How to Use it

Pick Properties

Help Tenants Organize

In-depth Research

Make a Plan

There are several steps to a successful campaign to preserve expiring use housing:

• Get information about the scope of the problem and pick specific properties to focus on. Developments that deserve attention first can either be those at the greatest risk for conversion or those with the best prospects for preservation.
• Help tenants organize. Success will invariably involve active and well-informed tenants.
• Research the chosen properties in more depth. Details about the market, legal restrictions, and owners' plans are crucial to choosing a strategy.
• Make a plan. Strategies can include litigation (if there other restrictions that forbid conversion), persuasion to renew (often including incentives), or purchase by a third party (usually a nonprofit). Even if conversion seems inevitable, plan to ensure timely and complete tenant protections.

Picking Properties

The first step in picking focus properties is to find out which buildings in your target area are in the Section 8 or Section 236 programs, and when they will be eligible for conversion. This information is available from various places:

• HUD has posted a master list of all multifamily Section 8 properties by state or area, (except possibly Section 8 Moderate Rehabilitation projects). The information includes subsidy, mortgage, and unit configuration, the expiration date of the contracts, and information about the owner and management agent. The database must be opened in a spreadsheet application.
• Local HUD offices refer properties to the Office of Multifamily Housing Assistance Restructuring (OMHAR) in DC for restructuring. HUD maintains a fairly current list of properties going through the restructuring process. Usually updated every few weeks, this site is a good place to monitor which properties are actively going through restructuring, and who the area Participating Administrative Entities (PAEs) are that will be handling those properties.
• HUD has published several reports in the datasets section of its Web site that also provide useful information. In 1996, 1997, and 1998, HUD published A Picture of Subsidized Households ,a comprehensive database of HUD-assisted properties. It includes a large amount of demographic data about resident households in specific properties and the demographic characteristics of key census tracts.
• A state agency may have compiled information on the number and type of federally-assisted properties in a given area, which may point toward properties at risk of conversion.
• A regional or statewide nonprofit housing organization may also have collected and analyzed data regarding federally-assisted housing.

In addition, data on prepayments and opt-outs that have already occurred is available on the National Housing Trust's website at http://www.nhtinc.org/data.asp. This can be helpful for establishing trends.

Once you know which properties are eligible for conversion, sort the properties by several criteria in order to determine which ones are at the most risk:

• Ownership type. Generally, those properties owned by nonprofit organizations are not at risk of conversion to market-rate, due to the organization's mission and often other restrictions accompanying the financing. For-profit owners, however, usually have different objectives.
• Expire date. Focus on those properties where restrictions expire during the next two or three years.
• Rent gap. Compare the rents being charged under the current HUD program to local market rents the owner might obtain if the units were converted. If there is a big spread, then conversion may be a substantial threat.
• Owner actions. Find out whether the owner has already taken actions to prepare for conversion. For example, an owner may have filed notices of prepayment or opt-out with the tenants, HUD, or state or local government. The owner may also have recently undertaken some rehabilitation designed to make the property more marketable-such as new paint, landscaping, or added signs-or instituted new management policies, such as tougher tenant selection, house rules, or eviction policies.

Do not rely only on information that is area-wide or published on HUD's Web site. It is sometimes inaccurate or out of date, and may not be relevant to the particular property in question. Gather specific information about properties, the markets they are in, and the owner's plans.

Advocates should pick properties where they think they can have the most effect. Along with the threat of conversion, consider potential for preservation and strategic location in terms of neighborhood stability.

Help Tenants Organize

Invariably, a housing development will be preserved only when the tenants who live there strongly support that objective. But many of the current residents may not have any information about either the threat to their homes or available options and strategies. Tenant education and organizing is therefore an essential ingredient for preventing conversion.

Organized tenants should be involved in researching their properties and developing the action plan. They will often have important information about the property or the owner to contribute to the analysis and will be well situated to gather more. Tenants will often need help, however, in evaluating their options, understanding the legal technicalities, and advocating for their rights. Regional tenant education and organizing project s funded with federal, state, and often private or local funds can help get this part of the job done. (See Financing section for more details.)

In-Depth Research

Once advocates have selected specific properties, and begun to organize tenants and other affected parties, research into those properties should adding to the information collected in the picking properties stage.

Ownership Type and Plans.

The rules usually leave it to the owner to decide whether to preserve the property or convert it to market-rate. Therefore, information about the current ownership is key:

• Who is the owner?
• In what form is the ownership entity organized? (sole proprietorship, corporation, limited partnership)
• Who represents the owner?
• How long have they owned the property?
• Do they own other affordable housing properties?
• What is the status of their relationship with HUD?
• Are they active on the local housing scene?
• How is the property financed?
• What are the owner's plans?

Get some of this information from HUD data, but always double-check it with the local property records. It is also often very useful to talk with the property manager, the local HUD office asset managers, and the local government housing and planning staff to see what they know or have heard. The local HUD office may also have important historical or recent information about a given project's status and contracts, including any applicable restrictions; reports of physical inspections conducted by HUD, lenders, or HUD's Real Estate Assessment Center (REAC); and any pending actions against the owner for program violations.

Sometimes local public officials can obtain information about the ownership and its plans more easily than advocates. Of course, the tenants themselves may have found out important information on these questions.

It is especially important to determine if the owner has a good working relationship with HUD. Those owners that do not are typically looking for a divorce, regardless of the economic impact of the decision in the short term. It may, in fact, be HUD who has been seeking to end the relationship, usually due to perceived shortcomings in the owner's performance, such as poor management, failing to maintain the property, or misusing funds.

Owner Actions

An owner may have already filed notices of prepayment or Section 8 opt-out with the tenants, with HUD, or with the state or local government. Ask if any notices have been received by tenants of the property, local government (mayor, county executive or housing department), the local public housing authority, any state agency overseeing housing and community development, or HUD (particularly the housing branch of the local field office with jurisdiction over the property).

Talk regularly to tenants and neighbors to keep abreast of any changes in maintenance or management policies.

Rent Gap

Owners facing conversion decisions want to know what rents can be obtained on the private market, so advocates should know too. Good data on the rent gap can not only help determine conversion risk, but can help identify which preservation strategies, if any, have potential. The greater the gap between HUD-approved rent levels and current market values, the stronger incentives the owner will need to renew.

Research and collect information on the average market rents by unit size being paid in the neighborhood. If a property in the area is going through Mark-to-Market (or if the project in question is in the Mark-to-Market process), a market survey will be part of the "Participating Administrative Entity's" recommendation, and should be accessible. There are also firms that sell market survey or appraisal information. If funds are available, consider contracting for an independent rent comparability study.

Even neighborhood data may not be precise enough, however. To gather data that is relevant to these specific units:

• ask around the neighborhood about the rents for units that are similar in building size, type, and condition; number of amenities; and location.
• check the classifieds for similar units;
• ask realtors, property managers, or even the local housing authority. The local housing authority may know about neighborhood rents because it must approve as "reasonable" the rent paid by each participant in its housing voucher program.

Information gathered in these ways can be much more helpful than the FMR in determining the "street value" of the units.

Other Restriction

Are there other restrictions on the property that may inhibit conversion? Beside the Section 8 or Section 236 program, the property could be subject to old agreements made by the owner, restrictions based on other funding or subsidy sources, or local notice and zoning laws.

Many developments with HUD-subsidized mortgages have another restriction on prepayment which effectively restricts them to their current use until the expiration of the full mortgage term (40 years), unless HUD approves a prepayment. These restrictions come from other subsidy contracts such as Rent Supplement or Flexible Subsidy, or because the property was originally owned by a nonprofit organization that had agreed to a full mortgage term use restriction. HUD's approval of prepayments on these properties is governed by the National Housing Act , which requires notice to tenants, an opportunity to comment, and a HUD finding that the property is no longer needed as subsidized housing.

In the early 1990s, other restrictions arose when many owners and nonprofit or tenant purchasers made use of the Preservation Program, Title II ( the Emergency Low-Income Housing Preservation Act , or ELIHPA,1988) and Title VI ( the Low-Income Housing Preservation and Resident Homeownership Act , or LIHPRHA, 1990). Generally, under these programs, the federal government provided virtually all of the funds necessary for pre-development expenses and transaction costs, capital grants for acquisition costs, or additional Section 8 operating subsidies needed to cover additional debt service for acquisition and rehabilitation. Developments preserved under ELIHPA or LIHPRHA became subject to additional use restrictions for the remaining term of the original mortgage (usually about 20 years) under ELIHPA, or for their remaining useful life under LIHPRHA.

Finding out if any of these restrictions apply to your property will require a fair amount of looking. First, research HUD's files. A list of relevant forms to request might include the mortgage, note, regulatory agreement, and Section 8 HAP (Housing Assistance Payment) contract and amendments. Some HUD offices will willingly provide the information when asked; others may require a formal request under the federal Freedom of Information Act. The latter may involve more time and expense; HUD is often slow to respond, and sometimes claims it can't release some information because it is a "trade secret" of owners or would violate tenants' right to privacy. HUD also sometimes seeks to charge for providing information because it takes a narrow view of what constitutes the "public interest," for which the fee would be waived.

After HUD, check all public records to see if there are any other restrictions affecting the property's use or value. Most of these other restrictions establish covenants running with the land and can be found through a title search in the recorder's office or in contracts that are part of federal, state, or local public agencies' transaction files for the property. They could be found at housing finance authorities, redevelopment agencies, city housing departments, tax credit allocation boards, bond allocation boards, or even housing authorities that finance multifamily housing

Make a Plan

Keeping in mind in the information they have gathered on the selected properties, advocates now need an action plan. A preservation action plan should have three parts: a preservation goal (renewal or purchase), a set of strategies (persuasion, pressure, litigation), and a plan for protecting the tenants if the preservation goal is not met. In some cases, preservation is not a feasible goal. For these Buildings, tenant protection will be the whole plan.

There are two basic ways an expiring use property can be preserved: the owner can renew participation or the building can be purchased by someone committed to affordability.

Renewal

Renewal by the current owner may be the least complicated route to preservation because it does not involve all of the planning and resources of a purchase. It only requires a decision by the owner. The drawback is that renewal may be just for a short period of time (as short as one to five years), putting the property at almost perpetual risk of conversion.

There are a number of federal programs that offer financial incentives to help make renewal worthwhile. These usually involve increasing rents or restructuring mortgages. State and local governments often have separate incentive programs of their own. See the Financing section for details.

Sale to a Preservation Purchaser

This route involves more complications, but may be superior in providing long-term assurances of preservation. In considering its feasibility, consider issues such as the:

• capacity of the tenant organization to establish or engage and evaluate a prospective purchaser (which will usually be a nonprofit);
• amount and type of financial resources required to support a purchase, given the nature of the project (equity, rehabilitation, and operating needs);
• availability of funds from federal, state, local, private, and equity sources, and their timing; (see  Financing section)
• capacity and interest of qualified nonprofit organizations for the type of transaction required;
• amount of time available for assembling the transaction;
• owner's inclination toward sale; and
• ability to create sufficient political support from federal, state, and local government.

Some state or local laws now provide nonprofits and other qualified organizations the right to buy, or to make offers to buy, threatened properties when owners are seeking to sell them for conversion to market rate. This is called "right of first refusal." Some states have gone a step further by giving right of first refusal to the state housing agency, housing nonprofits, or other preservation purchasers whenever the owner gives notice of an action that would terminate a project's subsidies, before it's for sale. In almost all of these cases, however, owners do not have to accept offers; they could keep the property or sell to someone else after a waiting period.

Renewal or Purchase?

Every situation and every owner is unique, but good research will often point to a particular goal. The owner's desires are often key. If the owner and/or management company appear happy working with HUD, but say they just need more money, education about the various incentive programs available could lead to a renewal. If, however, they appear frustrated with the government, and say things about just wanting to get out from the under the property and get their investment back, then they may be open to a reasonable purchase offer.

There are also considerations on the advocates' and tenants' side. Access to resources can be an obstacle to a preservation purchase, especially if the rent gap is high and the property very costly, or if the property is in need of many repairs. The tenants' experiences with their current management can also be a factor: if they have been bad, then advocates might want to consider a purchase goal more strongly.

Strategies

Advocates' two major strategies will be persuasion and pressure. There are many incentives out there for owners to renew, and they may not be aware of all of them. One role of advocates can be to help an owner see how renewal or sale can be a worthwhile approach. In most situations, however, it will take active organizing of the tenants and the community, combined with support from relevant government agencies, to achieve a preservation goal. In the case of a purchase it will also involve finding a purchaser, and helping that purchaser locate the funds for purchase. (See Financing section.)

One strategy available for properties subject to additional restrictions is litigation.(See Other Restrictions, above.) Because HUD may not carefully review an owner's certification of a project's eligibility to prepay, an owner may be allowed to convert to market rate illegally unless advocates take to the courts.

Litigation can delay or prevent a conversion, or at least force an owner to comply with all notice requirements and tenant protections before proceeding. Possible plaintiffs include existing tenants, families on the project waiting list, others in the community in need of affordable housing, and low-income community or housing advocacy organizations. If there is a strong claim that will prevent conversion, litigation can be your primary strategy. Usually, however, it will be a tool to buy time or provide extra pressure.

Along with trying to enforce existing restrictions, here a few other types of potential preservation claims:

• Avoidance of Rent Control. Existing rent control laws may apply to a property after its conversion. Local rent control laws in many cities set the base rent for properties leaving the federal subsidy system at the last federally controlled rent, thus diminishing the short-term gain available to an owner upon conversion. Owners may fail to observe these restrictions, either in planning a conversion or after the fact, and local government may fail to enforce the requirements. A state court claim may bring them into compliance.
  If and owner's business interests can clearly be protected under a preservation plan, then a conversion that harms protected classes may well be illegal.
• Violation of Notice Requirements . There are multiple, and constantly changing, federal, state, and local requirements to serve notices of a specific content at a specified time upon certain parties during the process of conversion. These requirements are rarely fulfilled completely. Tenants (and others) are likely to have claims of violation of these requirements. (Download Checklist of Notice Requirements). This is may buy time until the owner complies.
• Fair Housing Claims. Opt-outs and prepayments that involve the displacement and the denial of affordable housing opportunities to families of color, families with children, or people with disabilities may be subject to challenge under civil rights and fair housing laws. The federal Fair Housing Act prohibits both purposeful discrimination in housing based on race, national origin, familial status, and disability, as well as actions that have a disparate impact on these classes, regardless of the intent of the defendant. Conversion claims usually involve disparate impact. If an owner's business interests can clearly be protected under a preservation plan, then a conversion that harms protected classes may well be illegal.

For a list of recent cases that raised some of the above claims to challenge conversions, visit National Housing Law Project's Case List.

Tenant Protection

Some developments may not be preserved. Organizers and advocates should be aware of this as they work toward preservation, making sure that tenants are prepared for that possibility. They should also continue to monitor converting buildings to make sure tenants get timely and accurate information and benefits.

Required tenant protections, on both the owner and government side, are rarely carried out completely or on-time. There are two categories for advocates to pay attention to: notices and vouchers.

No one entity monitors owner compliance with federal, state, or local notice requirements. Federally required notices often fail to cover a full year, to contain the right information, or to be served on the right parties. State notices are often not provided at all, or fail to meet applicable legal requirements. (Download Checklist of Notice Requirements.)

Since 1999, tenants facing any "housing conversion action" can receive "enhanced" vouchers, whose value can be set at the reasonable market rental value of the unit. Tenants can use enhanced vouchers to stay in their homes or to move to another unit with a willing landlord. Federal law obliges owners to accept the vouchers in almost all cases. In 2000, Congress extended eligibility for this special protection to tenants whose homes were converted since October 1, 1994, and clarified the owners' duty to accept them.

Any tenant in residence at conversion who was previously assisted under a project-based Section 8 contract is eligible. Most low-income tenants residing in a development with a HUD-subsidized mortgage that is being pre-paid are eligible.

The responsible agencies, however-HUD's local Offices of Housing (responsible for multifamily opt-outs and prepayments), Public and Indian Housing (responsible for processing replacement enhanced voucher funding), and local PHAs (responsible for certifying tenants, inspections, and approving rent levels under the enhanced voucher program)-are usually not well coordinated, especially in locations where there have not been many conversions. PHA recertifications are often delayed or inappropriate or funding fails to arrive on time.

Tenants can have a hard time getting accurate information from the responsible agencies as well. Public officials will often "sell" the voucher program and downplay its deficiencies. National acceptance rates (recent HUD studies indicate) are plummeting down to 70%. Although voucher acceptance rates in tight markets are at times less than 20 percent, HUD tells people they have the freedom to move anywhere in the country with their voucher. There are reasons for such over-selling. Vouchers relieve a shrunken national HUD staff of administrative work, while local Housing Authorities get additional fees for administering the program. And HUD often has a close relationship with the owner who benefits from the opt-out/prepayment.