Low-Income Tenants Win an Important Victory in Oregon
The Low-Income Housing Tax Credit Preservation Program’s purpose is to encourage developers to build affordable residences for low-income tenants. In this program, the federal government and the states work together; the federal government gives tax credits to state governments, and the state governments give those credits to housing developers that promise to include low-income housing units in their projects. In turn, the developers sell the credits to investors. Sadly, the tenants sometimes get lost in the complicated process of financing, constructing, and maintaining LIHTC properties.
That’s what initially happened to tenants at a 264-unit complex in Southeast Portland when the Oregon Housing and Community Services Department decided that their homes no longer met the requirements of the LIHTC Program. After the department released the complex from the program’s requirements, the project’s owner sold it to a developer, who evicted all the low-income tenants.
Under the terms of the agreement between the original owner and the department, the low-income tenants never should have been evicted. The agreement stated that the original owner would maintain 100 percent of the project as low-income housing for 30 years and that, in order to receive low-income housing tax credits, the owner (or any subsequent owner) would regulate and restrict the way the property could be used to make sure that the original purpose of the project would survive. The owner of the property entered into those restrictions—or, in legalese, recorded a “declaration of land use restrictive covenants”—and, in return, the project received more than $2 million of LIHTC tax credits.
Years later, the project was sold. The Oregon Housing and Community Services Department determined that the project was not complying with the LIHTC program, and notified the Internal Revenue Service. The department then entered into a release with the project. The release was a crucial document for the tenants of the complex, because it said that the department and the property’s owner released one another from all of their obligations but stated that the owner or any new owner could not evict a tenant of a low-income unit for three years.
After the release was entered into, the property was sold again, and the new owner evicted the tenants. This meant that the developers received all of the benefits of the LIHTC program without providing low-income housing for the original 30-year period. (And the new owner did not even have the decency to wait for the three-year safe harbor period to elapse.)
A group of tenants represented by the Oregon Law Center and two private attorneys sued the new owner and the department, but lost at the trial court. The trial court ruled that the department’s decision to end the complex’s participation in the LIHTC program and enter into the release agreement meant that the low-income tenants had no power to enforce the terms of the original declaration.
Thankfully, in Nordbye v. BRCP/GM Ellington, the Oregon Court of Appeals disagreed and overruled the trial court’s decision. In a thorough, detailed opinion, the court explained that the release that the department signed with the complex’s second set of owners did not wipe out the original declaration. Most importantly, the court emphasized that the low-income tenants had the right to enforce the original restrictions requiring that the property be used for low-income housing. Citing an amicus brief by the National Housing Law Project, the court included the following insightful language:
. . . if failure to comply with program requirements were grounds for early release from the applicable use restrictions, it would create a perverse incentive to encourage noncompliance. An owner of a property subsidized with public funds would be encouraged to violate program requirements in order to secure early release from the LIHTC program. Once released from the obligation to maintain the property as low-income housing for the stated period, an owner would be free to charge market-rate rent or to sell the project for a profit, thereby profiting from a public subsidy without fulfilling the conditions of that subsidy.
This important decision is a must-read for housing advocates, and will surely keep many low-income renters in their homes.
