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Can LIHTC Property Owners Offer Tenants Incentives to Leave HUD, LIHTC Properties

Published by Jieyi Cui on Sunday, November 1, 2015

Journal cover November 2015   Download PDF

Question: Can low-income housing tax credit (LIHTC) property owners offer monetary incentives to U.S. Department of Housing and Urban Development- (HUD-) assisted tenants for them to voluntarily terminate tenancy?

Answer: Yes. LIHTC property owners can offer monetary incentives to HUD-assisted tenants for them to voluntarily terminate tenancy.

According to HUD, public housing properties in the United States have a $26 billion nationwide backlog of deferred maintenance. HUD has implemented programs, such as the Rental Assistance Demonstration (RAD) program, to allow public and private debt and equity, such as LIHTCs, to be invested in HUD-assisted developments to preserve and improve public housing properties. Developments that participate in both HUD-assisted program (e.g., project-based Section 8, Section 236 and Section 202) and LIHTCs need to meet compliance requirements for both programs.

What if a current HUD-assisted tenant does not meet the LIHTC eligibility requirement in order to claim tax credits? For example, a HUD-assisted tenant is over the LIHTC income limit at the time of the acquisition and rehabilitation of the property or a HUD-assisted tenant is considered as a full-time student household for LIHTC. HUD issued a memorandum, dated Jan. 12, 2015, which clarified that, “In many cases, owners of LIHTC properties have offered incentives to HUD-eligible households who become over-income for LIHTC or do not meet another LIHTC requirement, to move voluntarily. Owners may do so as long as the incentives are not paid from Section 8 or FHA project funds. In such cases, owners should first inform tenants in writing that they have the option of remaining in occupancy as HUD-assisted tenants under the terms of their lease, in order to ensure that the choice of moving with incentives is truly voluntary.”

Offering LIHTC-ineligible tenants moving services, offering them other apartments in communities that the property owner manages and where the tenants might qualify or offering cash in exchange to leaving the property are some of the possible incentives for the ineligible tenants to move from a property voluntarily.

If a tenant does not agree to move out or relocate, even though incentives are provided, tenancy of HUD-assisted tenants cannot be involuntarily terminated just because they don’t meet LIHTC requirements. The HUD memo specified that “An owner may only terminate tenancy in limited circumstances as prescribed by HUD regulations and by the lease, and must follow HUD and state/local procedures. Terminations for reasons other than those permitted by HUD are prohibited. The lease agreement details the grounds for termination of tenancy, which do not include failure to meet LIHTC requirements, including LIHTC-specific income and student eligibility rules.”

The memo further clarified that, “Should an assisted household become over-income and no longer eligible to receive a HUD subsidy, i.e., the owner determines through the annual or an interim recertification that the tenant now has the ability to pay the full contract rent or market rent, the owner will terminate the assistance to the tenant. However, in accordance with the lease agreement, the tenant retains all other rights under the lease, including the right to occupy the unit.”

In conclusion, HUD-assisted tenants who become ineligible for HUD subsidy or are ineligible for LIHTC still have the right of tenancy. The property owners can encourage tenants to leave the property voluntarily with monetary incentives after they are notified of their option to stay.

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