Multifamily Housing

In 1994, in an effort to make better use of its resources, the Department of Housing and Urban Development (HUD) began to liquidate its inventory of multifamily mortgages. Through nine sales held between 1994 and 1996, HUD sold more than 1,200 of the nearly 2,400 multifamily mortgages in its portfolio. Two of the sales involved properties in which some or all of the units were subsidized by HUD--a sale of 158 partially assisted multifamily mortgages and a sale of 26 subsidized multifamily mortgages to the Missouri Housing Development Commission. These two loan sales also contained special conditions, including protection against discrimination for assisted tenants and funding for property improvements. GAO found that at the partially assisted properties whose project-based assistance contracts had expired, more than three-quarters of the eligible households were able to use the tenant-based assistance that HUD had provided in lieu of project-based assistance. Of the households that used tenant-based assistance, 65 percent stayed in the same units and the rest moved. Of the households that moved, about 50 had to do so because the owners of the three properties where these families had lived refused to rent to recipients of tenant-based assistance. The average monthly rent of households that received vouchers rose by $56. HUD prohibits property owners from unreasonably refusing to rent to households with tenant-based assistance. HUD also gives tenants and housing authorities the right to seek judicial enforcement of this protection. However, HUD did not fully inform housing authorities, tenants, and property owners of this protection. As a result, most housing authorities were unaware of their right to seek judicial enforcement, and representatives of the three properties whose owners refused to accept tenant-based assistance told GAO that they were unaware of the prohibition against unreasonably refusing to rent to households using tenant-based assistance. According to the results of inspections done by HUD and others at the time of the partially assisted and Missouri loan sales and by GAO during visits to the most run-down properties that it chose as case studies, conditions at these properties are improving. The improvements generally addressed major problems with building exteriors, apartment interiors, and property grounds.

GAO noted that: (1) at the partially assisted properties whose project-based assistance contracts had expired, over three-quarters of the eligible households were able to use the tenant-based assistance that HUD provided in place of project-based assistance; (2) of the households that used tenant-based assistance, 65 percent stayed in the same units and the remainder moved; (3) among the households that moved, about 50 had to do so, according to housing authorities, because the owners of the three properties where these households had resided refused to rent to recipients of tenant-based assistance; (4) although the financial impact of the conversion from project-based to tenant-based assistance varied, the average monthly rent of households that received vouchers increased by about $56; (5) among the protections for assisted tenants that HUD established in the partially assisted loan sale agreement is one that prohibits property owners from unreasonably refusing to rent to households with tenant-based assistance; (6) HUD also established the right for tenants and housing authorities to seek judicial enforcement of this protection; (7) however, the Department did not fully inform housing authorities, tenants, and property owners of these protections; (8) most housing authorities were unaware of their right to seek judicial enforcement; (9) representatives of the three properties where owners refused to accept tenant-based assistance told GAO they did not know of the prohibition against unreasonably refusing to rent to households using tenant-based assistance; (10) without knowing of their right to seek judicial enforcement, tenants and housing authorities cannot reasonably be expected to ensure the enforcement of tenant protections; (11) furthermore, without knowing of the prohibition against unreasonably refusing to rent to households using tenant-based assistance, property owners have little incentive to rent to such tenants; (12) when GAO told HUD officials that the owners of three properties had refused to rent to households using tenant-based assistance, the officials declined to offer an opinion on whether the owners' refusals had been unreasonable; (13) according to the results of inspections conducted by HUD and others at or near the time of partially assisted and Missouri loan sales and by GAO during its visits to the most physically distressed properties that it selected as case studies, conditions at these properties are improving; and (14) the improvements generally addressed major problems with building exteriors, apartment interiors, and property grounds.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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