Multifamily Housing:

Impact of Loan Sales on Tenants and Properties Varies by Property

RCED-00-31: Published: Jan 20, 2000. Publicly Released: Jan 20, 2000.

Contact:

Thomas J. McCool
(202) 512-3000
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

Pursuant to a congressional request, GAO provided information on the impact of loan sales on tenants and properties, focusing on: (1) the impact on tenants as project-based assistance contracts expire; and (2) the steps that the Department of Housing and Urban Development (HUD) has taken to ensure that mortgage purchasers honor the tenant protections.

GAO noted that: (1) at the partially assisted properties whose project-based assistance contracts had expired, over three-quarters of the eligible households were able to use the tenant-based assistance that HUD provided in place of project-based assistance; (2) of the households that used tenant-based assistance, 65 percent stayed in the same units and the remainder moved; (3) among the households that moved, about 50 had to do so, according to housing authorities, because the owners of the three properties where these households had resided refused to rent to recipients of tenant-based assistance; (4) although the financial impact of the conversion from project-based to tenant-based assistance varied, the average monthly rent of households that received vouchers increased by about $56; (5) among the protections for assisted tenants that HUD established in the partially assisted loan sale agreement is one that prohibits property owners from unreasonably refusing to rent to households with tenant-based assistance; (6) HUD also established the right for tenants and housing authorities to seek judicial enforcement of this protection; (7) however, the Department did not fully inform housing authorities, tenants, and property owners of these protections; (8) most housing authorities were unaware of their right to seek judicial enforcement; (9) representatives of the three properties where owners refused to accept tenant-based assistance told GAO they did not know of the prohibition against unreasonably refusing to rent to households using tenant-based assistance; (10) without knowing of their right to seek judicial enforcement, tenants and housing authorities cannot reasonably be expected to ensure the enforcement of tenant protections; (11) furthermore, without knowing of the prohibition against unreasonably refusing to rent to households using tenant-based assistance, property owners have little incentive to rent to such tenants; (12) when GAO told HUD officials that the owners of three properties had refused to rent to households using tenant-based assistance, the officials declined to offer an opinion on whether the owners' refusals had been unreasonable; (13) according to the results of inspections conducted by HUD and others at or near the time of partially assisted and Missouri loan sales and by GAO during its visits to the most physically distressed properties that it selected as case studies, conditions at these properties are improving; and (14) the improvements generally addressed major problems with building exteriors, apartment interiors, and property grounds.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To ensure that the federal funds provided for property improvements are being used in accordance with the terms of the partially assisted loan sale agreement, the Secretary of Housing and Urban Development should retain a new equity monitor to review the actions of the general partner and special servicer, including the servicer's use of property improvement funds. The monitor should focus on actions taken since April 1998, when the previous equity monitor's contract expired.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Implemented

    Comments: The Office of Asset Management has contracted for a new equity monitor. The principal task of the equity monitor is to ensure that the trust is operated, and the assets managed in accordance with the terms of the transaction documents so that FHA receives the maximum recovery.

    Recommendation: To ensure that all affected parties receive information on the tenant protections and that procedures are in place for enforcing the protections, the Secretary of Housing and Urban Development should determine whether the three properties that, according to housing authorities, refused to accept vouchers and certificates, and the one property that accepted vouchers only from current tenants, violated the prohibition against discrimination and if so, take appropriate enforcement action.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Implemented

    Comments: In April 2001, the Office of Asset Management sent a request to HUD's Enforcement Center requesting them to investigate the four properties in question to determine whether they had violated the tenant protection provisions in the HUD Loan Sales. In August 2001, an Enforcement Center official provided an update on the investigation. According to the official, the first two property loans were paid off before the loan sale was executed and therefore, the tenant protections were never applicable. In the case of the third property, Meadowbrook, although the owner had informed GAO that it did not plan to accept vouchers from tenants other than existing residents, the Enforcement Center could not find any tenants who actually had been refused because they were voucher holders. In the case of the fourth project, Sunflower East, the Enforcement Center confirmed that the owner was not aware of the tenant protections in the Loan Sale agreement and he has stated in writing that the tenant protections would be observed in the future.

    Recommendation: To ensure that all affected parties receive information on the tenant protections and that procedures are in place for enforcing the protections, the Secretary of Housing and Urban Development should provide information on the tenant protections to the owners of all partially assisted loan sale properties and ensure that the owners understand the prohibition against unreasonably refusing to rent to voucher and certificate holders for the appropriate time period.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Implemented

    Comments: On April 5, 2001, Frederick Tombar, Acting Deputy Assistant Secretary for Multifamily Housing Programs sent a memo to field office staff and section 8 contract administrators, informing them of the tenant protections in the HUD Loan Sales and requiring them to notify the owners of individual projects in their service area, requesting them to post a notice of tenant protections in each project by no later than April 30, 2001.

    Recommendation: To ensure that all affected parties receive information on the tenant protections and that procedures are in place for enforcing the protections, the Secretary of Housing and Urban Development should ensure that the tenant protections are being recorded in deed covenants.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Implemented

    Comments: The Office of Asset Management has contracted for a new equity monitor. On April 6, 2001, the equity monitor sent an email message to James Mitchell in the HUD Office of Asset Management, informing them that they have been reviewing the deed covenants to ensure that the tenant protections have been properly recorded.

    Recommendation: To ensure that all affected parties receive information on the tenant protections and that procedures are in place for enforcing the protections, the Secretary of Housing and Urban Development should ensure that HUD Multifamily Housing field staff are aware of the tenant protections.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Implemented

    Comments: On April 5, 2001, Frederick Tombar, Acting Deputy Assistant Secretary for Multifamily Housing Programs sent a memo to field office staff and section 8 contract administrators, informing them of the tenant protections in the HUD Loan Sales, and requiring them to notify the owners of individual projects in their service area, requesting them to post a notice of tenant protections in each project by no later than April 30, 2001.

    Recommendation: To ensure that all affected parties receive information on the tenant protections and that procedures are in place for enforcing the protections, the Secretary of Housing and Urban Development should follow up with housing authorities to determine whether they are able to enforce the tenant protections or whether further steps are needed to enforce the protections.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Implemented

    Comments: Letter notifying public housing authorities of the tenant protections was mailed on May 20, 2001.

    Recommendation: To ensure that all affected parties receive information on the tenant protections and that procedures are in place for enforcing the protections, the Secretary of Housing and Urban Development should notify housing authorities and assisted tenants associated with partially assisted loan sale properties of the tenant protections and of their right to seek judicial enforcement of these protections.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Implemented

    Comments: The Office of Asset Management within the Office of Multifamily Housing has prepared a list of the projects that are affected by the tenant protection provisions of the multifamily loan sale. This list has been provided to the Office of Public and Indian Housing, which has sent a notice (letter dated May 20, 2001) to the local Housing Authorities, informing them of the tenant protections.

    Recommendation: To ensure that the Missouri Housing Development Commission (MHDC) has used its best efforts to encourage existing owners to rehabilitate their properties, the Secretary of Housing and Urban Development should ask MHDC in writing to provide a progress report to HUD. Besides providing the information specified in the loan sale agreement, this report should indicate how much funding has been spent on improvements that extend each property's expected useful life, what other funding has been used to finance these improvements, and what role, if any, MHDC may have had in encouraging these improvements. This information may provide useful lessons to HUD for the design of any future subsidized multifamily loan sales.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Implemented

    Comments: The Office of Asset Management requested in writing that the Missouri Housing Development Commission provide information on the funding of property improvements at loan sale properties, and changes that have occurred at loan sale properties.

    Aug 1, 2014

    Mar 31, 2014

    Mar 27, 2014

    Mar 18, 2014

    Feb 6, 2014

    Jan 30, 2014

    Jan 28, 2014

    Oct 22, 2013

    Aug 8, 2013

    Looking for more? Browse all our products here