News

Financing for Multifamily Energy Conservation Improvements - the PACE Program

A number of states and the District of Columbia have enacted legislation authorizing Property Assessed Clean Energy (PACE) programs to finance the installation of energy conservation improvements on multifamily housing projects. HUD has established standards for determining whether such programs are compatible with FHA and subsidized housing programs and guidance for obtaining HUD approval for participation in PACE programs.   PACE programs typically allow owners to finance the up-front costs of the installation of energy conservation improvements by entering into a contract with the participating locality providing that the costs will be repaid through special property assessments, generally through semiannual payments over 20-years. Under the HUD guidance, a PACE program will be approved only if the special assessment will be assessed by a state, county, or municipality under state law and sent with tax bills; payments will be collected with tax bills; at any given time, the owner s only obligation will be the payment or payments then or past due, with no acceleration of the entire assessment amount; and in the event of a default on payment of the PACE assessment, the mortgagee will receive timely notice and a reasonable opportunity to cure the nonpayment.   Once a local PACE program has received notice that it satisfies HUD s procedures, HUD will consider requests from project owners to participate in the program.   States with active residential PACE programs are Florida, Missouri, and California. There are also a number of states with enabling legislation but no actively operating PACE programs. These are: Maine Rhode Island New York Vermont New Jersey Maryland Ohio Michigan Wisconsin Minnesota Illinois Georgia Arkansas Oklahoma Nebraska Colorado New Mexico Nevada Oregon   Owners of HUD-assisted projects interested in possible participation in a PACE program should obtain and review a copy of HUD Notice H 2017-01 dated January 11, 2017.   Owners of non-HUD-assisted properties are also eligible to participate in local PACE programs, including Low-Income Housing Tax Credit properties. Owners of properties located in the states noted above that are interested in possible PACE participation should contact their locality for details.    

Rural Housing Service Final Rule on Financial Reporting Requirements

On October 25, 2017, the Rural Housing Service (RHS) published a Final Rule in the Federal Register, "Multi-Family Housing Program Requirements to Reduce Financial Reporting Requirements." This rule is effective on November 24, 2017.   The purpose of this rule is to align RHS requirements with those of the Department of Housing and Urban Development (HUD) with regard to the financial reporting requirements of federally assisted housing projects. The rule will utilize a "risk-based threshold" reporting which is intended to reduce the burden on owners of smaller properties.   Programs affected by this rule are the Farm Labor Housing Loans and Grants (Section 514 and 516) and the Rural Rental Housing Program (Section 515).   Background   RHS believes that high-risk properties should receive more stringent evaluation of financial performance and that such evaluation can be accomplished in a more cost-effective manner than the current requirements. This new rule will also meet HUD requirements so that RHS properties with HUD Section 8 will now have uniform financial reporting requirements.   High-risk properties are those with combined federal financial assistance of $750,000 or more for non-profit entities and $500,000 or more for for-profit entities. The new rule also requires that all owners of RHS properties use the accrual method of accounting, regardless of the size of the projects, and must describe their accounting, bookkeeping, budget preparation, and financial reporting procedures in the property management plan.   Annual Financial Reports   For-profit borrowers that receive $500,000 or more in combined Federal financial assistance must include an independent auditor s report that complies with generally accepted accounting principles (GAAP).   Non-profit borrowers that receive $750,000 or more in combined Federal financial assistance must meet Federal Audit requirements relating to non-profit reporting.   Non-profit borrowers that receive less than $750,000 and for-profit entities that receive less than $500,000 in combined Federal financial assistance will submit annual owner certified prescribed forms on the accrual method of accounting. Borrowers may (but are not required to) use a CPA to prepare this compilation report of the prescribed forms. The required submission will include: A statement that there has been no change in project ownership other than those approved by the Agency and identified in the certification; Documentation that real estate taxes are paid in accordance with state and/or local requirements and are current; and Documentation that replacement reserve accounts have been used for only authorized purposes.   While this rule is effective on November 24, 2017, it will essentially be effective for borrowers with fiscal years beginning January 1, 2018 and thereafter.

HUD Revision to Effective Date for 2015 DDA and QCT Designations

On October 26, 2017, HUD published a notice in the Federal Register, "Statutorily Mandated Designation of Difficult Development Areas and Qualified Census Tracts: Revision of Effective Date for 2015 Designations."   This notice revises the effective date for designations of "Difficult Development Areas" (DDAs) and "Qualified Census Tracts" (QCTs) for purposes of the Low-Income Housing Tax Credit (LIHTC) in areas that were declared a federal disaster area under the Stafford Act. This Notice extends from 730 days to 850 days the period for which the 2015 lists of QCTs and DDAs are effective for projects located in the disaster areas. The Notice does not apply to QCTs or DDAs that were on a subsequent list of DDAs or QCTs and only applies to applications that were submitted while the area was a 2015 QCT or DDA.   HUD is revising the effective date of the 2015 QCTs and DDAs in declared counties to aid the ability of areas affected by natural disasters to place in service affordable housing.   Effective Date   The 2015 lists of QCTs or DDAs are effective: For allocations of credit after December 31, 2014; or For properties with bond issues under IRC 42(h)(4), if the bonds were issued and the building is placed in service after December 31, 2014.   If an area is not on a subsequent list of DDAs, the 2015 lists are effective for the area if: The allocation of credit to an applicant is made no later than the end of the 850-day period after the applicant submits a complete application to the credit allocating agency, and the submission is made before the effective date of the subsequent lists; or For properties with bond issues under IRC 42(h)(4), if: The bonds are issued or the building is placed in service no later than the end of the 850-day period after the applicant submits a complete application to the bond-issuing agency, and The submission is made before the effective date of the subsequent lists, provided that both the issuance of the bonds and the placement in service of the building occur after the application is submitted.   DDAs and QCTs for 2016 were published on November 24, 2015; DDAs and QCTs For 2017 were published on October 17, 2016; and DDAs and QCTs for 2018 were published on September 11, 2017.   In the case of a "multiphase project," the DDA or QCT status of the site of the project that applies for all phases of the project is that which applied when the project received its first allocation of LIHTC.   A "multiphase project" must meet the following criteria:   The multiphase composition of the project was made known by the applicant in the first application of credit for any building in the project, and the applicant identified the buildings in the project for which credit is or will be sought; The aggregate amount of LIHTC applies for exceeds the one-year limitation on credits per applicant imposed by the allocating agency, and this limitation is the reason the applicant must request multiple allocations over two or more years; and All applications for LIHTC for the project are made in immediately consecutive years.   Following are two examples of the how the effective date determination works:   Project A is located in a 2015 DDA that was NOT a designated DDA in 2016, 2017, or 2018 and is in a declared federal disaster area. >A complete LIHTC application was filed on November 15, 2015. >Credits are allocated to the project on January 30, 2018 (807 days after the LIHTC application). >Project A is eligible for the increase in eligible basis for a project located in a 2015 DDA because the application was filed BEFORE January 1, 2016 (the effective date for the 2016 DDA list), and because tax credits were allocated no later than the end of the 850-day period after the filing of the complete LIHTC application. Project B is located in a 2015 DDA that is NOT a designated DDA in 2016, 2017, or 2018 and is in a declared federal disaster area. >A complete LIHTC application was filed on December 1, 2015. >Credits are allocated to the project on June 30, 2018 (942 days after the LIHTC application). >Project B is NOT eligible for the increase in basis because, although the LIHTC application was filed before January 1, 2016 (the effective date of the 2016 DDA lists), the credits were allocated later than the end of the 850-day period after the filing of the complete application.   This Notice affects only owners of LIHTC properties that are:   Located in an area that was in a DDA or QCT in 2015, but not in 2016, 2017, or 2018; and Are in a federally declared disaster area.

The Importance of a Fair Housing Code of Conduct for Site Staff

No matter how large or small a property is, there will always be staff assigned to do work at the property, including maintenance and leasing staff. While all staff receive training relating to their job, there is one type of training that is necessary for everyone - Fair Housing. Many management company owners and supervisors overlook the importance of having specific fair housing policies for a property s maintenance staff.   If a company fails to provide fair housing training for its staff and a resident believes that a maintenance workers conduct violated fair housing law, the owner of the property may face a much stiffer penalty than would occur if fair housing training had been provided. In addition to training, establishing a fair housing code of conduct for property-based staff, including maintenance staff. Having a Code of Conduct, and training all staff on the requirements of the policy, can go a long way toward preventing fair housing claims against a property - especially in the area of sexual harassment.   While education is a crucial part of the fair housing process, instructing staff about fair housing law is not enough because that won t necessarily teach them exactly how they are expected to behave when interacting with residents and prospects. A Code of Conduct for staff authorized to enter resident units should include specific rules, with examples. While the rules cannot cover every possible scenario, they should describe the most common mistakes and how to avoid making them.   Any Code of Conduct for site staff should cover six basic rules:   Treat all prospects and residents in the same manner; Don t fraternize with residents; Don t enter a unit unless a resident lets you in; Don t be alone in a unit with a minor child; Respect residents privacy; and Enter units in a team for emergency service when the resident is not at home.   Having a Code of Conduct with these elements will go a long way in helping to prevent avoidable fair housing complaints. If we can assist you in any way in establishing such a policy for your property, please feel free to contact us.    

Tax Reform Update - October 22, 2017

Last Thursday, October 19, Congressional Republicans in the Senate approved a budget resolution for the 2018 fiscal year. This is the first in a long line of hurdles that must be overcome for there to be a tax bill this year. Congressional Republicans hope to have a tax bill signed into law by Christmas, but the road in front of them is laden with traps and potential roadblocks. This is especially true in the Senate, where Republicans can only afford to lose two votes if they want to pass a bill without Democratic help. Here is my take on some of the issues facing a 2017 passage.   Timing House and Senate Republicans have each approved budgets, but they differ significantly over how much of an increase in the deficit will be permitted over the next ten years. This decision alone could take weeks have negotiation in a formal conference committee. One way the bill could move faster is if the House just approves the Senate version, which could happen before the end of October.   How Comprehensive will a Final Bill Be? The nine-page tax plan "framework" that was released a few weeks ago includes targets for reductions in both corporate and individual tax rates. Unfortunately, the devil is in the details and there were virtually no details. The next major step in the process will be draft legislation from the House Ways and Means Committee, which could turn the nine-page framework into a thousand pages of legislation. I would expect the draft to come out of the House by early November (any later will make it very difficult to get anything done this year). Republican members of Ways and Means will be meeting during the week of October 23 to work on final details. The Senate Finance Committee will then release it s version, which is likely to have some significant differences from the House bill - especially with regard to international business taxation.   The Democrats Role Once Ways and Means presents a bill, committee members will have a chance to mark it up. This is a process whereby representatives may offer amendments, and Democrats try to push the bill toward more cuts for the middle class, primarily by expanding the earned-income tax credit. Republican members will also offer amendments, including protection for taxpayers in high-tax states who claim large deductions for state and local taxes, which are eliminated in the Framework. Each amendment must be voted on and may be approved by a simple majority. Once the bill clears committed, the same process will play itself out on the House Floor, with the process repeating itself in the Senate.   What Happens Then? The bill will be moved under a mechanism called "reconciliation," which will allow Republicans to pass the bill for no Democratic votes - only a simple majority will be needed, or, since Vice-President Pence is the Senate tiebreaker, 50 votes in the Senate. However, to proceed under Reconciliation, the bill must not increase deficits by more than the amount allowed in the budget resolution - $1.5 trillion over ten years in the Senate version - and it must not add to the budget deficit in the next decade. The only way these deficit goals can be met is if games are played with some of the proposed cuts. For example, some of the cuts may be set to expire after a few years and other cuts could be phased in over time. Of course, the majority could just ignore the analysis of the Congressional Budget Office and the Joint Committee on Taxation and just rely on a more favorable analysis of the bill from the White House or elsewhere. Such a step would almost certainly result in a bitter fight over the bill, which could make it impossible to pass this year. Even if both the House and Senate pass bills, they will likely have large differences. These will have to be worked out in Conference. Once the differences are worked out, a final bill will be sent to the President for signature. At this point, there is no reason to believe that the Low-Income Housing Tax Credit will not be part of a final bill, but until its done, housing advocates need to continue to push their representatives on the importance of the program.    

DOJ Announces New Sexual Harassment in Housing Initiative

On October 19, 2017, the United States Department of Justice (DOJ) announced a new initiative to combat sexual harassment in housing. The initiative specifically seeks to increase DOJ efforts to protect women from harassment by landlords, property managers, maintenance workers, security guards, and other employees and representatives of rental property owners. The DOJ will work to identify barriers to reporting sexual harassment to the department and other enforcement agencies (such as HUD), and will collaborate with local law enforcement, legal service providers, and public housing agencies (PHAs). The Civil Rights Division of DOJ will launch this initiative as a pilot program in Washington DC and western Virginia, where it is working with local legal service providers and law enforcement to raise awareness of the problem, which has grown more acute since the beginning of 2017. The department hopes to expand the program to other areas of the country in the near future. The DOJ recently resolved two high profile sexual harassment cases in Kansas City, KS and Grand Rapids, MI. In the Kansas City case, the department recovered $360,000 for 14 female residents and applicants of a housing authority who were subjected to unwanted sexual conduct. In this case, an employee of the PHA subjected women to unwanted sexual conduct as a requirement for favorable hearing decisions, including asking them sexual questions, showing pornographic pictures and videos, making explicit sexual comments, and exposing himself. In the Michigan case, the owner and manager of a private rental housing complex agreed to a $150,000 settlement to resolve allegations of sexual harassment against female residents and applicants, including making unwelcome sexual comments and advances toward them, engaging in unwelcome sexual touching, offering housing benefits in exchange for sex acts, and taking or threatening to take adverse housing actions against women who objected. This increased level of federal activity relative to sexual harassment in housing is a reminder to all housing owners and managers of the importance of a strong, dedicated sexual harassment policy. All companies should have a zero-tolerance policy against sexual harassment, to include: Have a clear, written policy that sexual harassment of any kind will not be tolerated and will result in prompt disciplinary action; Offer examples of prohibited conduct, such as Explicitly or implicitly suggesting sex in return for living in the community, receipt of services, or otherwise related to the terms and conditions of the tenancy; Suggesting or implying that failure to accept a date or sex would adversely affect a resident s tenancy;3. Initiating unwanted physical contact, such as touching, grabbing or pinching;4. Making sexually suggestive or obscene comments, jokes or propositions; and5. Displaying sexually suggestive photos, cartoons, videos or objects. The policy should encourage anyone who feels they have been sexually harassed to file a complaint, and provide details on how to do so. It is also important to remember that employers face findings of vicarious liability in sexual harassment cases, meaning that an employer can be find liable for the action of employees - even when the actions were unknown to the employer. Strong, affirmative harassment policies can help limit such liability.

Reminder - Deadline for VAWA Notice of Occupancy Rights Approaching

One of the requirements of the HUD Final Rule on the Violence Against Women Act (VAWA) is that a copy of the Notice of Occupancy Rights, form HUD-5380, must be provided to applicants and residents. This form, along with the certification form HUD-5382 must be provided to existing households, applicants, and new move-ins/initial certifications no later than each of the following times: For applicants - At the time the household is provided assistance or admission (i.e., move-in [MI] or initial certification [IC]); and At the time the applicant is denied assistance or admission. For existing households - Through December 15, 2017, at each household s annual recertification [AR]; and With any notification of eviction or termination of assistance (but not with subsequent eviction or termination notices sent for the same infraction). If households have already had their AR for 2017 and there were not provided with the forms, the owner/agent (OA) must provide the forms to those households through other means no later than December 15, 2017. A note or documentation must be made in those tenant files indicating when the forms were provided to the household. While not required, I recommend having the households sign an acknowledgement that the forms were received. This requirement is applicable to the following programs: Project-based Section 8 programs under the United States Housing Act of 1937; New Construction State agency financed Substantial rehabilitation Section 202/8 Rural Housing Services (RHS) Section 515/8 Loan Management Set-Aside (LMSA) Property Disposition Set-Aside (PDSA) Section 202/162 Project Assistance Contract (PAC); Section 202 Project Rental Assistance Contract (PRAC); Section 202 Senior Preservation Rental Assistance Contracts (SPRAC); Section 811 PRAC; Section 811 Project Rental Assistance (PRA) Section 236 (including RAP); and Section 221(d)(3)/(d)(5) Below Market Interest Rate (BMIR)  

Occupancy Standards - One Person Limit in Studio Apartments May be Too Restrictive

A recent court case (Fair Housing Center of Washington v. Breier-Scheetz Properties, LLC, May 2017) found that a Washington community s rule limiting studio apartments to one occupant violated fair housing law based on familial status. Facts of the Case The 96-unit community contained a combination of studio and one-bedroom apartments. The studio apartments ranged in size from 425 square feet to 560 square feet. The community limited occupancy in the studio apartments to no more than one person. This policy was confirmed during testing by a fair housing testing organization. The testing organization filed a fair housing suit, alleging that the community applied a facially neutral occupancy restriction that resulted in a disparate, adverse effect based on familial status. Decision The court ruled in favor of the fair housing testing organization, stating that the community violated fair housing law by applying an overly restrictive occupancy policy that had an adverse impact on families with children. Reasoning The fair housing group was able to prove that the community s practice had an adverse impact on a protected characteristic - in this case, families with children. The group provided statistical evidence from an expert demonstrating that the policy had a greater impact on families with children versus other potential applicants. The burden then fell on the community to show that they had a legitimate, nondiscriminatory business reason for the policy, and that the policy was the least restrictive way to achieve that purpose. The community offered two reasons for the policy: Because the building was master-metered for utilities, the community developed a "formula" for billing the cost of utilities to residents. The community argued that allowing more than one occupant in a studio apartment would require the installation of meters in every unit in order to ensure a fail billing system; and The configuration of the studio units was designed to accommodate only one person. The Court rejected both arguments: The Court found that the argument relating to the billing of utility costs was nothing more than an arbitrary, after-the-fact justification for the discriminatory policy. There were clearly other ways to establish a fair billing system; and The community failed to provide evidence that the units could not adequately accommodate more than one person. In fact, the city code permitted two people in studio apartments as small as 150 square feet. Conclusion Always check applicable state and local occupancy codes when developing property occupancy policies. Federal fair housing law generally defers to state and local restrictions regarding occupancy, and following such requirements will make it difficult for your policy to be challenged. If there are no applicable state or local requirements, an occupancy policy of two people per bedroom, plus one, and two persons for studio units, is generally considered reasonable.