HUD’s Office of Affordable Housing Programs (OAHP) in the Office of Community Planning and Development (CPD) published final changes to the HOME program regulations on January 6 (see Memo, 1/13). While the final rule affects a number of areas pertaining to the HOME program, NLIHC only submitted comments regarding the proposed changes affecting tenant protections and Community Housing Development Organizations (CHDOs). The final rule includes many recommendations made by NLIHC and greatly strengthens tenant protections while also improving the CHDO provisions. In this article, NLIHC summarizes key provisions pertaining to these two areas. The summary is not an exhaustive presentation of the final rule, nor does it include tenant protections under HOME’s Tenant-Based Rental Assistance (TBRA) component. Rather, this summary highlights issues raised in NLIHC’s comments as well as some other provisions of primary interest to residents. The HOME program regulations are at 24 CFR Part 92.
Tenant Protections
Tenant Protections and Selection (§92.253), is substantially revised; only the most essential changes are reflected here.
Lease Contents, §92.253(a)(1). The HOME rule has always required a lease. The final rule adds that the lease must contain:
- More than one convenient and accessible method to communicate directly with an owner or property management staff, including in person, or by telephone, email, or a web portal;
- The Participating Jurisdiction’s (PJ’s) contact information for the HOME program;
- The Violence Against Women Act’s (VAWA) lease term/addendum; and,
- The HOME lease addendum.
Lease Addendum, §92.253(b). To provide greater tenant protections, the new regulation now requires an addendum to a HOME lease. This section has 10 key components, with eight touched upon here.
Physical Condition of a Unit and Project, §92.253(b)(1). An owner must meet the PJ’s standards as well as state and local codes. Regarding maintenance and repairs, an owner must provide tenants a written estimate of when the work will be done. In addition, an owner must not charge for normal wear and tear or damage but can charge for damage due to a tenant’s negligence, recklessness, or intentional acts. If a project provides owner-controlled utilities, the owner must provide uninterrupted utility service, unless the service interruption is not in the owner’s control – such as a general power outage. If a life-threatening deficiency cannot be repaired on the day the deficiency is identified, a tenant must be promptly relocated at no cost to the tenant.
Use and Occupancy of the Unit and Project, §92.253(b)(2)(iii). Owners must provide at least two days’ notice to tenants before entering a unit during reasonable hours for routine inspections and maintenance and for making repairs or improvements, or to show the unit to prospective tenants. An owner can enter a unit anytime without advance notice if it is reasonable to think that there is an emergency. If an owner enters when there are no adults present, the owner must provide a written statement explaining the reason for the entry and the date and time of the entry. A tenant’s household must have reasonable access to and use of common areas.
The Right to Organize, §92.253(b)(2)(v). A HOME tenancy addendum must contain a provision stating that tenants have the right to organize, create tenant associations, convene meetings, distribute literature, and post information. The preamble to the proposed rule mentioned the tenant organizing provisions codified as Section 245 for HUD’s Office of Multifamily program regulations and that are also reflected in the requirements for the Rental Assistance Demonstration (RAD). NLIHC urged HUD to add to the HOME regulations a direct reference to the Multifamily Section 245 regulations, which would avoid ambiguity by providing specific rights. HUD declined NLIHC’s suggestion.
Required Notices, §92.253(b)(3). Before an owner proposes to carry out an adverse action (such as charging for damages that require repair) the owner must provide a tenant with a written notice explaining the reason for the proposed adverse action. Tenants must be notified five business days before there is a change in ownership or management, and there must be at least 30 days’ notice before a sale or foreclosure. Notices must accommodate tenants with a physical disability or with language access needs.
Protection Against Unreasonable Interference or Retaliation, §92.253(b)(5). An owner may not unreasonably interfere with a tenant’s safety or peaceful enjoyment of a unit or common areas. An owner may not retaliate against a tenant for taking actions which the lease or law allow by decreasing services (such as maintenance or trash removal), imposing new or increased fees, interfering with a tenant’s right to privacy, or harassing a household or their guests.
Exercising Rights, §92.253(b)(6). A tenant may exercise any right of tenancy without fear of retaliation if the tenant reports inadequate housing conditions in the unit or in the property, reports lease violations, or if the tenant requests enforcement of the lease and any of its protections.
Security Deposits, §92.253(b)(9). Security deposits may be no greater than two months’ rent and be refundable. If an owner charges any amount against a tenant’s security deposit, the owner must provide a list of all items charged and the amount charged for each item. An owner must promptly refund a security deposit, minus any amounts used to reimburse the owner for items charged.
Termination of Tenancy, §92.253(b)(10). An owner may not terminate the tenancy of a tenant or household member, or refuse to renew a lease, except for serious or repeated violations of the terms and conditions of a lease; violations of federal, state, or local law; or “other good cause.” Other good cause can include a tenant or household member presenting a direct threat to the safety of other tenants or employees of the property, presenting an imminent and serious threat to the property, or refusing to provide an owner access to a unit to allow repairs to be made.
An owner may establish good cause for violation of federal, state, or local law, only if there is a record of conviction for a crime that directly threatens the health, safety, or rightful peaceful enjoyment of the property by other tenants. An owner must not use a record of arrest, parole, probation, or current indictment to establish such a violation. NLIHC’s comments on the proposed rule noted that the preamble to the proposed rule mentioned that such a conviction takes place “during the tenancy period” and that good cause cannot be based on a violation that occurred prior to tenancy. NLIHC pointed out that the proposed text did not have such explicit language and urged the final rule text contain direct language clarifying that convictions prior to tenancy must not be considered. HUD declined to make the recommended clarification.
At least 30 days before terminating a tenancy or refusing to renew a tenancy, an owner must provide a tenant with a written notice that specifies the reason for the action. An owner must also provide a copy of the notice to vacate to the PJ within five business days of issuing notice to the tenant. (The proposed regulation called for a 60-day advance notice, but HUD shortened the period in response from “overwhelmingly negative comments from owners and managers.”) The 30-day minimum is not required if the termination of tenancy or refusal to renew is due to a direct threat to the safety of tenants and employees of the property or is an imminent and serious threat to the property. An owner may not terminate the tenancy or evict the tenant without carrying out a civil court proceeding at which the tenant has the opportunity to present a defense.
An owner may not perform a “constructive eviction,” such as locking a tenant out of their unit or stopping utilities. An owner may not create a hostile living environment or refuse to make a reasonable accommodation for a person who has a disability in order to cause the tenant to end their tenancy.
Community Housing Development Organizations (CHDOs)
Basic Introduction to CHDOs
The HOME statute requires participating jurisdictions (PJs) to set aside at least 15% of their annual HOME fund allocation to be spent on housing that is developed, sponsored, or owned by Community Housing Development Organizations CHDOs. (HOME funds are allocated by formula each year to each state and to approximately 650 jurisdictions and cooperating smaller jurisdictions that form a consortium. These are HOME PJs.) In addition, up to 5% of a PJ’s HOME funds can be awarded to CHDOs for operating expenses; this amount is separate from the minimum 15% CHDO set-aside and does not count against a PJ’s 10% cap on using HOME funds for program administrative activities.
The HOME statute requires a CHDO to be accountable to low-income community residents through significant representation on its governing board. However, the regulations merely require one-third of a CHDO’s board members be elected representatives of low-income neighborhood organizations, residents of low-income neighborhoods, or other low-income community residents. Because the regulations allow “community” to be defined as broadly as an entire city, county, or metropolitan area, it is possible to construct a CHDO that is not accountable to low-income residents in a HOME project’s neighborhood.
Any nonprofit can receive a HOME grant or loan to carry out any eligible activity, but not every nonprofit is a CHDO. The 2013 regulation changes stated that in order to be considered a CHDO, a nonprofit developer or sponsor must have staff with housing development experience. However, nonprofits seeking to keep or obtain CHDO status can do so while allowing those that own rental housing to operate it even if the nonprofit does not have development expertise. The 2013 HOME regulation amendments introduced other changes that might make it more difficult for existing small and rural CHDOs to continue.
The CHDO Definition
The CHDO definition is in the HOME program’s regulations at 24 CFR part 92.2. The final rule made changes to paragraphs 5 (Government Entity), 8 (Maintains Accountability to Low-Income Community Residents), and 9 (Organization Has a Demonstrated Capacity).
Paragraph (5) – Government Entity
The regulations have always stated that a CHDO may not be a government entity or be controlled by one. However, the regulations have allowed an organization created by a government entity to qualify as a CHDO; however, the government entity cannot appoint more than one-third of a CHDO’s board members, and no more than one-third of a CHDO’s board members can be “public officials or employees of [a] government entity.”
The preamble (introduction) to the proposed rule explained that the one-third limitation on any public officials being on the board had the effect of preventing officials of other units of local government, public school teachers, public university professors, and others from being on a CHDO created by a government entity.
Therefore, for a government-created CHDO, the final rule clarifies that “no more than one-third of the [CHDO’s] board members may be officials or employees of the PJ or government entity (for example a public housing agency) that created the CHDO. The final rule also clarifies that no governmental entity (not just the one creating the CHDO) may appoint more than one-third of a CHDO’s board members. Paragraph (5) is also clarified to read, “The board members appointed by a government entity and the board members that are officials or employees of the PJ or government entity that created the organization may not appoint any of the remaining two-thirds of the board members.” Unchanged from the previous regulation, the officers or employees of a government entity may not be officers or employees of a CHDO.
Paragraph (8) – CHDO Maintains Accountability to Low-Income Community Residents
According to the previous rule, to be considered a CHDO at least one-third of its board must be:
- Residents of low-income neighborhoods;
- Other low-income community residents; or
- Elected representatives of low-income neighborhood organizations.
The final rule adds “low-income beneficiaries of HUD programs.” The final rule deletes “Elected representatives of low-income neighborhood organizations” and replaces it with “designees” of low-income neighborhood organizations or designees of nonprofit organizations in the community that address the housing or supportive service needs of low-income residents or residents of low-income neighborhoods, including homeless providers, Fair Housing Initiatives Program providers, Legal Aid, disability rights organizations, and victim service providers.
Paragraph (9) CHDO Has Demonstrated Capacity
The HOME statute requires a CHDO to have a demonstrated capacity for carrying out HOME activities. The final rule broadens the range of housing activity beyond the HOME program to include carrying out housing projects assisted with any federal housing funds, the Low-Income Housing Tax Credit (LIHTC), the Federal Home Loan Bank Affordable Housing Program (AHP), or local and state affordable housing funds.
The previous regulation did not allow a nonprofit organization to meet the demonstrated capacity test based on volunteers or on people whose services were donated by another organization. The final rule allows board members or officers of an organization who are volunteers to meet the demonstrated capacity test as long as they are not compensated by or have their services donated by another organization.
24 CFR part 92.208 – CHDO Operating Expenses and Capacity Building Costs
The HOME statute and regulations allow a PJ to provide up to 5% of its annual HOME fund allocation to CHDOs for operating expenses, an amount separate from the minimum 15% CHDO set-aside and an amount that does not count against a PJ’s 10% cap on using its HOME allocation for program administration activities.
The final rule clarifies the previous rule by adding a new paragraph (c) stating that an organization that meets the CHDO definition – except for the demonstrated capacity provision – may receive HOME capacity building funds so that it can develop a demonstrated capacity to carry out HOME activities.
24 CFR part 92.300 – CHDO Must Either Own, Develop, or Sponsor Housing
The HOME statute requires PJs to set aside at least 15% of each year’s HOME allocation for housing that is to be “owned, developed, or sponsored” by a CHDO. The current regulations at §300 provide detailed provisions regarding “owned by,” “developed by,” and “sponsored by.”
The preamble to the proposed rule stated that changes at §300(a)(3) and (4) pertaining rental housing “developed” by a CHDO and rental housing “sponsored” by a CHDO, respectively, are intended to make it easier for many community-based nonprofits to access the 15% CHDO set-aside as “developers” and “sponsors.” The previous rule required an organization to be in “sole” charge of all aspects of the development process. The final rule deletes the word “sole” for both paragraphs. For “developers,” paragraph (3) allows a CHDO to “share developer responsibilities with another entity,” but the CHDO must still be in charge of all aspects of the development process, including selecting the site, obtaining permit approvals, and all project financing. For “sponsors,” paragraph (4) allows a CHDO or its subsidiary to be the “managing general partner” or “managing member,” rather than the more restrictive “sole general partner” or “sole managing member.”
The final rule at §300(a)(3) pertaining to a “developer”-CHDO retains the requirement that the developer-CHDO own the housing during development and for a period at least equal to the affordability period. The final rule adds, however, that a PJ may permit the CHDO to sell or otherwise convey the housing to a nonprofit organization other than a CHDO if the PJ determines and documents that the developer-CHDO no longer has the capacity to own and manage the housing for the full affordability period and that there are no other CHDOs within the jurisdiction with the capacity to own and manage the project for the full affordability period.
The preamble to the proposed rule explained that the previous rule’s requirement created difficulties when a CHDO’s status changed (for example if a CHDO experiences bankruptcy, decreased capacity, etc.) and another CHDO is needed to acquire the project in order to preserve affordability. The final rule change will enable CHDO project preservation transfers to another CHDO or nonprofit to sustain the HOME affordability requirements.
Read the final Federal Register version of the final rule at: https://tinyurl.com/4asbbd54
Read an easier-to-read version of the final rule at: https://tinyurl.com/yes7k39n
Read the Federal Register version of the proposed rule at: https://tinyurl.com/nhhcc85y
Read an easier-to-read version of the proposed rule at: https://tinyurl.com/4cvc3nxb
Read NLIHC’s comment letter regarding the proposed rule at: https://tinyurl.com/47tvktn2
Read more about HOME on page 5-1 of NLIHC’s 2024 Advocates’ Guide.
OAHP has two HOME websites, on the regular HUD website https://tinyurl.com/mssk9w6h and one at HUD Exchange, https://tinyurl.com/mr3stys2