HUD Told to Hold Relocation of Project-Based Residents

October 25, 2009
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A Michigan district court told HUD to stop relocating households from a Section 8 project-based site after residents along with the complex’s tenants association asked the court for a temporary restraining order and preliminary injunction.

The Ypsilanti housing complex, which has 20 HUD-subsidized project-based units, was built by a nonprofit housing corporation that had financed the construction with a loan whose mortgage was insured by HUD. After the corporation failed to pay its water utility bills and properly maintain the site, the mortgage was assigned to HUD, which became the property’s mortgagee-in-possession (MIP). As the site’s MIP, HUD assumed all management responsibilities, including rent collection, repairs, security, and property expenses.

Conditions Improve, But HUD Attempts to Foreclose
The complex’s condition improved significantly after the HUD takeover (for example, obtaining Certificates of Occupancy for all occupied units), but the number of occupied units dwindled over the years from 75 to approximately 37. The residents, alleging the drop was due to a HUD policy not to accept new tenants even when a unit with a C of O became vacant, accused HUD of passively emptying the buildings through attrition.

HUD admitted attempting to foreclose and sell the complex. For instance, in 2005, it offered to issue 144 tenant-based vouchers as part of a sale that was ultimately cancelled. Another foreclosure sale was planned for 2007, but HUD cancelled it when the residents deemed the sale terms unacceptable and initiated a lawsuit. In 2008, HUD sent notification of a relocation plan to those residents living in the 20 units receiving project-based vouchers under the HAP contract. The notice said that due to substandard physical conditions, the HAP contract was abated, and residents would no longer receive project-based subsidies. The notice also stated that tenant-based vouchers would be available to help residents who chose to leave, but those who remained could lose all Section 8 assistance.

Because Congress was considering legislation that could affect the project’s fate, HUD agreed to delay relocating residents several times. (Note: The legislation would have allowed HUD to sell the complex to the Ypsilanti Housing Commission.)

Residents and Tenants’ Association File Motion
The residents filed a motion to enjoin the relocation of the project’s residents and stop HUD from emptying the complex by attrition. The court ordered that all notices be withdrawn and asked HUD to notify the residents and the court if it decided to proceed with the relocation, and that the relocation would be halted until the court ruled on the residents’ injunction petition.

The residents believed that HUD allegedly committed several violations by: (1) failing to maintain the project’s physical condition and its full occupancy; (2) refusing to provide vouchers to all residents; (3) deciding to relocate the project’s residents and threatening to cancel Section 8 assistance for those who remained; and (4) implementing a plan to dispose of the project without giving residents notice or an opportunity to be heard.

Court Grants Preliminary Injunction
The district court granted the residents’ motion for a preliminary injunction and enjoined HUD from relocating the residents; required HUD to comply with its obligations under the Multi-Family Housing Property Disposition Reform Act (which governs management and disposition of multifamily housing projects receiving HUD assistance); and ordered HUD to meet with all interested parties in the disposition of the complex and to negotiate in good faith an arrangement that satisfy the objects of the Act.

The court reasoned that emptying the project had not been consistent with HUD’s past actions, which included investing nearly $4 million to improve and preserve the complex for low-income housing. In addition, the Act requires HUD in its capacity as MIP to maintain full occupancy “to the greatest extent possible.” Because HUD failed to show a rational connection between its decision and the facts, the court found that the residents’ chances of success on this claim were high. The court also found, after examining documents showing that the project’s conditions—while far from ideal—were not as precarious as HUD presented them to be. The court also said that compelling residents to leave their long-time homes and relocate to new housing could cause irreparable harm; and the damage is even greater if there is no comparably priced housing to move to [Parkview Tenants’ Association v. HUD (9/8/2009)].