HDD's Disposition of Its Foreclosed Multifamily Projects

Transcription

1 HDD's Disposition of Its Foreclosed Multifamily Projects THE PROBLEM: HUD has acquired a large number of multifamily subsidized housing projects throughout the country by foreclosure, and more can be expected to come into HUD f s hands as the years go by. On January 27, 1977, the prior HUD administration promulgated interim regulations in the Federal Register 42 Fed. Reg governing the disposition of these properties which cause grave concern. The regulations have an adverse impact on low- to moderate-income tenants and the supply of low- to moderate-income housing, in that they a) require that HUD, while still in possession of a foreclosed project, raise rents to market level for many tenants, and b) allow HUD to dispose of a foreclosed project without ensuring that it will remain available as low- to moderateincome housing. The regulations will thus result in the eviction of many low-^ to moderate-income tenants and the removal of many of the projects from the low- to moderate-income housing market. Therefore, we request that the regulations be revised prior to their final promulgation, which is presently scheduled for approximately May 1, We further request that until such final regulations are-issued by your Administration that you impose a moratorium on all rent increases and evictions due to rent increases, while HUD is in possession of foreclosed projects; and a moratorium on the demolition of foreclosed multifamily projects, and on all sales of such projects unless they are sold with guarantees that they will remain as low- to moderate-income housing. ANALYSIS: As you know, in formulating policy on property disposition and in administering the property disposition program, HUD has the obligation to act in accordance with the national housing policies enacted by Congress. Those policies are designed to remedy the acute shortage of decent, safe, and sanitary housing for low-income people and to preserve existing low-income housing. HUD is further obliged in carrying out these congressional policies to place its "highest priority and emphasis [upon]... meeting the needs of those families for which the national goal has not become a reality." Housing and Urban Development Act of 1968, Sec. 2, 12 U.S.C. 1701t. (Emphasis added.) These policies are obligatory and HUD must follow them in the performance of all its housing activities, including its property disposition decisions. The Housing Act of 1949, as amended, 42 U.S.C See Common-

2 -2- wealth of Pennsylvania v. Lynn, 501 F.2d 848, 855 (B.C. Cir. 1974); Cole v. Lynn, 389 F. Supp. 99, 102 (D.D.C. 1975). The interim regulations, however, do not comport with these statutory objectives. The regulations fail both in the statement of objectives and means of implementation to ensure that HUD's inventory of foreclosed subsidized multifamily properties will remain available as housing for lowto moderate-income people during the period of HDD's ownership and following disposition. -The regulations also fail to provide adequate protections and benefits for the low-income tenants. The problem is of considerable magnitude. At the end of December 1976, HUD's office of Loan Management reported that nearly 1,400 or 22 percent of all federally-subsidized multifamily projects across the country were in financial difficulty, i.e., owned by the Secretary, held by the Secretary, or in default. These projects contained nearly 140,000 dwelling units and had outstanding mortgage amounts of some $2.25 billion. Mortgages held or owned by the Secretary had reached the 1,000 mark or 18 percent of all subsidized multifamily mortgages outstanding. HUD must develop policies and procedures which will ensure that this vast inventory of subsidized multifamily properties will remain available as low- to moderate-income housing and that the rights and interests of the tenants of these properties will be protected. The regulations which were issued by the prior HUD administration governing disposition of these properties, fail in both respects. In brief: 1) the regulations do not place HUD's highest priority on preserving its multifamily subsidized projects as low- to moderate-income housing following disposition. The regulations set up dual objectives: (a) disposing of the properties in a manner which, subject to certain caveats, will ensure the maximum return to the mortgage insurance funds, and (b) maintaining through rental subsidies or otherwise, rents at levels low- to moderateincome families can afford, if the project was intended to serve low- to moderate-income groups. While these objectives appear at first glance to achieve the best of both worlds, they and the regulations implementing them do not in fact place HUD's highest priority on ensuring that the property will remain as low-income housing. The objectives have a built-in conflict, for maintaining the property

3 -3- as low- to moderate-income housing may well produce a lower return to the insurance fund than an unrestricted sale. The regulations implementing these objectives do not place HDD's highest priorities on resolving the conflict in favor of preserving the property as low-income housing. Indeed, they provide no standard for resolution of the conflict. They require HUD to consider a variety of factors in determining whether the property should be maintained as low- to moderate-income housing, see e.g., (c), but provide no basis for making the determination; 2) the regulations do not provide adequate means for ensuring that the foreclosed multifamily subsidized projects will remain available as low- to moderate-income housing following disposition: a) the regulations place almost exclusive reliance on subsidies as the means of maintaining the properties as low-income housing, but then impose an untenable restriction on their use. Subsidies will not be applied to a project if comparable housing units or comparable housing assistance is available for the tenants. This policy allows the property to be removed permanently from the supply of lowto moderate-income housing if the needs of the present tenants can be met in some other way. Given HUD's statutory obligation to seek better housing for low-income groups, it is simply impermissible for HUD to adopt a national housing policy which will reduce the overall supply of low- to moderateincome housing; b) the regulations contemplate that the properties will be sold at market prices and do not provide for a reduction in the sales price as a conjunctive or alternative means of preserving the property as low-income housing. While the introduction to the regulations state's that some sales may produce a lower return to the insurance fund, the regulations themselves do not make provision for reduced sales prices. The regulations set an objective, subject to certain caveats, of obtaining the maximum return to the insurance fund; require that in selling to non-profit organizations or other private owners the contract must be awarded to the highest responsive, responsible bidder; and further require that property can be sold as a low-income cooperative or condominium only if a determination is first made

4 -4- that the disposition price will be at least equal to that estimated from a sale as rental property. Congress, however, through specific and general legislation, has provided HUD with the power to sell its foreclosed property at a reduced price: See Cole v. Lynn, supra, 389 F. Supp. at 103, in which Judge Gesell found that Section 207(1) of the National Housing Act, 12 U.S.C. 1713(1), gives HUD the general power to sell its property at a reduced rate; 12 U.S.C. 1715z-ll specifically authorizing sales of foreclosed multifamily projects to cooperatives of tenants at a reduced price; 42 U.S.C. 1437f(c)(8) authorizing sales to local housing authorities for resale to tenants; and Pub. Law Aug. 9, 1976 and 42 U.S.C. 1437a(3)(5) and (9) authorizing sales to public housing authorities for retention as public housing. HUD has the obligation to ensure that its policies and practices are consistent with the specific provisons and intent of these statutes. The Department has the further obligation to give full consideration to all available statutory options - including a reduced sales price - to effectuate national housing policy. Cole v. Lynn, supra, 389 F. Supp. at 103. It cannot ignore this obligation by relying almost exclusively on subsidies, especially when subsidies have not been - and may not always be - available; c) the regulations contain inadequate provisions to ensure that once a sale is completed, the new owner will in fact maintain the property as lowincome housing or will rehabilitate the project; d) the regulations set standards governing demolition of the projects which allow property which could be preserved to be demolished; and e) prevent HUD from retaining the property over a long period and renting it as low- to moderateincome housing. The introduction to the regulations states that "the Department is without a mandate to hold these projects on a long term ownership basis"; yet HUD has the authority to do so under Section 207(1) of the National Housing Act, 12 U.S.C. 1713(1); Cole v. Lynn, supra, 389 F. Supp. at 103; 3) The regulations fail to ensure that prior to disposition, i.e., during the period of HUD's ownership, that rents in subsidized multifamily projects

5 -5- will remain at low- to moderate-income levels; that HUD will keep the projects at full occupancy or bring the projects into full occupancy; that HUD will do necessary repairs and rehabilitation; and that HUD will institute necessary changes and improvements in management policies and procedures. 4) the regulations fail to provide adequate procedural rights to the tenants_regarding proposed action by HUD which will adversely affect the tenants; 5) the regulations fail to provide the relocation benefits, required by the Uniform Relocation Assistance and Real Properties Acquisition Act of 1970, to those tenants displaced by HUD's property disposition decisions; 6) the regulations fail to require full compliance with the National Environmental Policy Act of 1969; 7) the regulations, while allowing HUD to convert its nonsubsidized housing into low- to moderate-income or public housing, do not place a priority on such conversion and will not, we fear, foster such conversion. Sale of the non-subsidized projects, as low-income housing not only comports with HUD's obligation to help remedy the shortage of low-income housing in the country, but to the extent that many of these projects are in suburban areas, sale of them as low-income housing will serve to further HUD's fair housing and racial and economic dispersion obligations under the Fair Housing Act and the Housing and Community Development Act of The regulations should therefore be revised to place a priority on such conversion; and 8) the regulations, while requiring HUD to consider the impact of the disposition upon the racial composition of the neighborhood in which the project is located, as well as the neighborhoods to which the tenants may be relocated, do not place HUD's priorities on maintaining the property as low-income housing in the event of a negative racial impact. The sale of HUD's subsidized multifamily projects without ensuring that they remain as low-income housing will have an adverse impact on racial minorities and will lead to continued segregation, for most minority tenants suffering evictions will be forced to relocate in neighborhoods which are racially segregated. The regulations should therefore be revised to place HUD's priorities on maintaining its foreclosed properties as low-income housing, where the failure to

6 -6- so maintain the property would have a negative racial impact. PROPOSED SOLUTION: In light of the above discussion we respectfully request that you revise the property disposition regulations prior to their final promulgation to ensure that in handling its foreclosed projects HUD will 1) set its priorities on keeping the properties available as low- to moderate-income housing; 2) utilize all statutory alternatives for maintaining the properties as low- to moderate-income housing, including a) full use of subsidies, b) sales at reduced prices, c) imposition of conditions on new purchasers to ensure low-income rentals and rehabilitation of projects, d) prohibition of demolition by HUD unless absolutely necessary, and only if adequate replacement housing is provided, e) and retention by HUD of projects as low- to moderate-income rental property if the sale of the property at such rentals is not possible; 3) use contract authority recaptured from cancelled 236, 221(d)(3), and 101 (rent supplement) contracts to refinance the properties as subsidized housing. See, e.g., HUD Handbook , Rental and Cooperative Housing for Lower-Income Families, 236 Basic Instructions, t 3-6 (Roll-Over Provision); 4) provide, during HUD''s ownership of a foreclosed project, that rents are maintained at low- to moderateincome levels for both existing and in-coming tenants; that the properties are maintained at or brought into full occupancy; that HUD perform necessary repairs and rehabilitation; and that HUD institute necessary changes and improvements in management policies and procedures; 5) provide adequate procedural safeguards to tenants regarding proposed action which will adversely affect them; 6) comply with the Uniform Relocation Assistance Act; 7) comply with the National Environmental Policy Act; 8) place HUD's priorities on converting its nonsubsidized housing into low- to moderate-income projects; and 9) place HUD's priorities on maintaining its foreclosed

7 -7- properties as low- to moderate-income housing, where the failure to do so would have a negative racial impact. In addition, until final regulations are issued by your Administration, we further request that you issue a moratorium on all rent increases and evictions due to rent increases while HUD is in possession of foreclosed projects; and a moratorium on all demolition of foreclosed multifamily projects unless they are sold with guarantees that they will remain as low- to moderate-income housing.

8 Pending Cases Challenging HUD's Property Disposition Policies Following Foreclosure 1. Acosta v. Harris, C.A. ' (D. Mass.) (Class Action), Greater Boston Legal Services 2 - Cady y. Hills, C.A. 77-CV-5 (N.D. N.Y.) (Class Action), Broome Legal Assistance Corporation 3; Cole v. Hills, C.A (B.C. Cir.); Civ. Nos , (B.C. D.C.) (Class Action), National Housing Law Project (East); Lawyers 1 Committee for Civil Rights, Washington, D.C. 4. Portela v. Hills, C.A. S PWC, (E.D. Cal.) (Class Action), Western Center on Law and Poverty, Inc.; Legal Aid Society of Sacramento County 5. Randolph v.^harris, C.A. A-77-CA-51 (W.D. Tex., Austin Div.), Travis County Legal Aid 6. Russell v. Hills, CV DWW (C.D. Cal.) pending in the 9th Circuit (Class Action), Legal Aid Association of Ventura County; California Rural Legal-Assistance; National Housing Law Project 7. Tenants for Justice y. Hills, Civ. No (E.D. Penn.)(Class Action),Central Pennsylvania Legal Services