Renewals – Four Options for Renewal of Expiring Project-Based Section 8 ContractsDescription: Project-based Section 8 contracts run for a fixed period of time, usually between 5 and 20 years. Upon expiration, the owner has a choice whether to renew its participation in the program or to "opt-out." Congress and HUD have established rules and policies governing the amount of the government’s contract renewal offer. If the building is in acceptable condition ("troubled" properties are covered in a separate section), there are four primary ways of renewing the contract, depending greatly on a comparison of the Section 8 rent level with the market rent level. The four approaches are: Straight renewal. The approach taken if the Section 8 rent is comparable to market rent and the owner is willing to renew his contract. The parties simply extend the contract with essentially the same terms and rents as before. Owners with Section 8 rents less than market value may choose this option to bide their time a year at a time, especially if they are seeking to avoid to administrative burden and five-year commitment of a "markup." This option is also available to owners of properties that are "exempt" from the Mark to Market program (Section 202, Rural Housing Service Section 515, or certain bond-financed properties), even though their current rents exceed market level. Mark Up to Market. The approach taken if the Section 8 rents are lower than the market rents and the owner of an eligible property seeks a higher Section 8 rent. In short, the contract is renewed and HUD raises the Section 8 rents to match the market rents to eliminate the financial incentive for the owner to opt-out of the program. Owner must commit to remain in the Section 8 program for at least five years with only annual cost adjustments. Restructuring/Mark to Market. The approach taken if the Section 8 rent is significantly higher than the market rent. Usually, the owner cannot simply opt-out of the program without suffering financial hardship because the rents would decrease too much, creating difficulties in maintaining debt service payments and operating expenses. HUD, however, only subsidize rents at "market" rents. Thus, with this approach, the contract is usually renewed and HUD lowers the rents for the property to match market rents, and the debt must be restructured (divided into two portions, one currently serviceable and the other not) or partially forgiven in order for the owner to keep the building financially viable. A Restructuring Plan could include a conversion of some or all of the project-based assistance to vouchers, pursuant to a Rental Assistance Assessment Plan. See the Basic Guides section for the Advocate's Restructuring Guide on the Mark to Market process. Mark to Market "Lites." An approach that can be taken if the Section 8 rent is only moderately higher than the market rent for the property, such that the owner can keep the property financially viable at the (lower) market rents. HUD and the owner renew the contract, reducing the rent to market rent, without restructuring or forgiving part of the debt. Regardless of the approach, the process is complex, and HUD and the owners may disagree on any number of things, such as the appropriate rent level and the condition of the property. Tenants have specific notice and participation rights, depending on the option chosen by the owner. Most expiring contracts are currently being renewed only for one year at a time because Congress provides appropriations only for one year at a time. However, owners may obtain contracts of any length, subject to appropriations, and longer commitments are required for those using Mark to Market restructuring or the Mark Up options. Where project-based assistance is not renewed, most tenants will receive replacement vouchers, which may not be sufficient to enable them to remain in their homes (see the sections on Enhanced Vouchers and Opt-Outs In order to administer the "Mark to Market" components of the renewal program, in 1997 Congress created the Office of Multifamily Housing Assistance Restructuring (OMHAR), originally as an entity with its own director, reporting directly to the HUD Secretary. When Congress extended the Mark-to-Market program for five years in 2001, it also extended the existence of OMHAR for another three years, while vesting the Federal Housing Administration Commissioner (the Assistant Secretary for Housing) with oversight of OMHAR. For more information see HUD Housing Programs: Tenants’ Rights (3rd ed., forthcoming early 2003). Statutes Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRAA), Pub. L. No. 105-65, Title V, 111 Stat. 1343, 1384 (Oct. 27, 1997), codified at 42 U.S.C.A. § 1437f (Historical and Statutory Notes, "Multifamily Housing Assistance"), as amended by statutes below (comprehensive statute dealing with Section 8 renewals). Pub. L. No. 106-74, § 531, 113 Stat. 1109 (Oct. 20, 1999) (extensively rewrote Section 524 of MAHRAA concerning rent levels HUD can and must offer to various types of properties with expiring Section 8 contracts, including "Mark Up to Market"). Pub. L. No. 107-116, § 601, et seq., 115 Stat. 2177, 2220 (Jan. 10, 2002) (Mark to Market Extension Act) (extending mark to market program for five years, Office of Multifamily Housing Assistance Restructuring (OMHAR) three years, moving OMHAR under jurisdiction of FHA Commissioner). Pub. L. No. 105-276, § 549, 112 Stat. 2461, 2607 (Oct. 21, 1998), codified at 42 U.S.C. §1437f(c)(8) (restoring the requirement that owners provide one-year’s notice to tenants and HUD of expiration or termination); Pub. L. No. 106-74, § 535, 113 Stat. 1047, 1121 (Oct. 20, 1999) (removing requirement that notice state reasons for notices served after effective date). See also Opt-Outs Other and Older statutes: Pub. L. No. 107-117, § 1303, 115 Stat. 2230, 2340 (Nov. 26, 2001) (appropriation for technical assistance funds under § 514 of MAHRAA). Pub. L. No. 107-73, Title II, 115 Stat. 651, 659 (Nov. 26, 2001) (appropriations for renewing Section 8 contracts, FY 02). Pub. L. No. 106-377, Title II, 114 Stat. 1441, 1441A-11 (Oct. 27, 2000) (appropriations for renewing Section 8 contracts, FY01). Pub. L. No. 106-74, Title II, 113 Stat 1047, 1055 (Oct. 20, 1999) (appropriations for renewing Section 8 contracts, FY00). Pub. L. No. 105-276, Title II, 112 Stat 2461, 2469 (Oct. 21, 1998) (appropriations for renewing Section 8 contracts, FY99). Pub. L. No. 105-65, Title II, 111 Stat 1344, 1351 (Oct. 27, 1997) (appropriations for renewing Section 8 contracts, FY98). Pub. L. No. 104-120, § 2(b), 110 Stat. 834, 834 (March 28, 1996) (renewal of Section 8 contracts). Pub. L. No. 104-204, 110 Stat. 2874, 2882 (Sept. 26, 1996) (appropriation for renewing Section 8 contracts, FY97). Regulations 24 C.F.R. Part 401 (2001) (Multifamily Housing Mortgage and Housing Assistance Restructuring Program "Mark-to-Market"). 24 C.F.R. Part 402 (2001) (Project-based Section 8 Contract Renewal Without Restructuring (under Section 524(a) of MAHRAA)). Notices HUD Notice H 99-36, "Project-Based Section 8 Contracts Expiring in Fiscal Year 2000" (Dec. 29, 1999) (Only for past renewals - see below.) HUD Notice H 98-34, "Project-Based Section 8 Contracts Expiring in Fiscal Year 1999" (Oct. 16, 1998). (Only for past renewals - see below.) HUD Handbooks and Guidance HUD, Section 8 Renewal Policy Guide (Jan. 19, 2001) [Link to document posted in Prepayment outline]. This is a comprehensive guide to HUD’s policy on renewal of project-based Section 8 contracts. The document posted here is a version of the Guide as amended through November 2001. Check HUD's web site for any revisions. This guide explicitly supercedes notices H 99-36 and H 98-34, above, which are now relevant for past renewals. HUD, Operating Procedures Guide (for PAE administration of Mark to Market Restructuring or "Mark to Market Lites"), available from HUD’s Office of Multifamily Housing Assistance Restructuring (OMHAR) website. Other Resources NHLP’s Restructuring Advocacy Guide (available in fall 2002) Technical Assistance funding is available from HUD. Section 514 of MAHRAA authorized the HUD Secretary to make available $10 million annually for technical assistance for tenants residing in expiring Section 8 properties. State and Local Resources For various State and Local approaches to preserving federally subsidized low-income housing units, see State and Local Initiatives Data For data on federally subsidized low-income housing units, see www.hud.gov/offices/hsg/mfh/mfdata.cfm Articles "The New Section 8 Renewal and Restructuring Program: An In-Depth Review," 27 HOUSING LAW BULLETIN 175 (Nov. 1997) (long summary). "Moving Forward on Project-Based Section 8 Expiring Contracts," 27 HOUSING LAW BULLETIN 195 (Dec. 1997) (next steps). "HUD Provides Improved Data on Section 8 Projects Via the Internet," 27 HOUSING LAW BULLETIN 201 (Dec. 1997). "What Might Happen to Section 8 Properties Under the New Law?", 28 HOUSING LAW BULLETIN 17 (Feb. 1998) (how to begin categorizing properties). "Section 8 Renewal and Restructuring: Working At the State Level," 28 HOUSING LAW BULLETIN 35 (Mar. 1998) (commencing state and local activities). "IRS Issues Favorable "Mark to Market" Revenue Ruling," 28 HOUSING LAW BULLETIN 134 (Aug. 1998). "HUD Issues Regulations for Section 8 "Mark to Market" Program," 28 HOUSING LAW BULLETIN 143 (Sept. 1998). "HUD Solicits PAE Applications for Mark to Market Program," 28 HOUSING LAW BULLETIN 158 (Sept. 1998). "Important New Laws for HUD Multifamily Housing," 28 HOUSING LAW BULLETIN 191(Oct./Nov. 1998) (reviews relevant provisions of FY ‘99 HUD Approps Act). "HUD Issues Guidance Re FY 1999 Expiring Section 8 Contracts," 28 HOUSING LAW BULLETIN 213 (Dec. 1998) (reviews HUD Notice H 98-34 re FY ‘99 expirations). "HUD Selects PAEs for Mark to Market Program," 28 HOUSING LAW BULLETIN 217 (Dec. 1998). "Although PAEs Selected, Outstanding Issues Delay Finalizing of Contracts," 29 HOUSING LAW BULLETIN 38 (Feb. 1999). "New HUD Data on Section 8 Projects," 29 HOUSING LAW BULLETIN 106 (May 1999). "HUD Finally Announces "Mark-Up" Policy to Prevent Some Section 8 Opt-Outs," 29 HOUSING LAW BULLETIN 96 (May 1999). "Minnesota Section 8 Tenants Win Major Preservation Victory," 29 HOUS. L. BULL. 161 (Sept. 1999) (reviewing 215 Alliance v. Cuomo). "Preserving Federally Assisted Housing at the State and Local level: A Legislative Tool Kit," 29 HOUS. L. BULL. 183 (Oct. 1999) (survey of state and local preservation initiatives). "FY 2000 HUD Appropriations Bill: Section 8 Renewal Provisions (Including "Mark Up to Market’)," 29 HOUS. L. BULL. 211 (Nov./Dec. 1999). "New Guidance re FY 2000 Project-Based Section 8 Contract Renewals," 30 HOUS. L. BULL. 9 (Jan. 2000) (reviewing HUD Notice H99-36). "Final Mark to Market Regulations," 30 HOUS. L. BULL. 61 (May 2000). "HUD Issues New Section 8 Renewal Policy Guide," 31 HOUS. L. BULL. 61 (March 2001). "Second HUD Report on "Vouchered-Out" Assisted Properties," 31 HOUS. L. BULL. 68 (March 2001). "Fair Housing Litigation to Prevent the Loss of Federally Assisted Housing: The Duties of Public Housing Authorities and Project Owners (Part One)," 31 HOUS. L. BULL. 73 (April 2001). "HUD Data on Section 8 Projects," 31 HOUS. L. BULL. 116 (May 2001). "Fair Housing Litigation to Prevent the Loss of Federally Assisted Housing: The Duties of Public Housing Authorities and Project Owners (Part Two)," 31 HOUS. L. BULL. 157 (July/Aug.2001). "Congress Reauthorizes "Mark to Market" Program for Expiring Section 8 Properties," 32 HOUS. L. BULL. 6 (Jan. 2002). "Congress Resolves HUD Technical Assistance Funding Fiasco," 32 HOUS. L. BULL. 11 (Jan. 2002). Useful Websites:
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