When considering the ongoing issue of qualifying existing HUD tenants for the Low-Income Housing Tax Credit (LIHTC) Program, I can’t help but think of the lyrics to the song, “Everything Old is New Again” from the musical All That Jazz. This has been a recurring theme for the LIHTC program and obviously has warranted enough attention on the HUD side of late that a memo was published earlier this year entitled, “Occupancy Protections for HUD-Assisted Households in Properties with Low-Income Housing Tax Credits.” It states that its purpose is to expand the related guidance found in HUD Handbook 4350.3, REV-1 and I believe it speaks strongly to the current state of the affordable housing industry and the degree to which blended properties are becoming more the rule than the exception.
The HUD memo notes that some owners are mistakenly terminating the tenancy of current HUD-assisted tenants who do not meet the LIHTC eligibility guidelines. This is a common error in judgement that is often made by owners and developers who assume that in putting together LIHTC acquisition/rehab deals for aging HUD properties, there won’t be any difficulty qualifying the existing tenants since they have already been receiving rental subsidy under an affordable housing program.
As many of have learned over the years, this isn’t always the case and it can present a real challenge in properly qualifying the units for LIHTC while following the HUD regulatory provisions that address this issue. In this memo, HUD makes it clear that owners must adhere to HUD regulations, leases, and state and local landlord/tenant law when it comes to tenant protections, and that none of these include provision for LIHTC-specific rules. Even when tenants no longer qualify for subsidy and are paying market rent at HUD properties, they retain all leasing rights, including the right to occupy the unit.
One solution to help alleviate this problem has been a provision in the Executive Budget Proposal for the past few years that would allow for existing tenants at acquisition/rehab properties to qualify for the LIHTC program as long as their initially qualifying income was no greater than 60 percent AMI and their income at LIHTC qualification is no more than 80% AMI, if it exceeds the 60% limit. This would make it much easier for in-place tenants to remain qualified when tax credits are layered onto their property’s existing subsidies, which in turn would make preservation deals more attractive to developers and help in actually preserving more of our nation’s currently aging affordable housing stock. It appears in the proposed 2016 budget yet again, but until it is approved into a final agreement we will continue to deal with the issue in other ways.
HUD mentions in the memo that it is allowable to offer incentives for in-place tenants to move from their HUD units when they don’t qualify for LIHTC, but they encourage owners to provide written notification to them in advance explaining that they have the option to remain in their units and the choice to leave is voluntary. Lacking any other regulatory options to date, “incentivizing” is usually the method of choice for owners to deal with this challenging issue. We caution owners to take HUD’s latest guidance offered here to heart, however, and follow its directive as this gives evidence that the issue is on their radar and indicates that they will be scrutinizing these practices.
Read the memo here.