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CHARLOTTE HOUSING FOR ELDERLY v. CUOMO

March 21, 2000

CHARLOTTE HOUSING FOR THE ELDERLY ET AL., PLAINTIFFS,
V.
ANDREW CUOMO, SECRETARY OF THE UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT AND THE UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, DEFENDANTS.



The opinion of the court was delivered by: Joyce Hens Green, District Judge.

MEMORANDUM OPINION AND ORDER

I. FACTUAL BACKGROUND

In the late 1970's and early 1980's the four plaintiff partnerships entered "Housing Assistance Payment Contracts" ("HAPs") pursuant to Section 8 of the Housing Act, 42 U.S.C. § 1437. Charlotte's contract was with the Charlotte Housing Authority ("CHA"), while the other three plaintiffs entered contracts with HUD. CHA was a public housing authority that received HUD funding under Section 8, and in turn awarded assistance to Charlotte.

A. Section 8 and Section 801

The Section 8 program was created to subsidize private landlords renting to low income tenants. Under the program, a "contract rent" was established for each unit, and HUD made assistance payments to compensate owners for the difference between the contract rent and the amount a tenant was actually able to pay. See 42 U.S.C. § 1437f(c). The contract rent was to be comparable to the rent charged for unassisted units. In order to maintain a correct rate for contract rent, HUD was to make yearly adjustments under either a "reasonable formula" to be devised by HUD, or by comparing the contract rent to rental rates in the same housing area. See id. § 1437f(c)(2)(A) & (C).

HUD promulgated regulations under which an Annual Adjustment Factor (AAF) would be applied to contract rents once per year if the owner so requested, thereby increasing the contract rent. 24 C.F.R. § 880.609(a) & 888.200 et seq. Each year, HUD published the AAF in the Federal Register, and upon request would adjust the contract rent by multiplying it by the AAF. For example, the adjustment for a unit with a rent of $100 during a year in which the AAF equaled a 5 percent increase would result in a contract rent of $105 for the next year:

(1.05) ($100) ? $105

In the 1980's, HUD became concerned that the AAF adjustments were increasing contract rents above the local rental rates. Thus, HUD began to conduct independent comparability studies of area rents, and used those rental rates as a cap on contract rates in that housing area. See Cisneros v. Alpine Ridge Group, 508 U.S. 10, 14, 113 S.Ct. 1898, 123 L.Ed.2d 572 (1993). Landlords subsequently brought suit against HUD, and the Ninth Circuit ruled that the use of comparability studies to cap contract rents was unauthorized. See Rainier View Associates v. United States, 848 F.2d 988 (9th Cir. 1988).

In response, Congress enacted Section 801 of the Department of Housing and Urban Development Reform Act, 103 Stat. 2057, which amended Section 8(c)(2)(C) of the Housing Act. Section 801 made clear HUD's authority to conduct independent comparability studies, but also placed certain requirements on the studies, and directed HUD to establish standards by which the studies would be conducted. More importantly for this case, Section 801 included a provision through which landlords could be given a lump sum in compensation for the lost rent, see § 801(a), and a provision which permitted a one-time adjustment to contract rents, see § 801(d), in order to bring them closer to the level they should have reached by that point in time. The plaintiffs' claims involve both of these provisions.*fn1

i. Section 801(a)

Congress intended the lump sum retroactive payment and the one-time rent adjustment to restore owners to approximately the place they would have been had HUD calculated rent adjustments according to the AAF adjustment formula throughout the 1980's.*fn2 In section 801 Congress established a new formula for calculating AAF adjustments, which was used only for the purpose of making retroactive calculations to supplement the adjustments made in the 1980's. The section 801 calculation multiplies the AAF by the contract rent minus the portion of the rent attributable to debt service (the mortgage payment).*fn3 For example, if rent for a unit was $100, the AAF was 1.05, and the debt service on the unit was $10, rent for the subsequent year would be $104.50.

(1.05) ($100 − $10) $10 ? $104.50*fn4

Owners were eligible to receive the difference between the contract rent adjustments as calculated under the section 801 formula and the contract rent adjustments they actually received. Thus, if an owner should have received the $5 increase in rent shown in the section 8 sample calculation provided earlier, but had received only a $2 increase, the owner would be eligible to receive $2.50 as a lump sum retroactive payment.*fn5

ii. Section 801(d)

The one-time adjustment provided in § 801(d) incorporates the § 801(a) AAF adjustment formula described above. Section 801(d) provides that, upon request, the rent shall become the greater of the contract rent already approved for that year, or the contract rent as calculated by the § 801 AAF adjustment formula.

iii. Implementing Subsections of Section 801

Congress authorized HUD to promulgate implementing regulations in § 801(e), and in 1991 HUD's regulations were codified at 24 C.F.R. § 888.301 et seq. ("1991 regulations"). The 1991 regulations required owners to request the lump sum retroactive payment and the one-time rent adjustment within 60 days of the mailing of an eligibility notice ...


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