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Eligibility Determinations in Tax Credit Properties

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Tax Credit Properties Must Comply with the Eligibility Requirements of the State Housing Finance Agency while also Complying with Fair Housing Requirements.

Although it’s fair to assume that the vast majority of properties that participate in the Low Income Housing Tax Credit (LIHTC) Program are familiar with LIHTC program requirements, far fewer LIHTC properties seemed to realize the interface between the requirements of the State Housing Finance Agency ("HFA") and the nondiscrimination provisions of the federal Fair Housing Act or their state or local fair housing laws. Said another way, many LIHTC properties that dutifully followed LIHTC program rules neglect to consider the fair housing implications of their actions.

General awareness of Fair Housing requirements appeared to change in August 2000 when the Treasury Department, Justice Department and HUD joined forces to establish a monitoring and compliance process designed to remedy what government Fair Housing officials and housing advocates believed was the failure of the Internal Revenue Service and State Housing Finance Agencies to hold LIHTC properties fully accountable for fair housing violations. As a result, the IRS agreed to notify LIHTC property owners that a finding of discrimination by DOJ or HUD could result in the loss (or recapture) of tax credits. In turn, DOJ and HUD agreed to notify the IRS and Housing Finance Agencies of all enforcement actions brought against LIHTC properties under the Fair Housing Act.

What if any deterrent effect that agreement may have had is unclear. Our research shows only two Fair Housing Act cases that involved LIHTC properties.

In October 31, 2001, an advocacy group in Palm Beach, Florida filed a federal lawsuit against the owners and managers of Springbrook Commons Apartments, a tax credit property. The complaint alleged that Springbrook Commons discriminated against families with children in violation of the federal and state Fair Housing Acts. Citing the uniqueness of the case, the presiding federal district court judge stated, “This may be the first time that a federal judge is being asked to examine whether a housing provider should pay back thousands of dollars in advanced LIHTC benefits for violations of the Fair Housing Act.” Unfortunately, there was no adjudication of the case, probably because the parties settled before trial – after all, what LIHTC property wants to put all of its tax credits at risk?

The other case involved a 2003 settlement that was reached in a lawsuit filed by DOJ against the City of Pooler, Georgia. In its November 2001 complaint DOJ alleged that Pooler discriminated on the basis of race when it failed to approve a zoning amendment that would have allowed the development of a senior tax credit property. That case was also settled when the City agreed to pay $425,000 towards the construction of the project and to pay the developer $25,000 in damages.

Could it be that the pendulum has swung in the opposite direction; that LIHTC properties have become overly conscious of the potential liability they face for Fair Housing Act violations and too quickly acquiesce to plaintiffs'settlement demands? In light of the questions we face at many seminars, it is clear that many LIHTC managers are confused about how fair housing requirements relate to the requirements of the state HFA, especially when the subject concerns eligibility determinations and senior housing projects.

To start, many LIHTC properties are concerned that rejecting minority applicants may be per se discriminatory. It is not. It is, however, important for LIHTC properties to understand that eligibility determinations that are based on LIHTC program or state HFA requirements are not discriminatory.

For example, an applicant in a protected category who applies for a unit after the waiting list has closed is, by definition, not eligible to receive a unit. Assuming that the waiting list itself is being maintained in a non-discriminatory way, a property that rejects a African-American (or any other applicant) on that basis will not be guilty of a Fair Housing Act violation. To take another example, properties that determine eligibility based primarily on income do not violate the Fair Housing Act when they turn away disabled or elderly applicants who are not income-eligible.

What about disabled applicants?

LIHTC properties may also, if they choose, limit eligibility to people with disabilities. LIHTC properties may also limit eligibility to people with a particular disability, like mental illnesses or developmental disabilities (e.g. HUD Section 811 properties) without violating the fair housing rights of individuals with other disabilities. LIHTC properties may also offer accessible units to applicants who are not mobility impaired. However, if the property is covered by Section 504 of the Rehabilitation Act (i.e. the property receives direct federal financial assistance) the property must have a lease provision that requires nondisabled residents who do not need the special features of an accessible unit to transfer to a non-accessible unit when their unit is needed to house an applicant or resident who needs an accessible unit.

What About Age-Restricted LIHTC Properties?

It is also important for LIHTC properties to understand the distinction between the Fair Housing Act’s “Housing for Older Persons” exemption, which properties must meet to claim the Act’s exemption from its familial status provisions and be able to legally exclude or limit children, and age requirements for “elderly” properties under their state’s HFA rules. For example, to be considered “55 and Older” housing under the Fair Housing Act, a property must insure, among other things, that at least one person in 80% of its occupied units is 55 or older. However, your HFA’s definition of “elderly housing” may require that everyone on the property be at least 55 or older. In other states the minimum age may be 62.

In cases where state HFA rules are stricter than the Fair Housing Act’s rules, compliance with your HFA rules will always lead to compliance with the Fair Housing Act.

The opposite is not true. For example, in states where HFA considers nonelderly disabled persons eligible for "elderly" housing, it is likely that a property cannot meet the 80% requirement of FHA, and should not exclude or limit children. Another example, if the state HFA requirements for "senior" housing mirrors FHA on requiring 80% occupancy by at least one person age 55 or older, but is silent on the age of any occupants in the remaining 20% of the units, property owners and managers should be aware that the FHA limits the occupancy and marketing of the remaining 20% by requiring that all marketing and policies be consistent with the intent of the property to be "housing for older persons."

© 1996-2006 Fair Housing Institute, Inc. All rights reserved.

The Fair Housing Institute, Inc. (FHI) provides accurate and authoritative information and consultation to the housing industry. FHI is not engaged in the practice of law and cannot render legal advice. This article contains the opinions of the author and is offered on this site for educational purposes only. Nothing contained in this article is intended as legal advice or to provide answers to a specific fact situation. FHI's articles can be reprinted only by obtaining the express permission of FHI.

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