assistance, all of which was excluded under the HEA, and another $5,000 from a scholarship that is not excluded under the HEA. If the student s actual educational expenses were $25,000, the entire $26,000 in assistance excluded under the HEA would still be excluded from income. However, the $5,000 from the other scholarship would not be considered student financial assistance because it is assistance in excess of actual covered costs and would not be excluded from income. Example #2 Assume the same facts as example #1, but the assistance excluded due to the HEA is less than the student s actual covered costs. In this case, some or all of the other scholarships and grants would be excluded from income. Bottom Line - clearly this is a complex and intricate rule. Since the rule does not go into effect until January 1, 2024, owners and managers should continue to exclude all educational assistance for any student other than students receiving Section 8 assistance. When Section 8 assistance is received unless the student is (1) a dependent of the household, or (2) over 23 with dependent children, the educational assistance in excess of tuition and mandatory fees should be counted as income. Hopefully, between now and 2024, HUD will publish an update to Handbook 4350.3 and provide additional clarity on this issue.

HOTMA Final Rule - New Rules on Hardship Exemptions

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 third in a series of articles I will write on the sweeping changes that will be made to HUD affordable housing programs. This article will focus on the revised hardship exemptions made by the final rule. HUD received many comments on the proposed rule relating to hardship exemptions for unreimbursed health and medical care, attendant care, auxiliary apparatus expenses, and childcare expenses. The final rule has been revised to provide clarity to these exemptions and ease burdens on families experiencing financial hardship. Medical/Disability Expenses Current regulations permit the deduction of medical expenses from annual income for elderly households if the expenses (1) will not be reimbursed by insurance or another source, and (2) when combined with any disability assistance expenses are in excess of three percent of annual income. The new regulation does not permit the deduction until the medical expenses exceed 10 percent of gross income. This will clearly have a negative impact on many elderly/disabled households. To help ease this burden, the final rule provides two types of hardship exemptions to the ten percent threshold for health and medical care expenses (for elderly and disabled families) and reasonable attendant care and auxiliary apparatus expenses (for families that include a person with disabilities). The first category is for families eligible for and taking the unreimbursed health and medical care expenses and reasonable attendant care and auxiliary apparatus expenses deduction in effect prior to this rule (i.e., the 3% rule). The second category is for families that can demonstrate that the family s health and medical care expenses or reasonable attendant care and auxiliary apparatus expenses increased, or the family s financial hardship is a result of a change in circumstances that would not otherwise trigger an interim reexamination. HUD is adding this second category in the final rule in recognition that the change from the three percent threshold to the new ten percent threshold for unreimbursed health and medical care expenses or reasonable attendant care and auxiliary apparatus expenses may result in financial hardship for families, including those families who were not receiving the deduction or may not even have been receiving housing assistance at the time the final rule goes into effect. These families may receive temporary hardship relief if their health and medical care expenses or reasonable attendant care and auxiliary apparatus expenses exceed five percent of the family s income. Under the first category (families taking the deduction based on the three percent rule), owners must deduct eligible expenses exceeding five percent of the family s income for the first year, 7.5% for the second year, and 10% for the third year. Under the second category, a family may qualify for hardship exemptions for health and medical care expenses or reasonable attendant care and auxiliary apparatus expenses if the family can demonstrate that the expenses increased, or the family s financial hardship is a result of a change in circumstances (as determined by the project owner). For these families, the deduction will be for expenses in excess of five percent of family income for up to 90 days. This may be extended for additional 90-day periods at the discretion of the owner, based on family circumstances. Owners may also terminate the hardship exemption if it is determined that the family no longer needs the exemption. In some circumstances, families receiving the deduction under the first category may request relief under the second category of hardship relief. During the second year of transition, the owner deducts expenses exceeding 7.5 percent of family income if relief is being obtained under the first category. If the family can demonstrate that the health and medical care expenses or reasonable attendant care and auxiliary apparatus expenses increased or the family s financial hardship is a result of a change in circumstances, and not just due to the transition to the 7.5% threshold, the family may be granted relief under the second category. In this case, expenses exceeding five percent of the family income will be deducted (instead of 7.5%). However, this relief will last only for 90 days (unless extended by the owner), and the family is no longer eligible for relief under the first category. In other words, at the end of the relief period for the second category, the family will be subject to the regular health and medical care expenses or reasonable attendant care and auxiliary apparatus expenses deduction threshold of ten percent, regardless of whether they fully transitioned to the ten percent threshold under the first category. Childcare Deduction Hardship Relief Under the final rule, property owners may extend a deduction for unreimbursed childcare expenses for 90-days, with extensions for additional 90-day periods if the family can demonstrate that they are unable to pay their rent due to loss of the childcare expense deduction, and the childcare expense is still necessary even though the family member is no longer employed or furthering his or her education. The following example illustrates how this relief could work: A family that was claiming the childcare deduction no longer qualifies because the care is no longer necessary to enable a family member to work or go to school. The family member who was employed had to leave their job in order to provide uncompensated care to an elderly friend who is very ill and lives across town. The family may continue to claim the childcare deduction for 90 days, with 90-day extensions as approved by the owner. Bottom Line The hardship exemptions outlined here apply only to HUD projects that allow for deductions from gross income and will not go into effect until January 1, 2024. Owners of such projects should familiarize themselves with the details of these exemptions so that they will be ready to implement them in 2024.

Federal Court Rules that Applicant May Request Reasonable Accommodation on Behalf of Roommate

In McClendon v. Bresler, the Ninth Circuit affirmed a district court decision that statements made in an email by a rental co-applicant to an apartment owner supporting the need for a reasonable accommodation (a support animal) suffice as a request for a reasonable accommodation and that the co-applicant had standing to sue for the landlord s refusal to grant the accommodation. The landlord had a "no dogs" policy and would not waive it for an assistance animal. The applicant presented evidence that her dog was verified as a support animal and requested the accommodation. To succeed in a reasonable accommodation fair housing claim, a plaintiff must prove: (1) plaintiff has a disability; (2) the defendant knew or reasonably should have known of the disability; (3) an accommodation may be necessary to afford the disabled person an equal opportunity to use and enjoy the dwelling (4) the requested accommodation is reasonable, and (5) the defendant refused to make the requested accommodation. In this case, only number 2 was in dispute. When the roommate informed the landlord via email that the applicant had a "verified support animal," used the terms "reasonable accommodation, "and "discrimination," the landlord was notified of the potential disability. As to whether the claim could be brought by the roommate and not the disabled applicant, the court stated that the FHA permits any "aggrieved person" who "claims to have been injured by a discriminatory housing practice" to bring a housing discrimination suit." The co-applicant was equally harmed by the denial of the reasonable accommodation. Bottom Line: This case serves as a reminder that requests for reasonable accommodations do not have to be made by a disabled person. The request may be made by someone acting on behalf of that person. In addition, action against housing providers who refuse to grant needed reasonable accommodations may be brought by anyone who is harmed by the landlord s action - even if it is not the disabled person.

HOTMA Final Rule - Revised Exclusions to Income

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 second in a series of articles I will write on the sweeping changes that will be made to HUD affordable housing programs. This article will focus on the revised income "exclusions" made by the final rule. PHAs, owners, and grantees are not required to calculate and may not include imputed income on assets when a household s net family assets are valued at or below $50,000. This amount will be adjusted annually for inflation. The actual income from assets continues to be included in income, regardless of the amount of assets. For an irrevocable trust or a revocable trust outside the control of any member of the household, the final rule excludes from income distributions of the principal or the property that was transferred into the trust. Distributions of income (e.g., interest earned) from the trust when the distributions are used to pay the cost of health and medical care expenses for a minor are also excluded. For a revocable trust or trust that is under the control of the household, distributions from the trust are excluded from income, but any actual income earned by the trust (i.e., interest, dividends, rent), regardless of whether it is distributed, shall be considered income to the family. Income received for the care of foster children or adults has long been excluded. This final rule expands the exclusion to State or Tribal kinship or guardian care payments. Payments and settlements from insurance for personal or property loss are excluded, as are payments through health insurance, motor vehicle insurance, and worker s compensation. Payments from training programs funded by HUD or qualifying Federal, State, Tribal, or local employment training programs (including training programs not affiliated with a local government) and payments from training of a family member as a resident management staff are excluded from income. Since the $480 dependent deduction will be adjusted annually based on inflation, the final rule clarifies that for full-time students age 18 and over who are dependents of the household, any income in excess of the dependent deduction is excluded from income. I.e., only the amount of the dependent deduction will be counted as income. All payments from State Medicaid agencies for in-home support are excluded from income. Payments made or authorized by a Federal agency for this purpose are also excluded from income. Amounts paid directly to a member of an assisted family by a State Medicaid agency (including through a managed care entity) or other State or Federal agency (or entities authorized by the agencies to make such payments) to enable a family member who has a disability and wishes to remain in the unit are excluded from income. This applies only when the payments to the family member are for the care of another member of the family living in the unit. HUD is clarifying the general exclusion for "nonrecurring income," by defining nonrecurring income as income that will not be repeated in the coming year, based on information that the family provides. The exclusion specifically states that income earned as an independent contractor, day laborer, or seasonal worker does not count as "nonrecurring" income and is therefore included as income. The wording of this exclusion indicates that in order to be recurring, income must be received on an "annual" basis - it need not be received monthly, quarterly, etc. Examples of nonrecurring income provided by HUD include: (1) payments from the U.S. Census Bureau for work on the decennial Census or the American Community Survey that is less than 180 days and does not result in a permanent position; (2) direct Federal or State payments intended for economic stimulus or recovery; (3) amounts received directly by a family as a result of State or Federal refundable tax credits or refunds at the time they are received; (4) gifts for holidays, birthdays, or significant life events or milestones; (5) non-monetary, in-kind donations from food banks or similar organizations; and (6) lump-sum additions to assets such as lottery or other contest winnings. HUD is adding a new income exclusion that broadly excludes any income a family receives from civil rights settlements or judgments regardless of how the settlement or judgment is structured (i.e. whether by a lump-sum or payment schedule). However, the settlement or judgment amounts will be counted toward a family s net assets if deposited into an account that would otherwise be considered an asset. The interest from such accounts will be considered asset income. Any income received from any account under a retirement plan recognized by the IRS, including IRAs, employer retirement plans, and retirement plans for self-employed individuals shall be excluded. However, any distribution of periodic payments from these retirement accounts shall be considered income. The final rule also makes changes to the exclusion of income relating to student financial assistance. However, this section of the rule is complex and will be discussed in the next article in this series.

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

During the month of March 2023, A. J. Johnson will be partnering with the MidAtlantic Affordable Housing Management Association for four training sessions intended for real estate professionals, particularly those in the affordable multifamily housing field. All four sessions will be presented via live webinars. The following sessions will be presented: March 7: Developing Smoke-Free Policies for Multifamily Housing - A smoke-free policy in your apartment community will help protect your property and residents from smoke damage and reduce the risk of fires. You will save money on turnover expenses because apartments will cost less to clean, repair, and repaint. Living in a smoke-free environment promotes healthier hearts and lungs. What are the other benefits of smoke-free housing? Your family, guests, pets, and building staff will all find the air more pleasant to breathe. This three-hour training will assist owners in understanding the steps necessary to go "smoke-free." It will include (1) a discussion of the legal issues relating to prohibiting smoking; (2) the advantages of smoke-free housing; and (3) the steps to implementing such a policy, including details on what to include in the policy. This session is a must for any property looking to go smoke-free and will provide much-needed reinforcement and guidance for those that already have. March 9: Implementing Criminal Screening Policies for Multifamily Housing - Property owners may (and should) screen applicants for criminal behavior but must be careful when doing so - and must have transparent and defensible policies relative to screening for past criminal conduct. This 1.5-hour webinar will assist owners and property managers in understanding what is required when implementing a criminal screening policy. The training will outline the HUD guidance relative to criminal screening and will review the type of policies that are - and are not - acceptable. The discussion will center on (1) the types of crimes that are appropriate for screening; (2) the HUD policy regarding the use of arrest records in criminal screening; (3) dealing with convictions for non-dangerous crimes; and (4) the use of individual assessments for rejected applicants. Following the session, participants will be better prepared to develop a criminal screening policy that will not run afoul of fair housing law. March 28: Intermediate LIHTC Compliance - Designed for more experienced managers, supervisory personnel, investment asset managers, and compliance specialists, this program expands on the information covered in the Basics of Tax Credit Site Management. A more in-depth discussion of income verification issues is included as well as a discussion of minimum set-aside issues (including the Average Income Minimum Set-Aside), optional fees, and use of common areas. The Available Unit Rule is covered in great detail, as are the requirements for units occupied by students. Attendees will also learn the requirements relating to setting rents at a tax-credit property. This course contains some practice problems but is more discussion oriented than the Basic course. A calculator is required for this course. March 29: Advanced LIHTC Compliance - This full-day training is intended for senior management staff, developers, corporate finance officers, and others involved in decision-making with regard to how LIHTC deals are structured. This training covers complex issues such as eligible and qualified basis, applicable fraction, credit calculation (including first-year calculation), placed-in-service issues, rehab projects, tax-exempt bonds, projects with HOME funds, Next Available Unit Rule, employee units, mixed-income properties, the Average Income Minimum Set-Aside, vacant unit rule, and dealing effectively with State Agencies. 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.