HUD Housing Notice § 2012-21

                        U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                        WASHINGTON, DC 20410-8000


ASSISTANT SECRETARY FOR HOUSING-
FEDERAL HOUSING COMMISSIONER




Special Attention of:
                                                             Notice H 2012-21
All Multifamily Hub Directors
All Multifamily Program Center Directors
All Multifamily Operations Officers                          Issued: October 17, 2012
All Multifamily Directors of Project Management
All Multifamily Field Counsel
All Contract Administrators                                  Expires: This notice remains in
                                                             effect until amended, superseded,
                                                             or rescinded.

                                                             ___________________________
                                                             Cross References:
                                                             HUD Handbook 4381.5 REV-2



Subject: Implementation of Tenant Participation Requirements in accordance with 24 CFR 245
          Subpart B and HUD Handbook 4381.5 REV-2 "The Management Agent Handbook”


A. Purpose

    The Department of Housing and Urban Development’s regulations governing tenant
participation in multifamily housing projects are found at 24 CFR Part 245. These regulations
reflect the Department’s commitment to tenant participation, individually and through legitimate
tenant organizations as defined in 24 CFR 245.110. The Department believes that tenant
participation is an important element to maintaining sustainable projects and communities. This
Notice addresses available sanctions and the use of civil money penalties as tools to enforce the
Department’s commitment to tenant participation.

B. Applicability

   Except as otherwise expressly limited in this section, this part applies in its entirety to a
mortgagor of any multifamily housing project that meets any of the following:

    1. For a project that is subject to a HUD insured or Secretary-held mortgage under the
       National Housing Act. The project has a mortgage that:

        a.    Has received final endorsement on behalf of the Secretary and is insured or held by
              the Secretary under Title II of the National Housing Act; and


                                    www.hud.gov        espanol.hud.gov
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   b.    Is assisted under:

         i. Section 236 of the National Housing Act (12 U.S.C. 1715z–1);

        ii.   The Section 221(d)(3)/(d)(5) Below Market Interest Rate (BMIR) Program
              12 U.S.C. 1715(d)(3)/(d)(5);

        iii. The Rent Supplement Program 12 U.S.C. 1701s); or

        iv. The Section 8 Loan Management Set-Aside Program (LMSA) following
            conversion to such assistance from the Rent Supplement Program assistance.


2. Formerly HUD-owned project. The project, before being acquired by the Secretary was
   assisted under:

   a.    Section 236 of the National Housing Act (12 U.S.C. 1715z–1);

   b.    The Section 221(d)(3)(d)(5) BMIR Program (U.S.C. 1715(d)(3)/(d)(5));

   c.    The Rent Supplement Program (12 U.S.C. 1701s); or

   d.    The Section 8 LMSA Program following conversion to such assistance from
         assistance under the Rent Supplement Program, and

   e.    Was sold by the Secretary subject to a mortgage insured or held by the Secretary and
         includes an agreement to maintain the low- and moderate-income character of the
         project.

3. State or local housing finance agency projects. The project receives assistance under
   Section 236 of the National Housing Act (12 U.S.C. 1715z-1) or the Rent Supplement
   Program (12 U.S.C. 1701s) administered through a state or local housing finance agency,
   but does not have a mortgage insured under the National Housing Act or held by the
   Secretary.

4. The project receives project-based assistance under Section 8 of the United States
   Housing Act of 1937 (this regulation does not cover tenant participation in Public
   Housing Authority(s) (PHAs) that administer such project-based assistance).

5. The project receives enhanced vouchers under the Low-Income Housing Preservation and
   Resident HomeOwnership Act of 1990, the provisions of the Emergency Low-Income
   Housing Preservation Act of 1987, or the Multifamily Assisted Housing Reform and
   Affordability Act of 1997, as amended.
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      6. The project receives assistance under the Section 202 Direct Loan program or the Section 202
         Supportive Housing for the Elderly Program.

      7. The project receives assistance under the Section 811 Supportive Housing for Persons
         with Disabilities Program.

      8. Cooperative mortgagors are not subject to the provisions of 24 CFR 245 Part B.



C. Rights of Tenants and Tenant Organizations

      1. Rights of Tenants to Organize

         24 CFR 245.100 provides tenants of a covered multifamily housing project the right to
         establish and operate a tenant organization for the purpose of addressing issues related to
         their living environment as well as activities related to housing and community
         development. A tenant organization is considered legitimate if it has been established by
         the tenants of a multifamily housing project covered under Section 245.10 for the purpose
         described above, and meets regularly, operates democratically, is representative of all
         residents in the development, and is completely independent of Owners, management,
         and their representatives. The definition of legitimate tenant organization includes
         “organizing committees” newly formed by residents, and does not require specific
         structures, written by-laws, elections, or resident petitions.

         A link1 to this Notice will connect the reader to a brochure entitled “Resident Rights &
         Responsibilities” which addresses tenant rights to organize. Owners and/or management
         agents are required to provide the head of household with a copy of this brochure at move-in
         and annually at recertification (Ref: HUD Handbook 4350.3 REV-1: Occupancy
         Requirements of Subsidized Multifamily Housing Programs, Chapter 6-27, Paragraph
         B.1.i.).

      2. Protected Activities

         24 CFR 245.115 identifies activities that Owners and management agents must allow
         tenants and tenant organizers to conduct related to establishment or operation of a tenant
         organization. These activities include:

             i. distributing leaflets in lobby and common areas, under tenants’ doors, posting
                information on bulletin boards,

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    http://www.hud.gov/offices/hsg/mfh/gendocs/mfhrrr.pdf
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        ii. initiating contact with tenants, conducting door-to-door surveys to ascertain
            interest in establishing a tenant organization, and to offer information about the
            tenant organization,

        iii. offering assistance for tenants to participate in tenant organization activities and

        iv. convening tenant organization meetings on-site in a manner that is fully
            independent of management representatives. In order to preserve the
            independence of tenant organizations, management representatives may not attend
            such meetings unless invited by the tenant organization.

   Tenants also have the right to formulate responses to:

         i. Owners’ requests for budget-based rent adjustments,

         ii. Partial Payment of Claims,

         iii. Conversion from project paid utilities to tenant-paid utilities,

         iv. A reduction in tenant utility allowances,

         v. Converting units to non-residential use, cooperative housing, or condominiums,

         vi. Major capital additions, and

         vii. Loan prepayments.

3. Meeting Space

   a.    Owners and management agents of covered projects must reasonably make
         available the use of any community room or other available space appropriate for
         meetings when requested by tenants or the tenant organization for activities related
         to the operation or establishment of the tenant organization or to collectively
         address issues related to their living environment. These meeting spaces must be
         accessible to persons with disabilities, unless this is impractical for reasons beyond
         the Owner/management agent’s control.

   b.    An Owner may charge a reasonable fee, approved by HUD and received into the
         project’s account, as may normally be imposed for use of such facilitates in
         accordance with procedures prescribed by HUD. An Owner may elect to waive this
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      c.     fee and is not required to charge a HUD-approved fee. An Owner does not need
             HUD approval to waive this fee.

      d.     The process of obtaining HUD approval for a fee will proceed according to the
             following:

             i. Owner/management agents will submit a request, with supporting documentation
                (such as rates for similar areas of space from similar projects in near proximity),
                to charge a tenant organization/committee a reasonable fee for using
                space/facilities of the project.

            ii. Hub/PC staff will approve the fee, if reasonable, as evidenced by supporting
                documentation.

            iii. If such charges are recurring, Owner/management agents are not required to
                 request HUD approval for each charge.

            iv. Any HUD-approved fee must be documented in the monthly accounting
                reports and/or Annual Financial Statements (AFS), depending on the frequency of
                the charge.

    4. Tenant Organizers

       a.     24 CFR 245.125 defines a “tenant organizer” as a tenant or non-tenant who assists
              other tenants in establishing and operating a tenant organization, and who is not an
              employee or representative of current or prospective Owners, managers, or their
              agents. Owners and management agents must allow tenant organizers to assist
              tenants in establishing and operating tenant organizations.

       b.     A non-tenant, “tenant organizer” must be accompanied by a tenant while on the
              property of the multifamily housing project only in cases where the project has a
              consistently enforced, written policy against canvassing. Where there is such a
              non-canvassing policy, non-tenant organizers must be afforded the same rights and
              privileges as other uninvited outside parties. Where there is no such policy
              against canvassing, the project shall be treated as if it has a policy favoring
              canvassing.

D. Impediments to Residents or Resident Associations Attempting to Exercise their Rights

   HUD Handbook 4381.5 (REV-2), The Management Agent Handbook, Chapter 4 “Working with
   Residents” Section 4.8d identifies specific actions by Owners and management agents that
   constitute impediments to residents or resident associations attempting to exercise their rights.
   These include:
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         Unreasonable denial of accessible meeting space to residents;

         Repeatedly sending management representatives to resident meetings when residents
          have requested management not to attend;

         Evicting, threatening to evict, withholding entitlements, or otherwise penalizing
          residents for organizing or asserting their rights;

         Attempting to adversely influence resident leaders by offering individual
          inducements such as employment, preferential transfers, rent abatements, favored
          repairs, or other benefits not available to all residents in the project;

         Attempting to form a competing resident organization under the control of the
          management company or the Owner; and

         Running for office or otherwise serving as a member of the resident organization.



E.   Enforcement Options

       a.    Owners, management agents, principals, or affiliates of projects with an insured
             and assisted mortgage described in 24 CFR Section 245.10(a)(1) who violate any
             provision of 24 CFR Part 245, Subpart B, may be liable for one or more of the
             following sanctions:

             i.    Debarment - an exclusion of an individual, organization and its affiliates from
                   conducting business with any Federal Agency government-wide. Debarment
                   is the most serious compliance sanction and is typically imposed for a three-
                   year period. See Title 2 CFR Parts 180 and 2424.

            ii.    Suspension - a temporary action with the same effect as debarment.
                   See 2 CFR Parts 180 and 2424.

            iii.   Limited Denial of Participation (LDP) - an action that excludes a party from
                   further participation in a certain HUD program area. The scope of the LDP
                   may also be limited to a certain geographic area, and generally expires in one
                   year.

            iv.    Civil Money Penalties – fines which may be imposed on Owners, principals
                   of Owners, and management agents who knowingly and materially fail to
                   comply with any provision of 24 CFR Part 245, Subpart B, and, therefore, fail
                   to provide management for the project acceptable to the Secretary. By
                   adjustment under the Federal Civil Penalties Inflation Adjustment Act of
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         v.   1990, the maximum civil money penalty for each offense is currently $37,500,
              but the actual amount of the penalty is determined by applying the factors
              listed in 24 CFR Section 30.80. These include, among other things, the
              gravity of the offense, the Owner’s history of prior offenses, injury to the
              public resulting from the violations, the Owner’s culpability for the violations,
              and the Owner’s ability to pay the penalty. As these will vary from case to
              case, there is no schedule of Civil Money Penalty (CMP) amounts. The
              maximum amount is now $37,500 but the actual amount sought in any
              particular case depends on the Departmental Enforcement Center’s (DEC)
              analysis of the factors as they apply to each case.

   b.      Owners, management agents, principals, affiliates of projects assisted under
           provisions described in 24 CFR Section 245.10(a)(2)-(7) who violate any
           provision of 24 CFR Part 245, Subpart B, may be liable for one or more of the
           above sanctions except for civil money penalties.

F. Enforcement Process

   A tenant or tenant organization may file a written complaint with the local HUD office
   alleging a consistent pattern of violations of HUD program requirements, or a single
   violation that causes serious injury to the public or tenants.

   The Owner/management agent must also be provided with a copy of the complaint and
   factual evidence must support the complaint.

   Evidence supporting the complaint may be signed statements from tenants who have
   observed violations of 24 CFR 245 Subpart B, documents from Owners expressing
   opposition to tenant organizing activities, documents denying the use of facilities for
   purposes of organizing an association or holding meetings. Any or all of these and other
   forms of documentation may be considered when providing evidence supporting the
   complaint.

        The Hub/PC Director must discuss the complaint with the project Owner or
        management agent and with the complainant tenant or tenant organization. Based on
        these discussions and review of the factual supporting documentation, the Hub/PC
        Director must determine whether the complaint is legitimate and enforcement action is
        required to cure a violation Part 245 Subpart B.

        If the determination is to pursue enforcement action, a Notice of Violations (NOV)
        of the Regulatory Agreement or/and Notice of Default (NOD) of the Housing
        Assistance Payment Contract will be sent by the Hub Director or his/her designee to
        the project Owner. The Owner will have 30 days to respond to the NOV/NOD.
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             i.   If the Owner fails to respond, or the response does not satisfactorily address the
                  violations alleged in the complaint, then an elective referral will be sent by the
                  Hub/PC Director or his/her designee to the DEC, and the Owner should be
                  flagged in the Active Partners Participation System (APPS).

            ii.   If the Owner’s response adequately addresses the violations alleged in the
                  complaint and is found to be in compliance, then the flag is not placed in APPS
                  and no referral to the DEC is required.

            If a referral to the DEC is necessary, the Hub/PC Director or his/her designee must
            file an elective referral through the Integrated Real Estate Management System
            (iREMS). (See iREMS User’s Guide, dated May 2008, Chapter 11 “Risk
            Management”).

            The DEC will review the administrative record of the referral to determine what
            action the Department will pursue. The DEC will advise the Hub Director as well as
            the Owner of the result of their review and the appeal process. The advice from the
            DEC will contain the pre-penalty notice language required by 24 CFR 30.70.

      If you have questions regarding this Housing Notice, please contact your local HUD Hub and/or
Project Manager, or contact your desk officer in the Office of Asset Management.




                                              ___________________________________
                                              Carol Galante
                                              Acting Assistant Secretary for Housing –
                                                Federal Housing Commissioner