Housing owners lose federal court decisions

Assisted housing owners suffered two defeats recently in the U.S. Court of Federal Claims in cases involving the Low-Income Housing Preservation and Resident Homeownership Act (LIHPRHA) and Section 8 contract rent adjustments.

The first case, Anaheim Gardens v. United States, centered on the failure of the U.S. Department of Housing and Urban Development (HUD) to meet the statutory timetable for issuing regulations to implement LIHPRHA. Regulations were supposed to be in place by April 13, 1991, but they weren't issued until April 8, 1992.

LIHPRHA imposed mortgage prepayment restrictions on Section 221(d)(3) below market interest rate (BMIR) and Section 236 projects whose owners, under the original contract terms, would have been free to prepay after 20 years. LIHPRHA also provided incentives for owners to continue to operate their projects with low-income use restrictions.

Project owners filed suit for monetary damages, contending that the one-year regulatory delay deprived them of funds they would have received if the rules had been promulgated on time. The owners argued that the incentives provided under LIHPRHA should be retroactive or, alternatively, that the delay in the regulations amounted to a taking of their property without just compensation in violation of the Fifth Amendment.

Rejecting these arguments, the court said nothing in LIHPRHA or its legislative history indicated Congress intended HUD to be financially liable for failure to meet the timetable for issuing regulations. The court denied the owners' taking claim because they failed to show either that they had lost substantially all economic use of their property or that they suffered losses because of unnecessary HUD delays in issuing the regulations.

The second case, National Leased Housing Association V. United States, involved HUD's use of comparability studies to modify Section 8 contract rent adjustments determined by applicability of automatic annual adjustment factors (AAAFs).

Section 8 housing assistance payments (HAP) contracts for project-based assistance generally provide for rent adjustments through use of the AAAFs, but an overall limitation in the contracts also says rents shouldn't be materially different from the rents for comparable unassisted units. The overall limitation provision doesn't apply to the continuation of rent differentials in effect when the initial contract rents were set.

The U.S. Supreme Court has ruled that comparability studies can be used to reduce AAAF-determined rents, though a 1987 statutory amendment prohibits a reduction in existing contract rents unless the project has been refinanced.

In the National Leased Housing Association case, the Court of Federal Claims declined to apply the 1987 amendment retroactively, ruling that comparability studies could be used to reduce contract rents before 1987. Owners scored a partial victory in a third Court of Federal Claims case, Park Village Apartments v. United States, when the court ruled that comparability studies can be used to increase, as well as reduce, AAAF rents. The court declined to order a rent increase for the plaintiff because the AAAF rents were within 20% of comparable rents.

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