News

HUD Proposed Rule on Multifamily Program Changes - January 6, 2015

HUD published a Proposed rule on 1/6/15, with comments due by March 9, 2015. The proposed rule makes some significant changes to operating procedures for many of HUD s multifamily housing programs, including Section 8, Public Housing, and the Housing Choice Voucher Program. Major elements of proposed rule include: Amend 5.603 of the Code of Federal Regulations (CFR) to revise the definition of an extremely low-income family as required by HUD's 2014 Appropriations Act. The new definition is a family whose income does not exceed the higher of 30 percent of area median income or the poverty level. Use of Actual Past Income ( 5.609): HUD's current regulations define "annual income" to mean income projected to be received in the 12 months following admission or the annual reexamination date. The projection of income introduces the potential for error. The proposed rule will allow PHAs and owners to define annual income as either actual past income or projected income. Actual past income would be based on amounts received prior to admission or the annual reexamination date and would exclude the additional step of projecting income based on this information. Owners must apply the same definition on annual income for all families in a single property. If owners use the proposed streamlined annual reexamination of fixed-income families (discussed below), the projected income methodology must be used. Exclusion of Mandatory Education Fees from Income ( 5.609(b)(9)): Current regulation requires that education assistance in excess of amounts needed for tuition is to be counted as income for the purpose of determining eligibility for assistance (i.e., Section 8). In recent years, Congressional appropriations acts have also excluded from income amounts needed to pay required fees charged to students. Such fees include, but are not limited to student service fees, student association fees, student activity fees, and lab fees. HUD is amending the definition of income with respect to higher education costs pursuant to recent statutory changes. Streamlined Annual Reexamination for Families on Fixed Incomes ( 5.657, 960.257, 982.516): PHAs and owners are statutorily required to verify income and calculate rent annually, including for families on fixed incomes. HUD believes that the requirement to perform annual reexaminations of income is not necessary for persons on fixed income due to the infrequency of changes to their income. HUD is proposing to simplify the requirement by allowing PHAs and owners to opt to conduct a streamlined annual reexamination of income for families when 100% of the family's income consists of fixed income sources. In these cases, income will be calculated based on a published COLA for the source of income to the previously verified amount. If COLA information is not publicly available and cannot be provided by the tenant through a third party document, then the PHA or owner must follow the standard verification procedures (either past income or projected). If a family has several sources of fixed income, the respective COLA for each source is required. The calculation of adjustments to annual income (e.g., medical deductions, child care deductions) is still required, including third party verification of such deductions. Owners using the streamlined method of reexamination may not use actual past income to determine annual income for any households. They must use projected income. Additional changes are proposed for Housing Choice Voucher and Public Housing Program regulations, including (1) changes in how utility reimbursements will be handled; (2) changes in the Earned Income Disregard [EID]; (3) verification of assets of $5,000 or less may no longer be required; (4) public housing rents for mixed-families [those with and without citizenship and eligible immigration status; (5) public housing flat rents; (6) tenant self-certification for community service requirements; (7) Public housing grievance procedures; (8) biennial inspections for HCV units; (9) HQS reinspection fees; and (10) development of utility allowances for HCV program. Agencies participating in the Housing Choice Voucher and Public Housing programs, as well as owners participating in other HUD multifamily programs should review the proposed regulations carefully. Owners and operators of LIHTC projects should also become familiar with the proposed changes since some will affect operations at LIHTC properties. Since comments are not due until March 2015, it is unlikely that the regulations will become permanent until late Spring or Summer of 2015 at the earliest. It could even be later, depending on the extent of the comments.

Marijuana in Federally Assisted Projects - December 29, 2014 HUD Memo

On December 29, 2014, HUD sent a memorandum to all HUD offices regarding the use of Marijuana in multifamily assisted properties. The purpose of the memo was to clarify HUD's position regarding renting to applicants who use marijuana and the treatment of current residents who use marijuana. Under Federal law, marijuana is considered a Schedule 1 substance and for this reason, the manufacture, distribution, or possession of marijuana is a federal criminal offense. The use of "medical marijuana" is illegal under federal law even if it is permitted under State law. The memo makes it clear that owners of federally assisted housing are required by the Quality Housing & Work Responsibility Act of 1998 (QHWRA) to deny admission to any household with a member who is determined to be, at the time of application, illegally using a controlled substance as that term is defined by the Controlled Substances Act. In addition, QHWRA also states in part "Notwithstanding any other provision of law, a public housing agency or owner of federally assisted housing (as applicable) shall establish standards or lease provisions for continued assistance or occupancy in federally assisted housing that allow (emphasis added) the agency or owner (as applicable) to terminate the tenancy or assistance for any household with a member (1) who the public housing agency or owner determines is illegally using a controlled substance; or (2) whose illegal use (or pattern of illegal use) of a controlled substance...is determined by the public housing agency or owner to interfere with the health, safety, or right to peaceful enjoyment of the premises by other residents." The memo makes it clear that current users of marijuana - even if medically prescribed- are not eligible for admission to federally assisted housing. However, the law "allows" the owner to terminate occupancy, but it is not a requirement. The determination of when to terminate occupancy based on the use of marijuana may be made on a case-by-case basis. Owners should be aware that there may be no lease provision for a HUD assisted property that specifically permits the use of marijuana, including medically prescribed marijuana. This memo applies only to federally assisted housing (e.g., project-based Section 8, public housing, Rural Development Section 515, etc.); it does not apply to the Low-Income Housing Tax Credit Program.  

Emergency Call Systems - HUD Guidance, October 31, 2014

Many owners and managers of HUD assisted properties have reported inconsistent guidance from HUD with regard to the type of emergency call systems required for elderly multifamily projects. It has been reported that in some cases, HUD staff have instructed properties to maintain out-of-date pull cord technology rather than replacing this technology with more modern systems.   HUD issued a memo to HUD Multifamily staff on October 31, 2014 in order to clarify the HUD policy related to emergency call systems. Main elements of this guidance follow:   Functional Requirements   There is no requirement that a property use a particular type of call system, as long as the system functions properly.   HUD s Handbook 4910.1, Minimum Property Standards for Housing, outlines the requirements for emergency call systems for elderly housing. The specific requirement is as follows: "In projects containing 20 or more living units, each bathroom and one bedroom location in each living unit shall be furnished with one of the following emergency call systems: an emergency call system which registers a call (annunciator and alarm) at one or more central supervised locations, an intercommunicating telephone system connected to a switchboard which is monitored 24 hours a day, or an emergency call system which sounds an alarm (not the fire alarm) in the immediate corridor and automatically actuates a visual signal in the corridor at the living unit entrance."   HUD indicates in the memo that terms such as "call," "switchboard," and "system" should be interpreted broadly to include both wired and wireless or electronic systems.   A "central supervised location" or "switchboard" may be either onsite or offsite, so long as the emergency calls are continuously monitored.   If an existing pull cord system is installed on the property, Owners are permitted to replace that system with a wireless or electronic system as long as the new system is economical and meets the functional requirements described in 4910.1. If pull cord systems are no longer used, the cords must be removed from the unit.   Mobile Emergency Response Devices   Mobile personal emergency response devices (e.g., lifeline) that are worn by the tenant are also acceptable, as long as the Owner is able to provide ongoing assurance that the devices are operational and available for use by tenants and other household members. The Owner must have an Operation & Maintenance Plan for mobile emergency response devices. This plan must outline how the system will remain operational, maintained, and replaced for the life of the project. Tenants must be given written information regarding the devices, and the procedures to be followed regarding repairs and/or replacement. The information must be posted on a tenant information board or provided to the tenants on an annual basis (I recommend both).   Hopefully, this clarifies what is required relative to emergency call systems at HUD elderly projects, but if you have questions, please feel free to contact us.  

Importance of Regular Review of Company Handbooks & Policies

Many property management companies create operations and compliance handbooks and policies to assist staff in understanding the company s operational procedures. Once completed, the handbooks and policies are rarely (if ever) reviewed and updated. A periodic audit of a company s employment practices is vital to reducing the risk of liability for employment-related claims and a good place to begin such a review is with the company s existing written policies and handbooks. A good first step in this process is a review of the content of company handbooks. Regardless of the type of handbooks involved, a review should examine the content of all existing manuals and ensure that all required policies are included. The review should verify that the policies contain the necessary provisions to comply with whatever law may apply and work toward reducing the potential risk of liability for the company due to miscommunication. During this review of existing handbooks, existing policies should be compared to legally required policies. Legal developments for employers with respect to federal law generally make it essential to include a written, formal policy dealing with workplace harassment, especially sexual harassment. (Relating to this, I will be conducting training in Sexual Harassment & Diversity in the Workplace in New York in May 2015. Please contact me if you would be interested in attending either of these sessions). These policies should include a definition of the relevant harassment as well as an illustrative list of harassing, offensive, and unacceptable behavior. An acceptable harassment policy should also have an effective complaint procedure that allows the complaining employee to bypass the chain of command if necessary when reporting violations of the policy. A review of the policies should identify how the company makes its harassment policy known to employees and verify that it consistently follows through on these procedures. In other words, how is the policy communicated and how often? Another important item for review is the company s training of employees - especially managers - about workplace harassment. Other areas to review in company handbooks include at-will language, dispute resolution methods, and Internet usage. In addition to checking the content of company policies to ensure compliance with relevant statutes and verifying that the handbook does not contain provisions that create unexpected legal obligations, the review can help identify areas where an employer should have certain policies even if such policies are not required. Companies should have procedures in place to update handbooks and policies on an ongoing basis, and comprehensive reviews of such policies should be undertaken on a regular schedule - e.g., every three to five years.  

Medical Marijuana as a Reasonable Accommodation

Forest City Residential Management v. Beasley, December 2014.   In one of the first major cases relating to whether the use of medically prescribed marijuana must be permitted as a reasonable accommodation, a Michigan district court has ruled that such an accommodation need not be made.   Facts of the Case: A Section 8 resident with multiple sclerosis (MS) was prescribed medical marijuana by her doctor. She obtained a medical marijuana card from the State of Michigan under the Michigan Medical Marijuana Act. The resident requested, as a reasonable accommodation, that she be allowed to use medically prescribed marijuana in her unit. The owner of the property refused the request and the case went to court. The management company asked the court to declare that the federal Controlled Substances Act (CSA) preempts the Michigan Medical Marijuana Act (MMMA) and that approval of the use of medical marijuana would not be reasonable.   Ruling: Michigan district court ruled that the CSA does preempt the MMMA, and that the FHA does not require a reasonable accommodation is such cases.   Reasoning: The court ruled that it is impossible to ingest marijuana in any form - medical or otherwise - without violating the CSA. The CSA provides for no exclusion for "medical" marijuana, and that since Congress considers marijuana to be a Schedule I drug, it has no medical purpose under federal law. Because a state law is "without effect" when it conflicts with federal law, the court ruled that the CSA preempts the MMMA. The court ruled that permitting the use of medical marijuana would fundamentally alter the nature of the site s operations by requiring the company to violate federal law; thus, it would not constitute a reasonable accommodation. This is an important decision in states that permit medically prescribed marijuana since it establishes a precedent for apartment owners and managers relative to whether the use of medically prescribed marijuana must be permitted under state law as a reasonable accommodation. When state law and federal law conflict, federal law displaces, or preempts, state law, due to the Supremacy Clause of the Constitution (Article VI, 2). Preemption applies regardless of whether the conflicting laws come from legislatures, courts, administrative agencies, or constitutions. For example, the Voting Rights Act, an act of Congress, preempts state constitutions, and FDA regulations may preempt state court judgments in cases involving prescription drugs. Congress has preempted state regulation in many areas. In some cases, such as medical devices, Congress has preempted all state regulation. In others, such as labels on prescription drugs, Congress allows federal regulatory agencies to set national minimum standards, but does not preempt state regulations imposing more stringent standards than those imposed by federal regulators. The same applies for the low-income housing tax credit program, where Congress has stated that the HUD Section 8 program sets the minimum standard for tenant eligibility, but has not precluded states from setting more stringent standards for their purposes. Where rules or regulations do not clearly state whether or not preemption should apply, the Supreme Court tries to follow lawmakers' intent, and prefers not to preempt state laws. In the case of marijuana use, the intent of Congress appears clear that no use of marijuana is legal. In this case, federal law clearly preempts any contrary state law, and it would appear that owners are on firm legal ground if they refuse to allow the use of medical marijuana as a reasonable accommodation. Keep in mind that this does not mean that owners may not permit the use of medical marijuana - only that they do not have to.

Waiting List Administration; HUD Notice H 2014-16

HUD issued Notice H 2014-16 on November 28, 2014 to provide guidance on the administration of waiting lists for HUD multifamily housing properties.   The Notice provides no new requirements, but does provide additional options for waiting list administration. Owners may close a waiting list for one or more unit sizes if the average wait list is excessive. HUD 4350.3, 4-16 provides additional guidance. When the list is re-opened, a notice must be published in a publication likely to be read by potential applicants and in accordance with the project s Affirmative Fair Housing Marketing Plan (AFHMP). Concerns have been raised that persons with disabilities may be at a disadvantage regarding waiting list placement, so HUD is publishing additional options.   The Notice applies to the following programs: Project-based Section 8; Section 101 Rent Supplement; Section 202 PAC; Section 202 PRAC; Section 202 SPRAC; Section 811 PRAC; Section 811 PRA Demonstration; Section 236; Section 236 RAP; and Section 221 (d) (3) BMIR   Opening the Waiting List When re-opening the list, the notice must be in the same publication in which the closure of the waiting list was announced. The required contents of the notice are outlined in 4350.3, and include: Where and when to apply; Rules for applying; and The order in which applications will be processed. Owners must ensure that notices and communication during meetings are accessible to persons with hearing, vision and other communications related disabilities in accordance with Section 504 of the Rehabilitation Act of 1973. Waiting lists should not be opened for limited periods, such as a single day, which may create disorderly and unsafe intake processes. Waiting lists should be opened for reasonable periods and applications should be made available ahead of time. Owners are encouraged to have multiple venues - both physical and online - to accept applications.   Placing Applicants on the Waiting List When opening a waiting list for a set period of time, owners should consider use of a lottery or other random choice techniques to determine waiting list order. Such methods should be considered only if the volume of applications is high enough that placing each eligible applicant on the waiting list would result in an unrealistic waiting period. Could also be considered if persons unable to apply in person early in the process would be at a distinct disadvantage in their placement on the waiting list. (This could be mitigated by online applications). If owners use any of these approaches, it must be described in the Tenant Selection Plan and in any public notice. Applicants should be notified that as long as the application is submitted within the stated timeframe, the timing of the application will not affect the timing of assistance. If a lottery technique is used, the date and time the lottery is held should be the date recorded on the waiting list - not the date the application was actually completed. Once unit size and preference order is determined, owners must select applications from the waiting list in chronological order to fill vacancies.   Advertising AFHMP requirements must be followed when advertising. If ads show persons, they must depict members of all eligible protected classes, including individuals from both minority and majority groups, including both sexes.

2014 Year End Legislative Efforts

As always, the end of the year brings intense legislative activity in Washington. Recent actions affecting housing include the following:   House Tax Extender Package The House passed the Tax Increase Prevention Act of 2014 on December 3, which will extend - to the end of 2014 only - a number of expired tax relief provisions, including the 9% housing tax credit. If passed, which is likely, this will apply to tax credit allocations made prior to January 1, 2015, so LIHTC projects that were marginal if the applicable credit percentage was less than 9% may become more feasible. The bill also extends the military housing allowance exclusion for certain areas of the country. Clearly, this is a stopgap measure; what is needed is action in 2015 that will make these provisions permanent.   National Housing Trust Fund to be Funded On December 11, the Federal Housing Finance Agency (FHFA) directed Fannie Mae and Freddie Mac to begin funding the National Housing Trust Fund (NHTF) and Capital Magnet Fund. The NHTF was established in 2008 and was to be funded by profits from the two noted agencies. However, the payments were suspended when the housing crisis hit. Now that funding can move forward, another boost to affordable rental housing is available - possibly totaling $2 billion annually.   Congressman Camp Introduces Formal Tax Reform Legislation On December 11, House Ways & Means Committee Chairman Dave Camp officially introduced H.R.1, the Tax Reform Act of 2014. The official bill has no modifications from the draft legislation introduced by Congressman Camp in February of this year. The legislation includes the Low-Income Housing Tax Credit, but not the New Market Tax Credit, historic tax credit or renewable energy tax credits. The Act will now begin the arduous process of working its way through the legislative system, including negotiations with the Senate and White House, meaning that while tax reform is on the horizon, it is still a long way off.

New Staff Member for A. J. Johnson Consulting

It is with great pleasure that I announce the addition of a new full time staff member to A. J. Johnson Consulting Services, Inc. Effective February 1, 2015, Linda Moss will be joining us as a Compliance Analyst.   We are thrilled to have Linda joining our staff, and she brings a wealth of experience with her that will provide an immediate benefit to our clients. Linda has been in the business of multifamily housing management since 1990, when she began her career as a manager of conventional apartment properties. She then moved into the tax credit field as the manager of a 266-unit LIHTC property in Richmond, VA, following that a short time later by becoming the Compliance Manager for a realty company.   From 1998 to 2005, Linda served as the Compliance Manager for two Richmond based companies, overseeing the compliance requirements for multiple properties in various locations.   In August 2005, Linda joined the Virginia Community Development Corporation (VCDC) and spent seven years as an Asset Management Portfolio Director with supervisory responsibilities on behalf of the equity firm for 40 properties. In 2012, Linda became the Compliance Management Director for VCDC and focused on monitoring compliance for approximately 60 projects. In addition to LIHTC compliance, she also monitored for HOME compliance, assisted developers with planning for acquisition/rehab projects, coordinated the contracting of tenant file reviews and conducted small group training for project sponsors.   I have known Linda for many of the years she has been involved with LIHTC compliance and know what a benefit she will be for both our clients and us. The addition of Linda to our staff demonstrates our continued commitment to providing excellent service for our outstanding clients.