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GP-UHAB Housing Development Fund Corp. v. Jackson

February 7, 2006

GP-UHAB HOUSING DEVELOPMENT FUND CORPORATION, GATES PATCHEN TENANTS ASSOCIATION AND DOLORES MORRIS PLAINTIFFS,
v.
ALPHONSO JACKSON, IN HIS CAPACITY AS SECRETARY FOR THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT DEFENDANT.



The opinion of the court was delivered by: Sifton, Senior Judge

MEMORANDUM OPINION AND ORDER

The GP-UHAB Housing Development Fund Corporation*fn1 ("GPUHAB"), the Gates Patchen Tenant Association,*fn2 and Dolores Morris,*fn3 (collectively, the "plaintiffs"), bring this action against Alphonso Jackson, in his capacity as Secretary for the United States Department of Housing and Urban Development ("HUD"), claiming that HUD has illegally refused to continue section 8*fn4 project based subsidies for the Gates Patchen apartment complex. Plaintiffs allege four grounds for relief: (1) that the Bond Amendment, Public Law 108-447, Div. I, Title II, Sec. 211, 118 Stat. 3317, requires renewal of the project based subsidy; (2) that the Multifamily Assisted Housing Reform and Affordability Act ("MAHRAA") Section 524(a), Public Law 106-74, 113 Stat. 110, requires renewal of the project based subsidy; (3) that the United States Housing Act, 42 U.S.C. §1437f(t)(2), MAHRAA Section 524(d)(1), Public Law 106-76, 1113 Stat. 113, and HUD's internal procedures require the continuation of section 8 project subsidies until tenants are issued rent vouchers which may be used for other housing; and (4) that termination of the project based subsidy violates HUD's obligation to administer its programs "in a manner affirmatively to further the policies of the Fair Housing Act," ("FHA") 42 U.S.C. §3608(e)(5). Now before this Court is the plaintiffs' motion for a preliminary injunction, pursuant to Federal Rule of Civil Procedure 65(a) directing HUD to continue Section 8 project subsidies for the Gates Patchen Apartments, retroactive to September 1, 2005, pending the trial of this matter. Also before the Court is defendant's motion to dismiss the complaint for lack of standing under Article III of the United States Constitution and for failure to state a claim upon which relief can be granted, pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth below, the plaintiffs' motion for a preliminary injunction is granted and defendant's motion to dismiss is granted in part and denied in part.

STATUTORY BACKGROUND The Housing Choice Voucher Program, also known as the Section 8*fn5 program, is a federal program administered by HUD pursuant to the United States Housing Act of 1937, as amended by the Housing and Community Development Act of 1974. See 42 U.S.C. §1437f. The Section 8 housing program was created "for the purpose of aiding low-income families in obtaining a decent place to live and of promoting economically mixed housing." 42 U.S.C. §1437f(a). HUD's rental subsidies allow eligible families, "to afford decent, safe and sanitary housing." 24 C.F.R. 981.1(a)(1).

Section 8 operates by providing federal subsides to private building owners who are willing to rent to low-income families. These owners enter into Housing Assistance Payment ("HAP") contracts with HUD. HUD then determines the maximum monthly rate the owners may charge as rent. Low income tenants who are eligible to receive section 8 assistance pay thirty percent of their adjusted gross income toward the HUD-set rent and HUD pays the balance. See 42 U.S.C. §1437f(c)(3), 42 U.S.C. §1437a(a)(1).

Section 8 assistance comes in two forms: (1) project based assistance, and (2) tenant based assistance. Project based assistance is dedicated to a specific apartment building or complex and is given directly to private landlords. Any tenant residing in that building is eligible to receive section 8 assistance. However, a tenant who leaves the building loses the subsidy. See 42 U.S.C. §1437f(d). In contrast, tenant based assistance comes in the form of a HUD-funded voucher. An eligible tenant may use the voucher to pay rent at any privately owned building that accepts such vouchers. See, 42 U.S.C. §1437f(o). However, a tenant may use the voucher only in an apartment that "meets housing quality standards for decent, safe, and sanitary housing [as] established by the Secretary [of Housing]." 42 U.S.C. §1437f(o)(5).

Generally, HUD must renew project based contracts when they expire. Section 524(a) of the MAHRAA provides that: upon termination or expiration of a contract for project-based assistance under section 8 . . . the Secretary of HUD shall, at the request of the owner . . . use amounts available for the renewal of assistance under section 8 . . . to provide assistance for the project.

HUD may elect not to renew the contract only under limited circumstances delineated in Section 516(a) of the MAHRAA, which include "material adverse financial or managerial actions or omissions with regard to such project" or "with regard to other projects of such owner or purchaser that are federally assisted or financed with a loan from, or mortgage insured by, an agency of the Federal Government."

When a project based subsidy is not renewed, HUD must issue each tenant a portable voucher. Section 524(d)(1) of MAHRAA provides that:

In the case of a contract for a project based assistance under section 8 for a covered project that is not renewed under subsection (a) or (b) of this section (or any other authority), to the extent that amounts for assistance under this subsection are provided in advance in appropriation Acts, upon the date of the expiration of such contracts the Secretary shall make enhanced voucher assistance under section 8(t) of the United States Housing Act of 1937 (42 U.S.C. §1437f(t)) available on behalf of each low-income family who, upon the date of such expiration, is residing in an assisted dwelling unit in the covered project.

The referenced sections of the United States Housing Act, 42 U.S.C. §1437f(t)(2) provide for issuance of individual tenant vouchers upon, "the termination or expiration of the contract for rental assistance under section 8 of the United States Housing Act of 1937."

Special guidelines exist for the management and disposition of multifamily housing projects owned by HUD or subject to a HUD mortgage and are laid out in the Housing and Community Development Amendments of 1978. 12 U.S.C §1701z-11. The goals of that statute are set forth as follows:

(A) preserving certain housing so that it can remain available to and affordable by low-income persons;

(B) preserving and revitalizing residential neighborhoods;

(C) maintaining existing housing stock in a decent, safe, and sanitary condition;

(D) minimizing the involuntary displacement of tenants;

(E) maintaining housing for the purpose of providing rental housing, cooperative housing, and homeownership opportunities for low-income persons;

(F) minimizing the need to demolish multifamily housing projects;

(G) supporting fair housing strategies; and

(H) disposing of such projects in a manner consistent with local housing market conditions.

HUD has been granted wide discretion in the disposal of the multi-family properties it owns. Thus, Section 204, of the Departments of Veterans Affairs and Urban Development, and Independent Agencies Appropriations Act, 1997, as amended, 12 U.S.C. §1715z-11a, entitled "disposition of HUD-owned properties," provides as follows:

(a) Flexible authority for multifamily projects During the fiscal year 1997 and fiscal years thereafter, the Secretary may manage and dispose of multifamily properties owned by the Secretary, including for fiscal years 1997, 1998, 1999, 2000, and thereafter . . . on such terms and conditions as the Secretary may determine, notwithstanding any other provision of law.

However, this discretion is limited in some circumstances. For example, The Bond Amendment, Consolidated Appropriations Act, 2005, Public Law 108-447, Div. I, Title II, Sec. 211, 118 Stat. 3317, provides that:

Notwithstanding any other provision of law, in fiscal year 2005, in managing and disposing of any multifamily property that is owned or held by the Secretary and is occupied primarily by elderly or disabled families, the Secretary of Housing and Urban Development shall maintain any rental assistance payments under section 8 of the United States Housing Act of 1937 that are attached to any dwelling units in the property. (emphasis supplied)

FACTUAL BACKGROUND

For purposes of defendant's motion to dismiss the allegations of the complaint are accepted as true and every inference drawn in plaintiffs' favor. For purposes of plaintiffs' application for a preliminary injunction, what follows sets forth this Court's findings of fact and conclusions of law as required by Rule 65(a) of the Federal Rules of Civil Procedure. The facts are drawn from the submissions of the parties in connection with both motions. They are undisputed.

The Gates Patchen Housing Apartments ("Gates Patchen"), the subject of this litigation, are comprised of two buildings, collectively containing 104 units, located at 940-950 Gates Avenue in the Bedford-Stuyvesant section of Brooklyn. As already noted, Gates Patchen is owned by the GP-UHAB Housing Development Fund Corporation and is a project based section 8 development. Until the recent developments discussed below, all of the units in Gates Patchen were subsidized through HUD's section 8 program with the tenants paying rent equivalent to 30 percent of their adjusted income to the landlord and HUD paying the remaining portion of the contract rents. In addition, HUD insured the property's forty year mortgage pursuant to the National Housing Act of 1934 ("NHA") codified at 12 U.S.C. §17151(d)(3). Gates Patchen's mortgage was insured under the 221(d)(3) BMIR (Below Market Interest Rate) program.*fn6

In 1971 the Gates-Patchen Housing Development Fund Co, Inc. ("GP-HDFC") acquired the property at 940-950 Gates Avenue from the City of New York as part of an Urban Renewal Plan. However, beginning in 1997 GP-HDFC allowed the project to fall into serious disrepair. When HUD inspected the premises in 2002, it scored 48 on the Real Estate Assessment Center (REAC)*fn7 scale, and in 2003 the inspection resulted in a REAC score of 15. A passing score is 60 out of 100.*fn8 To date the project has 631 Housing Code violations on record, of which 508 are "hazardous" or "immediately hazardous."

In 2003, GP-HDFC defaulted on its mortgage. HUD paid the $1.2 million mortgage insurance claim which resulted. Thereafter, HUD notified GP-HDFC and the tenants of the project that it intended to foreclose on the project. In May 2004, HUD placed Gates Patchen in "regulatory default" because of the conditions on the premises and directed its enforcement center to begin the foreclosure process.

In early 2004, the Urban Homesteading Assistance Board*fn9 ("UHAB") began discussions with HUD and the City of New York regarding a possible transfer of the project to UHAB for conversion to low income cooperatives. In its February 2004 initial proposal to the City of New York,*fn10 UHAB requested the following: (1) that HUD acquire title to the property through purchase at the planned foreclosure sale; (2) that HUD sell the property to New York City for $10.00;*fn11 (3) that HUD provide 50% of the rehabilitation costs of the building to New York City; (4) that New York City convey the property and grant money to UHAB; (5) that UHAB manage the property for the tenants during the rehabilitation; (6) that upon completion of the rehabilitation the ...


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