How the Fair Housing and False Claims Acts Can Stop Construction, Buying, and Selling RD Properties

Federal Laws Regarding Accessibility Section 504 of the 1973 Rehabilitation Act The Fair Housing Amendments Act

Fair Housing Act All multifamily housing with buildings with 4 or more units designed and constructed for first occupancy after March 13, 1991 All units in buildings with elevators Ground floor units in buildings without elevators

Section 504 All multi-family properties receiving Federal Financial Assistance that was newly constructed or substantially altered after June 10, 1982 for RD funding and July 11, 1988 for HUD funding 5% of total number of units must be accessible to persons with mobility disabilities and additional 2% to persons with sensory disabilities

Enforcement Failures Federal government has recognized that there is widespread non-compliance with these laws Statute of limitations and other procedural hurdles limit the ability of persons with disabilities to bring claims

Creative Enforcement and Remedies HUD/DOJ Joint Statement on Design and Construction Requirements of Fair Housing Act (April 30, 2013) HUD Mortgagee Letter (November 21, 2012) False Claims Act

April 30, 2013 HUD / DOJ Joint Statement

HUD/DOJ Position on Statute of Limitations HUD/DOJ Position on when SOL begins to run SOL begins to run when “aggrieved person” is denied housing as a result of the failure to design and construct property per FHAA “a failure to design and construct a multifamily property in accordance with the FHA may cause an injury to a person at any time until the violation is corrected. A person may be injured before, during or after a sale, rental or occupancy of a dwelling.”

HUD/DOJ Position on Statute of Limitations Take away Any property built after 3/13/91 (implementation date of the FHAA) that is NOT in complete compliance with the design and construction requirements is at fault until the violation has been corrected Can face a complaint today for a development constructed in the 1990s

Joint HUD & DOJ Press Release “Continuing Violation” “pattern or practice” New statement further says If a builder, architect or developer does not comply with the design and construction requirements at multiple properties over time, violations at all properties constitutes a “continuing violation” or “pattern or practice” of illegal discrimination In past occasionally applied to builders, now can apply to architect or developer as well

HUD Mortgagee Letter

Mortgagee Letter dated November 21, 2012 Describes their policies / requirements for Project Capital Needs Assessments (PCNA) as part of their revitalization funding Letter covers: Requirements for CNAs & PCNAs Estimating Reserves for Replacements Remedies for Accessibility Deficiencies

Accessibility HUD has realized that in past CNAs, accessibility was not taken seriously This resulted in CNAs that didn’t include all necessary costs, and Properties that did not comply with all Federal accessibility laws and standards.

Accessibility In order to correct this problem, HUD has set up a new policy REQUIRING a thorough review of accessibility shortcomings as a part of the CNA All accessibility shortcomings will be considered a “critical repair” All critical repairs should be completed prior to implementing the CNA/PCNAs, providing funding, transfers, servicing actions, etc. Notify HUD if not completed by closing if not completed by closing, completed within one year

Accessibility To track accessibility repairs, a Corrective Action Plan (CAP) or Transition Plan will be developed Must include all Accessibility Issues Must Include estimated cost for those repairs Requires HUD National Office approval if all repairs will not be completed within one year after loan closing (with justification)

False Claims Act

Lincoln Law RD/HUD Certifications Westchester case Trickle Down

Westchester Case and Current Initiatives Westchester case was private litigation under the False Claims Act – HUD eventually challenged Westchester County’s certification and terminated funding briefly – Remedy included large numbers of affordable housing units in segregated white neighborhoods HUD published proposed regulations HUD has a new office focusing on sustainable communities led by Deputy Secretary Ron Simms, based on his Seattle experience – Tie integrated housing to jobs, transportation, schools, health care opportunities

Not So Veiled Threat “Significantly, not only did [the Fair Housing Group] find systemic violations of the FHA, but they further found that Defendants' affirmations and assurances to the federal government and the State regarding compliance with the FHA and the Americans with Disabilities Act (ADA) in order to receive public financial assistance were false and invalid.”

Not So Veiled Threat “For many years, Defendants have received substantial governmental financial assistance for the development of their properties, including Low Income Housing Tax Credits. As a condition of participation in these federal and state supported financing programs Defendants signed many Land Use Restriction Agreements certifying that their properties will conform to the requirements of the FHA and ADA. Based on the investigation and testing by [the Fair Housing Group], it appears that many of Defendants' certifications to the government were false or erroneous.”

Impact on Transactions EVERYONE has to ensure compliance –New Construction What law applies? What standard applies? Do my people know what they are doing? –Post-Construction Transaction Does the property comply with the FHA, Section 504, and ADA accessibility requirements? –Both buyer and seller need an inspection to determine compliance Impossible to fully mitigate risk without full retrofit Difficult to value property because of inability fully mitigate risk

UFAS Replaced By ABAAS

UFAS is being combined with ADAAG to produce a new Accessibility Standard titled “ABAAS” Accessibility Standard Change

Existing 1940-D written in the 1970’s –Last major revision in 1990’s (to include Fair Housing Amendments Act) New regulation written, internal review complete, between OPM and publication in Federal Register Changes accessibility standard for programs from UFAS (Uniform Federal Accessibility Standard) to ABAAS (Architectural Barriers Act Accessibility Standard) RD Instruction 1940-D

ABAAS Requirements Why now? / What’s the Logic? –Disability Advocacy Groups raised issue of insufficient accessible units in the market place (especially in Rural America) New properties built since 1991 (Fair Housing units) helping, but that law not being strictly enforced New Federally funded property construction (providing 5% fully accessible units) down considerably, so fewer new fully accessible units coming on line –Older existing properties (pre-1982 for USDA, pre-1988 for HUD) did not have accessible units. Although accessible units not required at time of construction, these properties now going through “substantial rehab”. With “new dollars” going in, an ideal time to include the 5% requirement

ABAAS Requirements Why now? / What’s the Logic? (con’t.) –Discussion then focused on definition of “substantial alteration” (which invokes the 5% requirement) –Cabinet replacement was determined an ideal trigger if property replacing kitchen and / or bathroom cabinetry, they typically were doing considerable rehab to the unit this an ideal time to make the kitchen / bathroom accessible –New ABAAS criteria: 1. a rehab that requires vacating a building will require 5% fully accessible units in that building 2. if an individual unit “altered’, per unit, 5% fully accessible units required –“altered” equal: altering the kitchen or bath (change plan configuration or replacement of cabinetry) and alter at least one other room (for example, replace flooring), then you have “altered” that unit –for 2 nd floor units in building without an elevator, substitute a ground floor unit)

“Triggers” Sale / transfer of property to new owners Adoption of ABAAS by the funding Agency (USDA close, HUD following but lagging behind) will impact present owners Properties following a CNA or a PNA and replacing cabinetry and flooring, or in ordinary “replacements” in a single year

“The Devil You Know…” At present, UFAS the accessibility standard at both USDA and HUD –no requirement for 5% fully accessible units for older properties (pre-82 USDA, pre-88 HUD) –no new “substantial rehab” definition With sale of property, adoption by Agency, or “substantial rehab”, ABAAS becomes new (stricter) standard Having an existing Section 504 Transition Plan in place (under UFAS) should commit Agency to that 3 year plan

(402) Mark EnglishScott P. Moore (888) , ext. 113