HUD to Propose Changes to HOME Program Regulations

We review the proposed expansion of tenant rights and protections.

Funds from the HOME program and LIHTCs are often used together to finance affordable rental housing sites. To establish affordable rents in many markets, a site’s rents may not be enough to pay off a conventional mortgage. As a result, the equity raised from tax credits may not be sufficient to provide all of the additional capital required by the site. Often, HOME funds can be used to finance the remaining gap.

If you own or manage a site that combines these two sources of funds, you must comply with the requirements of both programs. We’ll cover the proposed expansion of tenant rights and protections in the text of HUD’s proposed rule.

Why Changes Are Proposed

The Office of Affordable Housing Programs (OAHP) in HUD’s Office of Community Planning and Development (CPD) recently announced a preview version of proposed changes to the HOME Investment Partnerships (HOME) program regulations. This notice of proposed rulemaking is the first significant update to the regulations governing the HOME program since the 2013 HOME Final Rule. It incorporates updates from the Housing Opportunity Through Modernization Act of 2016 (HOTMA), the Economic Growth Regulatory Relief and Consumer Protection Act, and the National Standards for the Physical Inspection of Real Estate (NSPIRE) Final Rule.

The HOME program is a critical tool to bolster housing supply and preserve existing affordable housing at a time of dire need. HOME is the largest federal block grant to state and local governments for the creation of affordable housing for low-income households. Under the HOME program, states, localities, and territories receive flexible block grants to provide down payment assistance and closing costs; build new housing to own or rent; rehabilitate existing housing; and on a limited basis, provide tenant-based rental assistance. HUD recently announced $1.3 billion for fiscal year 2024 to over 650 participating jurisdictions

This recent HUD action to modernize and streamline the HOME program aligns with the Biden administration’s Housing Supply Action Plan. Specifically, according to HUD the proposed rule would:

• Better align HOME rental housing with other federal rental assistance programs;
• Simplify requirements applicable to small rental housing projects;
• Make HOME tenant-based rental assistance work better for vulnerable populations;
• Strengthen tenant rights and protections for occupants of HOME-assisted rental units and recipients of HOME tenant-based rental assistance;
• Establish a new method for determining maximum per-unit subsidy limits; and
• Provide incentives to incorporate green building technologies.

HOME Tenancy Addendum Requirement

The proposed rule would significantly strengthen and expand tenant protections by requiring that a HOME tenancy addendum with a set of uniform tenant protections be included to the leases of all tenants of HOME-assisted rental housing units. The HOME rule has always required a written lease between a tenant and owner covering a period of at least one year and that incorporates a Violence Against Women Act (VAWA) lease term or addendum.

The proposed rule adds that the written lease must have more than one convenient and accessible method to communicate directly with the owner or the property management staff, including in person, by telephone, email, or through a web portal; and the participating jurisdiction’s contact information for the HOME program. The minimum requirements for the HOME tenancy addendum outline the expanded tenant rights provisions in the proposed rule.

Physical Condition of Units, Site

The proposed rule describes tenant protections surrounding the physical condition of the tenant’s unit and the site. Owners, as soon as practicable, must provide tenants with expected time frames for maintaining and repairing units. Owners can’t charge tenants for the costs of addressing normal wear and tear or damage to a unit or common areas other than that caused by the tenant’s negligence, recklessness, or intentional acts.

When a life-threatening deficiency in the physical condition of the tenant’s unit or site impacts the tenant, the tenant must be promptly relocated into either a housing unit that’s decent, safe, sanitary, and in good repair, or placed into physically suitable lodging until repairs on the tenant’s housing unit or site are completed. HUD anticipates that tenant relocation would be necessary only if repairs couldn’t be completed on the day the life-threatening deficiency is identified, in which case the proposed rule requires that the housing unit or lodging used for tenant relocation be provided at no additional cost to the tenant.

And if the owner controls utilities, the owner must provide tenants with uninterrupted utility service. OAHP says that this provision is proposed to “counteract a disturbing trend of so-called ‘self-help’ evictions” whereby owners use their control of utilities to force tenants to end their tenancy.

Termination of Tenancy

An owner may not terminate the tenancy of a tenant or household member, or refuse to renew a lease, except for serious or repeated violations of the terms and conditions of a lease; for violations of federal, state, or local law; or for “other good cause.” The proposed rule states that other good cause may include a tenant creating a documented nuisance under state or local law, or a tenant unreasonably refusing to provide an owner access to a unit to allow repairs.

For an owner to establish good cause for violation of federal, state, or local law, there must be a record of conviction for a crime during the person’s tenancy that has a direct bearing on the tenant’s continued occupancy of the unit, such as a violation of law that affects the safety of others living at the property. The proposed rule would also clarify that an owner must not use a record of arrest, parole or probation, or current indictment to establish a violation of applicable federal, state, or local law.

Owners would also be required to provide 60 days’ notice instead of 30 days’ notice before the termination of tenancy. The written notice to vacate would have to specify the reason for the action. And the proposed rule clarifies that an owner may not perform a constructive eviction or self-help eviction, such as locking a tenant out of their unit or stopping utility services to a tenant’s unit.

An owner may not create a hostile living environment or refuse to make a reasonable accommodation for a person who has a disability in order to cause the tenant to end their tenancy. And an owner may not terminate a tenancy or evict a tenant or household members without instituting a civil court proceeding in which the tenant or household member has an opportunity to present a defense.

Use & Occupancy of Unit, Common Areas

Before an owner may enter a unit, the proposed rule requires the owner to give the tenant at least two days’ notice, which must include the purpose for entering the unit. However, an owner can enter a unit at any time, without advance notice, if the owner has a reasonable belief that an emergency requires entry to the unit. The proposed rule also would require that an owner who enters a unit when the tenant and all adult members of the household are absent from the unit must provide a written statement to the tenant explaining the date, time, and purpose of their entry.

A tenant must also be given reasonable access and use of the common areas of the site. This language is proposed to clarify HUD’s existing policy and explicitly prohibit owners from having separate amenities such as gyms, pools, spas, elevators, rooftop gardens, storage areas, and playrooms that only non-assisted tenants can access or use.

Protection Against Retaliation

An owner may not unreasonably interfere with the tenant’s comfort, safety, or enjoyment of a unit or retaliate against a tenant. Retaliation includes, but is not limited to, an owner’s attempts, during a tenant’s lease, to recover possession of the housing unit in a way that isn’t consistent with HUD requirements, decrease the services to be provided to the unit, interfere with a tenant’s rights to privacy under state or local law, harass a household or their lawful guests, or refuse to honor the terms of the lease.

A tenant may exercise any right of tenancy without fear of retaliation if the tenant reports inadequate housing conditions in the unit or in the property, or if the tenant requests enforcement of the lease and any of its protections. HUD believes that establishing this as a right within the lease itself will assist in addressing situations where owners retaliate against persons with disabilities who request reasonable accommodations in HUD-assisted housing units.

Right to Organize

Tenants have the right to organize, create tenant associations, convene meetings, distribute literature, and post information. The proposed rule points out that tenants have these explicit protections in other HUD programs, including HUD Multifamily Housing programs. HUD is proposing to add these explicit protections to the HOME program because HUD has found that tenant organizations are especially helpful in providing tenants with representation in addressing community-wide issues and that tenant organizations may provide a more sufficient counterweight to owners of larger projects who aren’t compliant with lease provisions or HUD requirements.

Notices

The proposed rule requires that an owner notify a tenant in writing of the specific grounds for any proposed adverse action by the owner. These actions can be a variety of different actions, including charging a tenant for tenant-caused damages. Also, a tenant must be notified within five business days of any changes in ownership to the project, including through a foreclosure. And an owner must provide tenants with 30 days’ notice of an impending sale or impending foreclosure of the property.

HUD is proposing these policies so that tenants are informed about changes in ownership in their projects. Requiring that tenants receive notice of this potential change earlier in the process helps better prepare those tenants for these and other disruptive impacts that occur when there’s a change of ownership at a site.

Security Deposit Requirements

Under the proposed rule, security deposits must be refundable and may be no greater than two months’ rent. The proposed rule would also prohibit the use of surety bonds or security deposit insurance to be used in lieu of or in addition to security deposits. Also, if an owner charges any amount against a tenant’s security deposit, then the tenant must be given a list of all items charged against the security deposit and be promptly refunded the remainder of the security deposit balance.

The proposed change is distinct from the current HOME regulation, which doesn’t require refundable security deposits or that the owner identify the individual charges made against a security deposit.

Environmental, Health, and Safety Hazards

If a participating jurisdiction has actual knowledge of an environmental, health, or safety hazard affecting a site, unit, or HOME tenants, the jurisdiction must contact the affected owner and tenants and provide them with a summary of the nature, date, and scope of such hazards. And if an owner has actual knowledge of an environmental, health, or safety hazard affecting their site, units within their project, or tenants residing within their projects, the owner must inform the participating jurisdiction and provide them with a summary of the nature, date, and scope of such hazards.

This notification requirement applies only to environmental, health, and safety hazards that are discovered after an environmental review has already taken place.