National Housing Law Project Housing Law Bulletin

Last year, the Court of Appeals for the Fourth Circuit affirmed a judgment enjoining the Alexandria Redevelopment and Housing Authority from demolishing a project until it offered the project for sale to the established residents' council./1/ After remand, the Alexandria Resident Council made its offer and, predictably, the PHA rejected it, claiming that the offer did not meet the requirements for a tenant purchase. After a brief return to court, the Council sought HUD’s review of the PHA decision. Recently, HUD rejected the PHA’s position, ordering the PHA to sell the project to the Council if it met a HUD-prescribed condition./2/

The dispute originated in 1994, when the PHA convened a task force to evaluate what to do with the downtown part of the Samuel Madden Homes project (Downtown Homes) which is located in Old Town Alexandria. The Resident Council supported rehabilitation of the development, but the PHA eventually decided it would rather demolish the project and build some new housing on the site or sell it for such development.

From 1996 until the Court of Appeals decision in 1998, the PHA and the Resident Council fought about whether the council qualified to represent the tenants in the Downtown Homes and was entitled to a right of first refusal before the PHA sold the project to a third party. Eventually, the Resident Council brought suit against the PHA, seeking a declaratory judgment settling its claim to be the representative of the tenants and to have a right of first refusal and injunctive relief preventing the PHA from selling the project without giving the organization an opportunity to buy it. The District Court ruled in the Resident Council's favor and the Court of Appeals affirmed.

After losing that battle in court, the PHA sent the Council a letter on June 17, 1998, setting out its terms for the sale of the project and granting the Council an opportunity to meet those terms. In general, the terms were the ones that the PHA had been working out with a rival private developer who was seeking to purchase the development. In response, the Council submitted its offer to purchase the development in September of 1998. The Council had formed a partnership with the Telesis Corporation which provided access to needed development experience and financing.

In November, the PHA rejected the Council’s offer, claiming that it did not meet the material terms of the PHA’s June 17 letter. The PHA’s position was that the Council’s offer was defective in seven respects, including:

1. Failure to secure a firm commitment of financing;
2. Having an inadequate financing plan;
3. Presenting a poor plan for use of the property;
4. Not having enough two-bedroom units;
5. Not having an adequate marketing plan;
6. Having an excessive percentage of low-income units; and
7. Including faulty engineering costs./3/

HUD rejected points 2-7 relied upon by the PHA. In its view, some of those points concerned items that had not been specified in enough detail in the PHA’s June 17 letter to make them material terms of the offer. HUD considered other items to be details to be resolved in the final negotiations of the terms of the sale between the PHA and the Council.

On the first item, -- the firm financial commitment -- HUD agreed with the PHA that the commitment secured by the Council from a local bank and FNMA was not sufficiently firm. However, HUD still did not consider that deficiency sufficient grounds for rejecting the offer, because neither HUD not the PHA had defined what type of financing commitment would be deemed sufficiently firm. As a result, HUD took it upon itself to define the term in its Opinion Letter. The definition it adopted is the following:

A firm financial commitment is one that irrevocably obligates a creditable source (lender and/or equity provider) to the lending and/or equity investment of a specific sum of funds to be made on or before a specific date(s) and may contain contingencies or conditions which must be satisfied by the borrower (or entity receiving equity investments) before the closing of the transaction. The condition of a firm commitment must be that it is enforceable by the borrower (or entity receiving equity investments) upon the satisfaction of all contingencies or conditions./4/

Because there had previously been no clarification of the term "firm financial commitment," HUD ordered the PHA to grant the Council at least 90 days to produce a financing plan that included a commitment that met HUD’s new definition.

Notes

1    Alexandria Resident Council, Inc. v. Samuel Madden Homes Tenant Council, ___ F.3d ___ (4th Cir. Jul. 22, 1998) (Table, Text at 1998 WL 416726), aff'g Alexandria Resident Council, Inc. v. Alexandria Redev. and Hous. Auth., 979 F. Supp. 409 (E.D. Va. 1997).

2    Letter from Lee A. Palman, Director, Public Housing Center, United States Department of Housing and Urban Development, Washington, D.C., Office (3GPH), to Alexandria Resident Council (Mar. 24, 1999) (hereinafter HUD Opinion Letter).

3    HUD Opinion Letter, supra, note 2, at 2.

4    Id. at 2-3.

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