Recent Court Decision puts Housing Finance Agencies under Fire
It has long been understood that Low Income Housing Tax Credit (LIHTC) communities are required to comply with the Fair Housing Act. The premise that owners are obligated to make their units available to the general public includes renting apartment homes in a manner that is consistent with rules for implementing the Fair Housing Act. Owner and Agents have been and continue to operate their housing in a way that maintains this compliance. But what about state housing finance agencies? Are they held to the same standard and if so, how and by who?
In a recent decision by the Texas courts to allow The Inclusive Communities Project, Inc. v Texas Department of Housing and Community Affairs (TDHCA) to go to trial, the court has already made a significant statement in this regard. Inclusive Communities was a Taxes based organization that provided assistance to families looking for Section 8 and LITHC apartments. In this case, they allege that TDHCA has approved and allocated a disproportionate number of tax credit communities in low-income minority neighborhoods, and conversely denied a disproportionate number of tax credit communities proposed in majority Caucasian neighborhoods. The Texas Department of Housing and Community Affairs argued that they were required by Section 42 of the Internal Revenue Code to develop a Qualified Allocation Plan (QAP) that must give preference to specific HUD determined qualified census-tracts that are often in largely low-income minority areas. What is interesting is that the Texas court did not find that this argument was enough to demonstrate that there was not intentional discrimination and found that they did not provide enough evidence to establish that they were in fact unable to comply with both Section 42 and the FHA. With this decision, the Texas court has set the stage for a trial that will be watched across the country. [1]
So, what does this mean to you?
· This is the first time that the policies and procedures developed by the state housing finance agencies for the allocation process have come into question with regard to racial motivation. This case, while still undecided, may encourage the IRS to investigate this process and whether or not further regulation or oversight may be required to gain compliance. This may further complicate and tighten an already tedious and competitive process.
· In addition, while the case being argued before the Texas courts is related specifically to state housing finance agencies, it is not implausible that the leap could be made to developers to argue that discriminatory decisions made as part of the development process taint the entire development plans.
· Qualified Allocation Plans created by state housing finance agencies may also come under fire as part of this lawsuit in an effort to assuage what may be found to be inherently discriminatory practices.
What can you do?
· In the light of this decision and the impending trial, it is important for developers and owners to review their policies and procedures with regard to the Fair Housing Act to ensure that compliance is not an afterthought.
· Developers should have the right to question QAPs that they feel may lead to disparate impact discrimination and with this decision may have more validity when doing so. Having said that, developers may also be held liable for complying with QAPs they know to be discriminatory and should carefully review them and be sure to understand them fully prior to application submission.
In the long run, we know there will not a hasty resolution to this trial and many questions may remain unanswered for the foreseeable future. The best we can do is try to understand the controversy, stay aware of the facts, and maintain flexibility in our decisions.
[1] Harry J. Kelly, Texas Courts decision raises wider scrutiny of tax credit allocation policies, Nixon Peabody Tax Credit Alert, http://www.nixonpeabody.com/publications (October 14, 2010)