HUD Housing Prepayment Risk Compels Tenants to Organize

Tenant groups, community based non-profit corporations, the City of Los Angeles and the federal government are gearing up to try to save thousands of federally subsidized apartments in Los Angeles for their low-income tenants. These apartments were built under federal programs in the late 1960s and early 1970s. Under these now-defunct programs, private owners received low-interest federal loans in exchange for agreements by owners that they would remain affordable for 20 years. After 20 years, however, if the owners prepay their loans, they may charge market rents for the units. These rent increases could result in displacement of thousands of low and moderate income tenants.

In order to deal with this potential time bomb, Congress passed the 1987 Emergency Low Income Housing Preservation Act, placing a moratorium on prepayment of these mortgages. In 1990, it enacted the Low Income Housing Preservation and Resident Homeownership Act (LIHPRHA.). This law, which resulted from intense lobbying from representatives of both owners and tenants, provides financial incentives for project owners to remain in the program, but favors purchase of the housing by tenant and community groups, if the owner decides to sell the property.

As the expiration date of these twenty-year restrictions grows near, owners and tenants are considering their option. According to the Los Angeles Housing Department, owners are opting to sell about one quarter of the 154 buildings, containing 10,000 apartment units in the City of Los Angeles and about 15,000 countywide. Statewide, some 40,000 apartment units were built under these housing programs, known as the Sec­tion 236 Program and Section 22l(d) (3) Program. Nationally, 3,200 properties containing 360,000 units fall under the program. California and Massachusetts have the highest concentration of projects. Other large concentrations of "at risk" properties in California are in Sacramento, San Diego, and the Bay Area.

At Mission Plaza, a 132 unit complex in Lincoln Heights, residents have formed a tenants association and have entered into an agreement to purchase their buildings. With the assistance of housing consultants, lawyers, architects and tenant organizers, they have begun the lengthy process of securing financing and HUD approval for their purchase. HUD is providing a $100,000 grant to assist them in this process. If they are successful, the residents (most of whom are low income) will pay no more than 30% of their income for rent. For some, this will be an increase in rent, but for many, it will have no financial effect. 

Similar efforts are underway at other projects, including the 196 unit Lurline Gardens in Chatsworth and 17 buildings in four projects in Central Los Angeles being organized by the Los Angeles Stone Ridge Rights Tenants Enforcement League (LASTREL). Residents of Silverlake Plaza, an 88 unit housing development located in Silverlake, have opted to ask the Route 2 Community Housing Corporation to buy the building on their behalf. At Castle Argyle in Hollywood, the senior residents are supporting the purchase by Southern California Presbyterian Homes.

In most cases, funding for 95% of the purchase price will be provided by the US Department of Housing and Urban Development, with the remaining 5% coming from other sources, such as local government. The City of Los Angeles’ Housing Department is requesting City Council approval of a long-term loan program to provide needed supplemental financing. Yet in order to take advantage of this opportunity, tenant groups need assistance and resources. To address the problem of preservation of this housing, the Stale Legislature established the non-profit California Housing Partnership in 1987. It acts as a clearinghouse on prepayment issues, provides training to tenants and non-profits to help them understand their options, assists local governments to develop their own policies on prepayment projects, and consults on specific project issues.

In Los Angeles, tenant efforts will also be aided by a Technical Assistance Team, working under the direction of the County Alliance of HUD Subsidized Tenants. This alliance of over 30 tenant unions, from expiring use restriction projects, coordinates a team of tenant organizers and attorneys from the Legal Aid Foundation of Los Angeles' Prepayment Task Force, and the LA County Bar Association's Public Counsel program. The California Mutual Housing Association, a statewide association of housing cooperatives and tenant associations organizing for resident control, is working throughout the State to provide long-term support and training in issues such as: board development, financial management, and maintenance planning to resident controlled housing projects, to assure their long term viability. 

The City of Los Angeles and HUD both have technical assistance grant programs available to tenant groups to help cover some of the costs of pre­purchase costs that are incurred in acquiring the properties. The non-profit Low Income housing Fund will make loans to tenant and non-profit groups for this purpose. Residents of many of the projects are hopeful, however, that these programs will allow them to do more than simply be own their homes. According to Richard Mandel, Senior Program Manager at the California Housing Partnership, "Many see tenant ownership as a means of achieving tenant empowerment. By owning the property, or working with a community-based non-profit who will own the property, tenants hope to get responsive property management, secure needed improvements to the property, and improve long-term maintenance of their apartments. Broader community development strategies can then follow." Mandel believes that housing which is not purchased by tenants or locally controlled non-profits is also at risk of being purchased by either "sham non-profits" set up by former owners or by management companies for the sake of securing the management contracts. To succeed in their efforts, tenants will have to convince sometimes skeptical owners of the properties that they have the capacity to complete the complex purchase process. They will also have to wend their way through the labyrinth of federal regulations which govern the sale of these projects. Staffing shortages at HUD, as well as the newness of the process, may slow efforts to complete property sales. 

Whether tenants and or non-profits ultimately succeed in purchasing the properties, government housing officials hope to avoid recreating this pre­payment problem for future generations of tenants: the new regulations require that the housing remain affordable for the remaining useful life of the property.