Avoid Discrimination Complaints with Clear Unit Transfer Rules

Sometimes you must transfer a household to another unit to comply with fair housing law. Or a household may ask to move to another unit for personal reasons, such as a better view. But transferring households at tax credit sites can be tricky, especially at sites with more than one building. To avoid making inconsistent decisions, and to avoid any noncompliance traps or discrimination complaints that those inconsistencies might cause, include a provision covering unit transfers in your house rules. That way, your staff and household members will have clear-cut guidance on when transfers may be required or permitted, and you'll ensure that your site stays in compliance. We've put together Model Rules: Set Site Rules on Unit Transfers, that you can use at your site. These rules cover transfers required by fair housing law and transfers for other reasons.

Tax Credit Transfer Pitfalls

In addition to the usual fair housing pitfalls associated with transferring households, there are two tax credit ones you have to be wary of when making unit transfers at a tax credit site:

Over-income households must move to previously qualified units in same building. Under IRS rules, a household whose income is below tax credit limits may transfer to a unit in any building at the site. The income of the household that's requesting the transfer should be tested against the current income limit to ensure that the available unit rule is not violated. However, a full recertification is not necessary. The next available unit rule says that when a household goes over-income, you must rent the next available unit of comparable or smaller size in the building to another qualified low-income household.

Whenever you transfer a household to a different unit (either in the same building or a different building), you simply swap the old and new units' status. So if you move a household living in a low-income unit to a vacant unit, after the move the vacant unit becomes the low-income unit and the low-income unit becomes a vacant unit.

But households whose incomes now exceed tax credit limits can create problems if they request a transfer. You may transfer over-income households only to a unit that:

• Was previously occupied by a qualified low-income household; and

• Is in the same building in which the household currently resides. Otherwise, you'll lose tax credits for the old unit if you move the household into a new unit in another building.

If you move an over-income household into a unit that has not previously been occupied by a qualified household, the new unit becomes an over-income unit, and you can never claim credits on the old unit, because it swaps status with the new unit, says tax credit expert Steven Rosenblatt. But under the next available unit rule, if you move a household into a unit that has previously been occupied by a low-income household, you can continue claiming credits on that unit as long as you rent all next available units to qualified households.

Fair housing violations also threaten tax credits. In addition to issues involving over-income households, you have to consider fair housing law when setting unit transfer policies. If you improperly deny a transfer request to accommodate a disability or treat households differently under similar circumstances, you could end up violating fair housing law regarding discrimination and accessibility. Besides potential fines and fair housing lawsuits, you also could face tax consequences. Form 8823, Low-Income Housing Credit Agencies Report of Noncompliance, specifically requires your state housing agency to report your site to the IRS for noncompliance with tax credit rules if you don't comply with fair housing law. The result is that the IRS will deny the owner's tax credits on a per-unit basis.

What Rules Should Cover

Having written rules on when you'll permit households to transfer makes it easier for your staff to treat households fairly and consistently without violating tax credit rules. Also, if you deny a transfer, households are less likely to interpret your decision as biased if you can show that the decision was based on written rules. Like our Model Rules, your site's unit transfer rules should cover the following:

Disabled household members. As required by fair housing law, your rules should permit households to request a unit transfer to accommodate a disability. For instance, a household might need a specially adapted or accessible unit. If a member is disabled (for example, mobility impaired), a transfer is a “reasonable accommodation,” and fair housing law says you must allow it in order for the disabled member to enjoy and use the site. In addition to transfers to a specially adapted or accessible unit, reasonable accommodation transfers may include moving to a quieter unit or one with more light to accommodate a mental disability. Federal law requires you to consider and, if the household member's claim is valid, grant the transfer request as a reasonable accommodation.

Your rules should require households to provide the name and address of a health care provider so that you can verify that a member is disabled and needs a specially adapted or accessible unit or other unit to accommodate the disability. The rules should state that if you get this verification and the household's income is currently below tax credit program limits, you'll allow the household to transfer to the next available unit at the site.

But the rules should make it clear that if the household's income currently exceeds tax credit program limits, it may move only to the next available, previously qualified unit in the same building in which it currently resides. If there's no such unit available at the time of the request, your rules should state that management will place the household's name on a waiting list for an appropriate unit in the building and accommodate the request as soon as such a unit becomes available.

Changes in household composition. In certain circumstances, a household may need to transfer to another unit when members have moved into or out of the current unit, and the household no longer meets your site's occupancy standards for that unit. Or the household may have a new child or may require a live-in aide because of a disability, so it needs an extra bedroom. There's no specific guidance for how tax credit sites should handle transfers for occupancy reasons. While some state housing agencies may have their own requirements on handling transfers for occupancy reasons, the only guidance for tax credit sites comes from other sources such as the HUD Handbook.

Our Model Rules are based on the same transfer requirements spelled out for Section 8 sites in the HUD Handbook. Our rules say that you'll permit a household to transfer from its current unit to an appropriately sized unit if three conditions are met:

• An appropriately sized unit becomes available;

• You've received applications for units of the size the household currently occupies. This way, you aren't left with an empty unit that can't be filled after accommodating the transfer; and

• The household isn't planning to move out within the next three months.

But you still have to consider the effect of the transfer on tax credit compliance. So, as with the rules on disability transfers, your rules should make it clear that if the household's income currently exceeds tax credit program limits, it may transfer only to the next available, previously qualified unit in the same building in which it currently resides. If there's no such unit available at the time of the request, your rules should state that management will place the household's name on a waiting list for an appropriate unit in the building and accommodate the request as soon as such a unit becomes available.

Transfers for other reasons. Sometimes households request transfers for reasons other than those related to a disability or household size. If you try to handle these transfer requests on a case-by-case basis, you may be opening yourself up to discrimination claims. For example, a transfer to separate feuding neighbors may seem like a good idea at the time, but without written rules it would be hard to justify refusing similar requests by other households later on.

To avoid problems, set one rule that covers all transfers that households request for reasons other than disabilities or household size. Here are two options:

• No transfers for other reasons. One option is to bar all transfers for reasons other than those related to a disability or household size. That way, you don't have to consider requests for any other reasons. Under this option, households that want to change units for reasons not covered by fair housing law are required to reapply at the end of the lease term and qualify for the new unit.

• Transfers allowed for a fee. The other option is to allow transfers, but only if the household pays you a fee to reimburse your costs. Otherwise, you'll have to absorb the unit turnover cost for two units—the unit the household is moving out of and the unit it's moving into. Our Model Rules specify a $100 fee, but you may charge another amount that better reflects your costs. And if the household's income exceeds tax credit program limits, transfer the household to a previously qualified unit in the same building only.

This second option is good from the point of view of resident relations because it doesn't simply deny households the option of transferring. But you may still want to ban transfers to another building, even if the household still qualifies, to avoid the administrative hassle of recertifying the household sooner than you would otherwise have to, says Rosenblatt. Also, check with your state housing agency before you charge households this type of fee. And don't charge households a fee for transfers related specifically to disability or household size.

Insider Source

Steven L. Rosenblatt: President, Spectrum Seminars, Inc.; 545 Shore Rd., Cape Elizabeth, ME 04107; www.spectrumseminars.com.