HUD Illegally Terminated HAP Contract

Facts: HUD terminated the housing assistance plan (HAP) contract of a Section 8 site in Western Pennsylvania and foreclosed on the property, which was then transferred to a purchaser.

Residents of the site sued HUD in federal district court, arguing that the agency had illegally foreclosed on the property. Specifically, the residents asserted that HUD did not comply with Section 311, because it did not make a proper determination that the site was not feasible for continued assistance.

Section 311 requires HUD to take certain actions in the course of managing and disposing of any multifamily site that it owns or holds and that has “rental assistance payments under Section 8.” In addition, the residents claimed, HUD failed to consult with them in the course of providing other rental assistance and, therefore, did not legally foreclose on the property on that basis as well.

The district court ruled in favor of the residents, and HUD appealed to the U.S. Court of Appeals for the Third Circuit.

Decision: The appeals court upheld the district court's decision, ruling that Section 311 did apply to HUD's management and disposition of the site.

Reasoning: HUD failed to make a determination that the property was not feasible for continued assistance and therefore failed to comply with the terms of Section 311, the court stated.

The court noted that the federal district court concluded that due to the abatement of housing assistance payments, according to which HUD suspended making payments, the payments were no longer “attached to any dwelling units.” However, the court pointed out, the residents claimed that the HAP contract remained in place at the site until it was terminated. This distinction is very important, the court concluded, because as long as the HAP contract was not terminated, payments that had been abated or suspended could be restored if the deficient conditions were remedied, nullifying the reason or reasons for the abatement.

HAP contracts provide for fluctuations in the payments being made based on vacant units, changes in family income or composition, and other factors, the court noted. It cannot be that Congress intended for HUD to maintain only the precise payments being made at a moment in time, without regard for the contract terms that determine and adjust the amount of housing assistance payments to be made to an owner, the court reasoned.

The conclusion that Section 311 does not apply to a site when rental assistance payments have been abated would also effectively render Section 311 inoperative in certain cases in which, by its terms, it is clearly intended to apply, the court ruled.

Having concluded that Section 311 did apply to HUD's disposition of the site, the court then ruled that HUD did not comply with the requirements in that provision. HUD must first make an infeasibility determination before deciding to provide either project-based rental assistance at another location or some other form of rental assistance, the court stated. Section 311 further requires that HUD “consult with the tenants” before providing another form of rental assistance. HUD neither determined that the site was not feasible for continued assistance nor did it properly consult with the residents before deciding to provide voucher assistance for use at other sites, the court concluded.

The court ultimately agreed with the residents that HUD sought to foreclose upon the property and refused to make feasible repairs in order to facilitate a redevelopment project that it financed.

• Massie v. U.S Department of Housing and Urban Development, September 2010