# Section 8 Certificate and Voucher Programs Conforming Rule

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URL: https://www.frixlaw.com/law-library/documents/fr%3A95-15906

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** July 3, 1995
- **Citation:** 60 FR 34660

## Text

SUMMARY: This rule combines and conforms rules for tenant-based rental
assistance under the rental certificate and the rental voucher
programs. This rule also amends requirements for project-based
assistance under the rental certificate program.

EFFECTIVE DATE: Information collections in this rule must be reviewed
by the Office of Management and Budget under the Paperwork Reduction
Act of 1980. Upon OMB approval of the information collections, HUD will
publish a notice in the Federal Register announcing the effective date
of the rule and adding the OMB approved control numbers. It is
anticipated that this OMB approval process will be concluded, and that
the rule will be made effective, by 60 days after the date of
publication of this rule.

FOR FURTHER INFORMATION CONTACT: Madeline Hastings, Director, Rental
Assistance Division, Room 4204. Telephone numbers (202) 708-2841
(voice); (202) 708-0850 (TDD). (These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The information collection requirements contained in this rule have
been submitted to the Office of Management and Budget (OMB) for review
under the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-3520). See
the Notice of Information Collections published elsewhere in today's
issue of the Federal Register, inviting public comment on the estimated
burden on the public associated with the rule. (Of course, as part of
this process, it is possible that there will be changes made to the
information collections.) No person may be subjected to a penalty for
failure to comply with these information collection requirements until
they have been approved and assigned an OMB control number, to be
announced by separate notice in the Federal Register.

Discussion

History and Scope of Rule

On February 24, 1993 HUD published a comprehensive proposed rule to
combine and conform the rules for tenant-based Section 8 rental
assistance under the certificate and voucher programs. (58 FR 11292)
The proposed rule would also have amended requirements for project-
based assistance under the Section 8 certificate program.
HUD received approximately 400 comments on the proposed rule that
generally approve the broad purpose of the rule. Comments object to
particular features of the rule. Many of the objections pertain to
provisions implementing statutory requirements, particularly the
requirement that an owner notify HUD when terminating tenancy for a
business or economic reason, and the prohibition of discrimination by
multifamily owners against certificate or voucher holders.
On July 18, 1994 HUD published the first portion of the
comprehensive rule for the tenant-based program: The final rule on
unified admission procedures. (59 FR 36662) At that time, part 982,
subparts A and E were added. Today's final rule covers other aspects of
the comprehensive rule for the tenant-based programs, adding 8 subparts
and reserving 3 other subparts. The rule also contains the regulations
for the project-based certificate program, included in part 983.
Today's final rule does not include requirements concerning:

--Calculation of the rent and housing assistance payment for the tenant
or project-based programs.
--``Special housing types'': program variants to meet special housing
needs, such as congregate housing, shared housing, single room
occupancy housing and independent group residences.
HUD will issue a final rule on these subjects. Until the final rule
is issued, these subjects will be governed by requirements in the
existing program rules. The final rule may also include further
revisions of program admission procedures, or subjects in today's final
rule.

I. Requirements and Plans for HA Administration of Program

A. Demonstrating HA Authority and Jurisdiction

The rule provides that an HA must furnish HUD a legal opinion on
the HA's jurisdiction and authority to administer the tenant-based
programs. (Sec. 982.51) A comment suggests that agencies already
participating in the program should be exempt from this requirement.
The new rule does not add a new requirement. Since the beginning of
the tenant-based programs, agencies have had to provide evidence of the
HA authority and of the area where the HA was authorized to operate the
programs under State and local law. A correct determination of the HA
jurisdiction has important consequences for day to day administration
of the program by the HA. Families may move anywhere in the HA
jurisdiction, and outside the HA jurisdiction, under portability
procedures. The new rule does not automatically require any new
submission by the HA if the HA legal opinion is already on file with
HUD, and gives HUD the necessary evidence of the HA jurisdiction and
operating area. Of course, the HA must furnish new information if there
is a change in State law or legal authority, such as a court decision
determining the HA jurisdiction.
Under the old program regulations and handbook, the HA was required
to show the governmental jurisdiction in which the HA was ``not legally
barred'' by State law from entering and administering assistance
contracts for program participants. This formulation emphasized the
freedom of the participant to lease a unit anywhere the HA was not
legally prohibited from administering assistance. Since the beginning
of portability, a participant family could move outside the
jurisdiction of the original HA (for non-resident applicants,
portability applies after the first year in the program). In the final
rule, the term ``jurisdiction'' is defined as the area where the HA is
authorized to administer the program under State or local law.
(Sec. 982.4)

B. HA Local Policies

The HA must adopt a plan that states HA local policies for running
the tenant-based program. Under the proposed rule, the HA adopted local
policies governing all major aspects of HA program administration. In
accordance with past practice, the HA would have been required to adopt
both an ``administrative plan'' for general program administration, and
a separate ``equal opportunity plan'' for compliance with fair housing
requirements. The proposed rule provided that the HA administrative
plan and equal opportunity plan be approved in advance by HUD.
Comments largely commend HUD for allowing HAs broad discretion to
adopt local policies for operation of the tenant-based program. HUD
should

[[Page 34661]]
direct what subjects must be covered by HA administrative policies,
while leaving HAs discretion on how to regulate the prescribed
subjects. Comments particularly welcome new regulatory provisions
confirming that an HA may adopt local policies concerning family
absence from the assisted unit, program participation after break up of
the assisted family, maximum security deposit, and enforcement of
participant obligations. (Provisions on these subjects are discussed
later in the preamble.)
However, HA comments express concern with the cost and
administrative burden of adopting and revising HA policies. Comments
ask clarification of a proposed provision stating that the HA must
revise the administrative plan or equal opportunity plan to change the
policies covered by the plan. Comments recommend combining the equal
opportunity and administrative plans.
Comments discuss the difficulty and delay in securing HUD approval
for new HA policies. Some comments recommend a regulatory time limit
for HUD review of the HA policy.
Comments suggest that the HA should be required to give notice of
proposed changes in HA policies to participants and interested
organizations or advocates, and that the HA should be required to give
copies of the HA policies to each applicant or participant.
On reconsideration, HUD has made a number of changes in the
provisions on HA local policies:

--Merging the equal opportunity and administrative plans into a single
plan;
--Limiting the subjects that must be contained in the plan; and
--Eliminating the blanket requirement for HUD advance approval of HA
policies in the administrative plan.

In the final rule, HUD has decided to eliminate the requirement for
separate administrative and equal opportunity plans. An HA's
discretionary policies will be contained in the administrative plan.
This change eliminates the artificial distinction between equal
opportunity issues and ordinary administrative policies. The final rule
removes the requirement for separate overlapping or duplicative
coverage under the prior equal opportunity and administrative plans,
such as policies for selection of program participants. All aspects of
program administration must be consistent with the HA's obligation to
operate the program in accordance with civil rights requirements.
Under the terms of the proposed rule, the administrative plan would
have been a comprehensive statement of HA local policies for
administration of the program. Under the final rule, the mandatory
coverage of the administrative plan is only focussed on equal
opportunity requirements and programmatic policies for the specific
areas listed in the rule. (Sec. 982.54(d)) While HA policy and practice
in other areas (such as financial management) have a vital role in
operation of the tenant-based program, HUD review and oversight will
focus on the results of HA policies, not on whether the HA has adopted
a written policy to achieve these results (or has obtained HUD approval
for such a policy).
Besides listing specific subjects that had to be included in the
administrative plan, the proposed rule also would have required the HA
to include unspecified ``other local HA policies'' for administration
of the program. In the final rule, this residual category is deleted.
The HA is only required to cover the specific subjects listed in the
rule. In defining this mandatory coverage, HUD does not express any
view that other matters are not important, or that the HA should not
adopt formal written policies for the guidance of program officials.
However, the decision whether to adopt such additional policies is left
to the local judgment and managerial experience of the individual HA.
Before this rule, the HA was required to submit the administrative
plan for HUD approval. In the final rule, this requirement is deleted.
For most purposes, the HA may adopt and revise HA policies without
asking for HUD approval. However, the policies in the administrative
plan must comply with HUD requirements. The HA must give HUD a copy of
the administrative plan. (Sec. 982.54(b))
By eliminating the HUD approval requirement, the new rule
substantially increases the HA's day-to-day autonomy in administration
of the program, and minimizes HUD interference in HA policy decisions.
At the same time, HUD retains the authority for necessary oversight and
audit of HA operations. If HA policies violate HUD requirements, the HA
must revise the administrative plan to comply with HUD requirements.
(Sec. 982.54(b)) Instead of using HUD administrative resources for
routine review and approval of policies in the HA administrative plans,
HUD can concentrate available HUD staff on discovery and correction of
the most serious HA problems in managing the program.
Since the rule generally lifts the requirement for prior HUD
approval of HA administrative policies, an HA can revise its policy
more quickly and easily. The HA does not need to wait for HUD approval,
or negotiate changes in HA policy to satisfy the HUD reviewer, so there
is no need to consider or establish a deadline for HUD review of the HA
administrative plan, as suggested by some comments.
Comments ask if changes in the administrative plan must be approved
by the HA board. The final rule provides that the administrative plan
and any revisions of the plan must be formally adopted by the HA board
or other authorized officials. (Sec. 982.54(a))
In certain key areas, HUD rules will continue to mandate advance
HUD approval of HA policies. Residency preferences for selection of
applicants must be approved by HUD. (Sec. 982.208(b) (59 FR 36687, July
18, 1994)) As required by law, the HA family self-sufficiency (FSS)
action plan must also be approved by HUD. (42 U.S.C. 1437u(g)(1)) (If
FSS policies are contained in an HA's administrative plan, the policies
must be moved to the HA's FSS action plan.)
Comments state that the HA administrative plan should include HUD
requirements, not just HA discretionary policies. HA comments ask if an
HA must amend the administrative plan whenever HUD revises regulations
or other requirements. The final rule provides that an administrative
plan must state HA policy ``on matters for which the HA has discretion
to establish local policies.'' (Sec. 982.54(a))
Since the final rule does not require that the HA revise the
administrative plan to merely echo HUD regulations or other
requirements, the HA is only required to revise the administrative plan
to reflect the exercise of policy choices by the individual HA. By
definition, HUD ``requirements'' are binding on the HA in any case.
For practical administration of the program, HAs may elect to
develop procedures or guidance for HA staff that reflect both HUD
requirements and the HA's policy decisions in accordance with HUD
requirements. As noted above, the rule no longer requires that the
administrative plan must be approved in advance by HUD, so it is less
critical to distinguish between HA policy mandated by HUD, as opposed
to HA policy adopted in accordance with local HA discretion.
The final rule drops a proposed provision that would have required
an HA to adopt policies to encourage participation by eligible
families. Since many eligible families are eager to participate in the
program, and most HAs have long waiting lists, HAs have

[[Page 34662]]
little need to stimulate family interest and demand for participation.

C. Equal Opportunity Requirements

The rule lists federal civil rights law and regulations that apply
to the tenant-based programs. (Sec. 982.53)
Requirements under Section 3 of the Housing and Community
Development Act of 1983 apply to construction or rehabilitation under
the Section 8 program, but do not apply to Section 8 tenant-based
assistance. Under the final rule, reference to Section 3 requirements
is moved to 24 CFR part 983, which contains the requirements for
projects constructed or rehabilitated under the Section 8 project-based
certificate program. (Sec. 982.11(c)(3)) HAs are encouraged to recruit
qualified program staff in a manner that furthers Section 3 goals.
Comments recommend that the rule should require HA compliance with
State and local fair housing laws. HUD believes that the federal
program rule and program enforcement should only require compliance
with federal fair housing requirements. State and local governments can
of course impose additional requirements. The federal regulation is not
intended to pre-empt the operation of such State or local laws.
Some comments recommend that the rule should impose extensive
additional fair housing procedures, including HA help for persons who
need assistance in presenting a claim for illegal discrimination; HA
collection of fair housing data and HA analysis of barriers to housing
choice; and fair housing training of HA staff. As noted above, HA
operation of the program is subject to civil rights statutes and
regulations. In addition, the basic structure of the tenant-based
program is a powerful instrument for promoting housing choice by low
income and minority families.
An HA must certify that it will comply with equal opportunity
regulations and requirements. (Sec. 982.53(c)) A comment notes that the
certification is unnecessary, since the HA must follow the law in any
case. HUD agrees that the HA is bound by the law and regulations, but
retains the requirement for equal opportunity certification, in
accordance with historical practice in HUD programs. The certification
is not burdensome, and reminds the HA of its responsibility to
administer its tenant-based program in accordance with the federal fair
housing requirements.

II. Funding and HA Application for Funding

A. Competition for Funds; Criteria for Selection

Some program funding is distributed by HUD to HAs through a
competitive process. So HAs can compete for such funding, the
Department publishes a public notice in the Federal Register, called a
``Notice of Funding Availability'' or ``NOFA''. The HUD Reform Act of
1989 provides that the Federal Register notice must state the
``criteria'' for selection of applicants. The competitive criteria in a
Federal Register NOFA may include any objective measure of housing
need, project merit and efficiency. (HUD Reform Act of 1989, Section
102(a)(3), Pub. L. 101-235, 103 Stat. 1990; 42 U.S.C. 3545(a)(3))
Under the law, HUD must publish a description of how to apply for
assistance under the NOFA, including any deadlines. (Id. section
102(a)(2)) The Reform Act requirements are implemented in a HUD
regulation at 24 CFR part 12. The Section 8 program regulation
describes the procedure for HUD publication of a NOFA to govern
competitive award of funds in accordance with part 12
(Sec. 982.101(c)), for HA submission of applications in accordance with
the NOFA (Sec. 982.102(b)), and for evaluation of HA applications based
on selection criteria in the NOFA (Sec. 982.103(a)(2)).
In recent years, HUD has published a number of NOFAs each federal
fiscal year to distribute Section 8 tenant-based funding for various
purposes identified in the appropriation act and conference report. For
example, in federal fiscal year 1994, HUD published separate NOFAs
stating criteria for award of program funding distributed under a
statutory fair share formula, for funds set aside for homeless persons
with disabilities, for homeless veterans with severe psychiatric or
substance abuse disorders, for family self-sufficiency (FSS) program
coordinators, for elderly service coordinators and for the family
unification program.
Some public comments object to award of funding under selection
criteria in a Federal Register NOFA. The comments recommend that
criteria for award of funds should be determined in a full dress
rulemaking, with notice and opportunity for public comment. Comments
indicate that the competitive criteria should be included in the
standing program regulation.
Comments also object to criteria used by HUD to select HA
applications for funding. Comments state that the selection criteria
should give greater weight to efforts to further fair housing, and
should penalize an applicant HA that has a residency preference or
other policies that have an ``exclusionary'' effect. Comments state
that the criteria for selection should give funding preference to HAs
that do not use a residency preference for selection of applicants, and
that have an open waiting list.
The competitive selection scheme under a HUD NOFA may emphasize the
administrative capability of applicant HAs. Comments claim that
application of this HUD selection criterion to distribution of fair
share funding in some metropolitan areas tends to favor a suburban HA
(with greater presumed administrative competence) over the HA for a
core city. Comments also claim that emphasis on the capability
criterion is too subjective. Other comments recommend that funding
should be distributed by formula, rather than by a competitive process.
HUD believes that award of competitive funds according to criteria
stated in a Federal Register notice carries out precisely the process
intended by the 1989 HUD Reform Act, and the regulation adopted by HUD
to implement the Reform Act requirements (24 CFR part 12). HUD is not
required to establish competitive criteria by notice and comment
rulemaking.
Funding for individual HUD programs, such as the Section 8 tenant-
based assistance programs, is typically appropriated by the Congress in
each separate fiscal year. Each year Congress determines the amount of
funding available for different purposes. The breakdown of Section 8
program funding is not definitively known until enactment of the
appropriation act. (The detailed breakdown is generally expressed in a
Table that is included in the Conference Report.) In this context, the
use of a notice and comment rulemaking process to determine criteria
for competitive award of funds in each fiscal year would paralyze the
administrative process, prevent the timely award of appropriated funds,
and deny flexibility in determining appropriate criteria for award of
funding under the annual appropriation.
Comments recommend that HUD adopt new procedures for denial of HA
funding applications. The comments suggest that HUD should give the
rejected applicant a written statement or checklist of the reasons for
denial of the HA's application. Comments also suggest that a rejected
applicant should be granted the right to appeal HUD's funding decision.
For funding awarded by a competitive process, HUD has issued
regulations

[[Page 34663]]
under the HUD Reform Act of 1989. These regulations give broad public
access to documentation of the basis for HUD decision on HA funding
applications. The Reform Act rule provides that HUD must ensure that
documentation on each application is ``sufficient to indicate the basis
on which HUD provided or denied the assistance.'' (24 CFR 12.14(b)(1))
Under the Reform Act rule, this documentation is available for public
inspection for five years. (12.14(b)(2)) The rule for tenant-based
assistance is revised to add a cross-reference to the documentation and
public inspection requirements under the Reform Act rule.
(Sec. 982.103(b)(3))
HUD has not accepted the recommendation to afford the HA applicant
a right to appeal HUD's decision on HA funding applications, or to
delay distribution of funds pending hearing on an HA appeal. HUD is
deeply concerned that the grant of such a right would severely delay or
paralyze the process for award of funds, would encourage fruitless and
distracting appeals and litigation, and would result in major waste and
diversion of administrative energies by HUD and the HAs. HUD seeks to
award competitive funding by a fair and expeditious competition,
carried out in accordance with criteria stated in a published NOFA.
However, HUD will not encumber this process by adding the right to a
formal appeal or hearing for the HA. Sometimes NOFAs provide a
procedure for correction of allocation inequities.
B. Amount of Funding: Units or Dollars

Several comments ask HUD to provide funding to an HA for a specific
number of units, rather than for a fixed allocation (amount) of funds.
Under the certificate program, the HA was formerly required to maintain
a HUD-approved unit distribution (by bedroom size), using the funding
provided under the consolidated ACC, including any amendment funding.
(Under the ACC, there is a separate ACC term for each funding
increment.) In the voucher program, the unit distribution is not
established by HUD. The HA is responsible for management of available
voucher funding under the consolidated ACC. HUD did not provide voucher
funding for ACC amendments to support a pre-determined unit mix. The HA
controlled the use of available voucher funding by setting the level of
subsidy for each family (payment standard), and by controlling
admissions to the program.
Under recent amendments of regulatory selection requirements for
both the certificate and the voucher programs, admission from the
waiting list may no longer be based on family size. (Sec. 982.204(d),
as amended 7/18/94, 59 FR 36662 et seq.; see preamble discussion at
36666-36667) This change automatically eliminated possible inequities
caused by disparities of wait-times for families of different sizes.
The length of wait does not depend on the size of the family. In
addition, the regulation change eliminated the problems and
complexities of administering separate sub-lists for different unit
sizes, as well as the requirement for the HA to maintain (in the
certificate program) a HUD-determined unit distribution.
Comments ask if the HA will be required to maintain a HUD-approved
unit distribution by bedroom size. Since the HA is prohibited from
selection by unit size for tenant-based assistance, the HA is not
required to maintain a HUD-approved unit distribution.
HUD believes that the new regulatory and administrative system is a
better way of managing program funds. In the annual appropriation
process, the Congress appropriates specific dollar amounts of funding
(budget authority), rather than funding to support a specific number of
units under each HA's consolidated ACC. HUD cannot guarantee that the
funding that is appropriated by the Congress, and obligated by HUD to a
specific HA, will support the changing number of units that will result
from the HA's admission of families without regard to unit size, under
the system provided in HUD's new regulation. Rather, the HA is in the
best position to manage the available funding committed to the HA, so
that the HA can continue to provide assistance for families already
admitted to the program.

C. Family Unification

The proposed rule recites statutory requirements governing award of
funding appropriated for ``family unification'' (also called ``foster
child care'')--which is special Section 8 certificate program funding
to avoid the need to place or keep children in out-of-home care.
Comments recommend against providing categorical funding for family
unification, object to limits on competition for family unification
funds, and question why family unification does not apply to vouchers.
Some comments support special funding for this purpose.
The final rule deletes the rule provisions stating statutory
requirements governing family unification set-asides. When the Congress
provides funding for family unification, statutory and other
requirements can be stated in the NOFA offering any family unification
funding for public competition and award.

III. Annual Contributions Contract and HA Administration of Program

A. Annual Contributions Contract

Comments recommend that funding for all increments in an HA's
certificate or voucher program should be combined in a consolidated
annual contributions contract (ACC). Under this rule and under current
HUD practice, all funding for an HA's Section 8 tenant-based programs
is provided under a single consolidated ACC, with separate ACC
attachments that show all funding for the HA's certificate and voucher
programs.
The final rule provides that commitments for all the funding
increments in an HA's certificate and voucher programs are listed in
one consolidated contractual document called the consolidated annual
contributions contract (consolidated ACC). (Sec. 982.151(a)(2)) The
final rule eliminates a proposed provision that would have required
separate consolidated ACCs for an HA's certificate and voucher
programs. In most respects, the certificate and voucher tenant-based
programs are identical. In 1994, HUD combined the ACC forms for these
programs into a single consolidated ACC. The single consolidated ACC
provides a common contractual basis for unified administration of the
tenant-based programs.

B. Administrative Fees

Administrative fees are paid by HUD to cover HA costs to run the
Section 8 tenant-based assistance program. (Sec. 982.152) Fees must be
approved by HUD. The rule describes the purposes for which fees are
paid. The rule does not state how fees are calculated. The calculation
of fees in each federal fiscal year is affected by the HUD budget and
annual appropriations, and may be affected by other temporary
legislation.
Section 8(q) of the U.S. Housing Act of 1937 (42 U.S.C. 1437f(q))
states requirements for determining administrative fees in the
certificate and voucher tenant-based programs. However, the Section
8(q) requirements only apply if the HUD appropriation act so provides.
Under the terms of HUD appropriations since federal fiscal year 1989,
Section 8(q) requirements apply to calculation of administrative fees
for so called ``incremental'' units. Generally, ``incremental units''
are new federally-assisted units, as contrasted with

[[Page 34664]]
renewal or replacement of expiring assistance. Other units are not
subject to Section 8(q) (generally, units funded before fiscal year
1989 and funding for renewal or replacement). HUD has full discretion
to set HA fees for such units.
HA comments recommend increases in HA administrative fees. Comments
disagree with HUD's statement, in the preamble of the proposed rule,
that administrative fees generally exceed the amount needed to
administer the program. Comments point out that HAs are now required to
carry out many new tasks, such as administration of family self
sufficiency, portability and assistance for special populations, such
as homeless persons or persons with AIDS. Comments urge that the
administrative fee be based on measurement of the time needed to
accomplish tasks required by HUD rules.
The rule is intended to provide a regulatory framework for periodic
determination of administrative fee. The detailed procedures for fee
calculation are not described in the permanent program rule. From time
to time, HUD issues notices and handbooks explaining how to compute the
applicable fees in accordance with the appropriations and other
governing laws.
Comments recommend allowing a one-time fee for implementation of
the new rule. This comment is not adopted. This rule does not radically
change existing program procedures. In certain respects, the rule will
significantly simplify HA administration of the program. Any change in
program requirements entails some administrative burden in changing
existing management practice. However, HUD does not anticipate that the
transition to operation under the new rule will cause problems
justifying a higher administrative fee.

C. Ongoing Administrative Fee

1. How Calculated
HUD pays a fee to the HA for every month after a unit is ``under
Housing Assistance Payments (HAP) Contract''. This is called the
``ongoing administrative fee''. In accordance with current program
practice, the proposed rule provided that the ongoing fee for a unit
equals a HUD specified percentage of the Section 8 existing housing
fair market rent for a two-bedroom unit (regardless of the actual unit
size). In present program usage, different fee percentages apply to
different types of units in the HA's tenant-based program. A ``blended
fee'' percentage is calculated for the HA's whole certificate or
voucher program, reflecting the proportions of these different unit
types in the HA's program.
The proposed rule did not state the percentage of the FMR that is
used to calculate the administrative fee, but provided that the
percentage will be ``HUD-specified''. For units where the ongoing fee
is calculated under Section 8(q) of the U.S.H. Act (42 U.S.C. 1437f(q))
(to date, only ``incremental'' units), the statute provides that the
amount of the administrative fee is 8.2 percent of the fair market rent
for a two bedroom unit.
HUD is currently considering how the administrative fee system
should be revised to fairly and adequately compensate HAs to administer
the program. In the future, administrative fees may or may not be
calculated as a percentage of the fair market rent. Since the future
fee system is not known, the final rule does not provide that the
ongoing administrative fee is calculated as a percentage of the fair
market rent.
The final rule states only that the ongoing fee is established by
HUD. As in the past, the ongoing fee is paid for each program unit
under HAP contract on the first day of the month. (Sec. 982.152(b)(1))
This change leaves flexibility for future adoption of a new
administrative fee system. However, under current law, the ongoing fee
for units under Section 8(q) remains 8.2 percent of the two-bedroom
fair market rent. On January 24, 1995, HUD published a notice revising
the method for calculating administrative fees for units that are not
subject to Section 8(q). (60 FR 4764)
By law, an HA that administers Section 8 assistance may contract to
make assistance payments to itself as a Section 8 owner. (42 U.S.C.
1437f(a)) The final rule adds a new provision confirming that HUD may
pay a lower ongoing administrative fee for HA-owned units.
(Sec. 982.152(b)(3))
2. Higher Ongoing Fee--For Small Program or Program Operating in Large
Area
For units subject to Section 8(q), the law provides that HUD may
decide to increase the ongoing administrative fee ``if necessary to
reflect the higher costs of administering small programs and programs
operating over large geographic areas''. (U.S.H. Act, Section 8(q)(1),
42 U.S.C. 1437f(q)(1)) The proposed rule would have provided that HUD
could approve a higher ongoing fee for an HA program operating over a
``large area''. Such fees may only be approved ``if appropriations are
available'' for this purpose.
Comments state that HUD should not pay a higher fee for an HA that
operates in a large region. Comments want HUD to clarify the meaning of
``large area''. Comments ask HUD to allow a higher fee for an HA that
must service portability families outside the HA's normal State-law
jurisdiction. Comments state that the rule should allow higher ongoing
fees in other cases (not just for an HA operating in a large area),
including higher fees to compensate for ``extenuating problems''.
Comments recommend that the ability to pay higher fees should not be
tied to availability of appropriations.
Unlike Section 8(q), the proposed rule would not have permitted a
higher ongoing fee for ``small programs''. Comments state that the
proposed rule discriminates against HAs with small programs. They state
that the rule should allow a higher fee for small programs, such as
small rural programs, as well as programs operating in larger areas.
HUD can only pay administrative fees from funds (budget authority)
appropriated by the Congress. HUD has amended the final rule to provide
that HUD may decide to approve a higher ongoing fee in the two cases
allowed by the Congress under Section 8(q)--for small programs and for
programs operating in large areas. (Sec. 982.152(b)(2))
The two cases stated in the rule include the major circumstances
where a higher ongoing fee may be justified. An HA operating in a large
area may incur higher expenses to service the assisted units, for
example, because of longer trips to inspect program units scattered in
rural communities, than an HA whose units are clustered closer to HA
offices. HAs with small programs may not benefit from economies of
scale in administration of the program.
The rule does not give HAs that operate in large areas or with
small programs any right to a higher ongoing fee. HUD has full
discretion whether to approve any increase over the normal ongoing fee.
At this time, HUD will not attempt, as suggested by comment, to
further define in this rule when a higher fee may be approved for a
``large'' geographic area or a ``small'' HA program. The field office
will apply these concepts on a case by case basis, in accordance with
HUD Headquarters instructions, to determine if an HA needs a higher fee
for proper administration of its individual program.

D. Preliminary Fee

HUD pays a preliminary fee for each new unit added to the HA
program. (By law, the maximum preliminary fee for

[[Page 34665]]
Section 8(q) units is $275 (42 U.S.C. 1437f(q)(2)(A)(i)), or $300 for
preliminary costs in the family self sufficiency (FSS) program (42
U.S.C. 1437u(h)(1)).) The preliminary fee is primarily used to cover HA
costs to lease up new units under the ACC (but not for turnover or
renewal of program units).
An HA is required to document amounts spent for preliminary costs,
up to the allowable per unit maximum. The HA is only compensated for
qualifying expenses actually ``incurred''. Public comments recommend
eliminating the requirement for an HA to present cost justification in
order to collect a preliminary fee. The comment is not adopted. The
rule is revised to specify, as required by law (for units subject to
Section 8(q)), that preliminary fees cover the cost of preliminary
expenses that the HA ``documents it has incurred'' in connection with
new funding from HUD. (42 U.S.C. 1437f(q)(2)(A)(i); Sec. 982.152(c)(2))
In the past, HAs were required to submit justification to HUD for
payment of the preliminary fee. Under this rule, HAs are no longer
required to submit up-front justification to HUD to receive the fees.
However, HAs must maintain accounting records that document preliminary
costs incurred by the HA, and must make the documentation available
when requested for audit by HUD.
Some comments recommend that HUD should eliminate a separate
preliminary fee, or that a preliminary fee should only be paid for a
new program. HAs should be compensated through the ongoing
administrative fees. Other comments recommend that HUD should pay a
preliminary fee for every new leasing by an assisted family, not just
for the initial lease-up of a new funding increment. At this time, HUD
is retaining provision for a separate preliminary fee as authorized by
current law for fees calculated under Section 8(q) of the U.S. Housing
Act of 1937 (when so provided in HUD's appropriation). As noted above,
HUD is considering modification of the current system for calculating
ongoing administrative fees.
E. Family Self-Sufficiency

The proposed rule would have provided that the preliminary fee may
be used to cover ongoing expenses for family self-sufficiency (FSS)
program activities. Some comments approve the provision for payment of
ongoing family self-sufficiency expenses from the administrative fee.
Other comments object that the use of preliminary fee for this purpose
would reduce the amount available to the HA for preliminary costs. FSS
is an ongoing program. HAs may not have additional program increments
(to generate preliminary fees that may be used for payment of FSS
costs). Comments recommend payment of a special fee for FSS.
The final rule adds authorization for approval of a fee for HA
costs to coordinate supportive services for families participating in
the FSS program. (Sec. 982.152(a)(1)(v)) This special FSS fee is not
linked or limited to FSS coordinator costs in connection with a new
funding increment.

F. Helping Families Find Housing

In accordance with current practice, the proposed rule would have
provided that HUD may approve a ``hard-to-house'' fee to cover the cost
of special assistance to a family with three or more minors. Unlike the
preliminary fee, a hard-to-house fee was to be paid whenever a
qualifying family moved to a new assisted unit, not just for new
program funding. The proposed rule also would have provided that a
hard-to-house fee would not be paid for a unit that is owned by the HA.
Comments recommend an increase in the amount of the hard-to-house
fee, and that the HA should be paid a hard-to-house fee to cover costs
to help a family with a child under seven find a lead-free unit.
Comments urge that the hard-to-house fee should also be paid for
leasing of an HA-owned unit, since the HA must follow the same
procedures as for a private dwelling unit.
Other comments suggest elimination of the hard-to-house fee, or
recommend that HUD should not pay a hard-to-house fee unless the HA has
in fact made special efforts to house a large family. Unlike the
preliminary fee, HUD does not currently require the HA to document
actual costs or administrative effort. The hard-to-house fee is paid
for every qualifying move.

Section 8(q) provides that HUD may determine reasonable fees
for: ``the costs incurred in assisting families who experience
difficulty (as determined by the Secretary) in obtaining appropriate
housing under the programs * * *.'' (42 U.S.C. 1437f(q)(2)(A)(ii))

The final rule provides only that HUD may approve administrative fees
for ``cost to help families who experience difficulty renting
appropriate housing * * *.'' (Sec. 982.152(a)(1)(iii)) The final rule
does not use the term ``hard-to-house'', and does not specify that the
fee is only paid for a family with three or more minors. HUD is
examining all aspects of the administrative fee system. HUD will
consider when HUD should pay an additional fee so that the HA can give
the family additional help in finding a rental unit.

G. Help for Elderly and Disabled

Under a 1992 law, Section 8(q) administrative fees may be used to
employ or retain coordinators of supportive services for elderly or
disabled families who receive tenant-based assistance. (42 U.S.C.
1437f(q)(3)(A), as amended by Section 675 of the Housing and Community
Development Act of 1992, 106 Stat. 3828) The rule is revised to provide
that HUD may approve administrative fees to cover HA cost to coordinate
supportive services for elderly and disabled families.
(Sec. 982.152(a)(1)(iv)) Supportive services include a wide range of
assistance for the elderly and disabled, such as health services,
nonmedical counseling, personal care, case management and other
appropriate services. (See 42 U.S.C. 13631(c))
H. Audit Costs

The rule provides that HUD may approve an administrative fee to
cover cost of audit by an independent public accountant.
(Sec. 982.152(a)(1)(vi)) Currently, HUD pays a fee to cover costs of
required audit by an independent public accountant (IPA). Public
comment states HUD should list this special type of fee in the proposed
rule. HUD agrees, and has revised the rule to specify that HUD may
approve a separate fee for IPA audit costs.

I. Other Costs

In addition to the listing of specific fees that may be approved by
HUD, the final rule provides that HUD may pay an additional
administrative fee for ``other extraordinary costs'' approved by HUD.
(Sec. 982.152(a)(1)(vii)). This category leaves HUD flexibility to
approve additional amounts needed by an HA for special purposes.
The final rule does not provide for a special portability fee.
Portability fees will be eliminated beginning in federal fiscal year
1996.

J. HA Responsibilities

The rule contains a list of some basic HA responsibilities in
administration of the tenant-based programs. (Sec. 982.153) Comments
suggest some additions to the list of HA responsibilities. The final
rule revises and supplements the list of HA responsibilities as stated
in the proposed rule. The final rule provides that:

--The HA determines who can live in the assisted unit, at admission and
during the family's participation in the program. (Sec. 982.153(b)(8))
This new provision is consistent with other

[[Page 34666]]
provisions concerning the HA's authority to determine when a group of
persons qualifies as a ``family'' (Sec. 982.201(c)(3)), to select
families for admission to the program (part 982, subpart E), and to
approve additional occupants of the assisted unit. (Sec. 982.551(h)(2))
--The HA must encourage owners to make units available for leasing in
the program, including owners of suitable units located outside areas
of poverty and racial concentration. (Sec. 982.153(b)(4))
--The HA is responsible for conducting an ``informal review'' of
certain HA decisions concerning an applicant for participation in the
program. (Sec. 982.153(b)(19) and Sec. 982.554) The final rule restores
the distinction in the existing rule between an ``informal review'' of
HA decisions concerning an applicant for participation, and an
``informal hearing'' on HA decisions concerning a family that is
already admitted to the program. (See Sec. 982.554 and Sec. 982.555)
--The HA must obtain and verify evidence of citizenship and eligible
immigration status, as required by HUD regulations implementing
statutory restrictions on assisted occupancy by certain noncitizens.
(Sec. 982.153(b)(9); see 24 CFR part 812)
--The HA must establish and adjust a utility allowance for tenant-
supplied utilities. (Sec. 982.153(b)(16))
--The HA must administer an FSS program. (Sec. 982.153(b)(22))

The final rule also specifies that the HA bears responsibility to
affirmatively further fair housing goals, as well as to comply with
equal opportunity requirements. (Sec. 982.153(b)(5))

K. Administrative Fee Reserve

The rule codifies ACC and handbook provisions concerning the
``administrative fee reserve'' (Sec. 982.155) This account was formerly
called the ``operating reserve''. The administrative fee reserve is
credited with excess administrative fees earned by an HA in prior
years. Generally, if funds in the reserve are not needed for program
administration (to the end of the last ACC funding increment), the HA
has broad discretion to use administrative fee reserve funds for
``other housing purposes''. The purposes must be consistent with State
and local law. (Sec. 982.155(b)(1)) The allowable purposes may include
housing purposes not connected with the Section 8 programs.
In any HA fiscal year, the HA must use fee reserve funds for
program administrative expenses in excess of HUD administrative fees
for the year. Such use has precedence over HA use of the fee reserve
for other non-program housing purposes. HUD may prohibit use of the fee
reserve for certain purposes. (Sec. 982.155(b)(1)) In addition, if the
HA fails to administer the program adequately, the HUD field office may
freeze HA use of fee reserve funds, or may direct the HA to use fee
reserve funds to improve program administration or to restore funds
disbursed for ineligible expenses. (Sec. 982.155(b)(3))
Comments recommend that HUD should relinquish any control over HA
funds in the administrative fee reserve. Administrative fees should be
treated like payments to other contractors for services rendered.
Comments also ask HUD to clarify when the HA may use fee reserve funds
for ``other housing purposes.''
These recommendations are not adopted. Funds in an HA's
administrative fee reserve were paid to the HA by HUD to administer the
HA's Section 8 program. It is important to assure that fee reserve
funds are used first to cover HA administrative costs of the HA's
Section 8 program, and only then are used for other housing-related
purposes. The regulatory standard for use of fee reserve funds leaves
the HA great flexibility to apply the funds for local housing purposes.
In accordance with historical program practice, the rule provides
that the HUD field office may freeze or direct use of reserve funds if
the HA has not ``adequately administered'' any Section 8 program.
(Sec. 982.155(b)(3)) Comment asks HUD to clarify the methodology for
determining when the HA is not adequately administering the program.
HUD believes that the regulatory formula provides sufficient
guidance on the basis for freezing HA use of funds in the
administrative fee reserve. This provision is designed to protect
program funds, and provide a remedy for serious or systemic violations
of program requirements by an HA. Such violations can occur in many
ways. HUD requires a broad authority to restrict HA use of
administrative fee reserve funds if the HA is not running the program
in accordance with HUD requirements.
The final rule adds three limitations on the HA's authority to use
the administrative fee reserve for ``other housing purposes'':

--The HA board of commissioners or other authorized HA officials must
establish the maximum amount that may be charged against the
administrative fee reserve without specific approval.
(Sec. 982.155(b)(2))
--The HA may only use the reserve for other housing purposes if the
funds are not needed to cover HA administrative expenses through the
end of HUD's funding commitment under the consolidated ACC--that is, to
the end of the term of the last expiring funding increment.
(Sec. 982.155(b)(1))
--HUD may prohibit use of administrative fee reserve funds for
specified purposes. (Sec. 982.155(b)(1))

L. Depositary

Program funds must be deposited to and disbursed from the HA's
account with a financial institution acting as program depositary.
(Sec. 982.156) The HUD field office can freeze depositary funds by
giving notice to the depositary institution that prohibits the
depositary from permitting HA withdrawals. In the final rule, the HUD
notice is called a ``freeze notice''.
Comments say that HUD also should notify the HA when the depositary
is frozen. HUD agrees. The rule is revised to provide that HUD must
give the HA a copy of the freeze notice from HUD to the depositary.
M. Budget and Expenditure

Under the rule, the HA must comply with HUD program regulations and
other requirements. (Sec. 982.52(a)) HUD requirements include the
financial management procedures required by HUD. The rule does not
state the details of HUD-required budget and accounting procedures.
The final rule is revised to state that the HA may only use program
funds in accordance with a HUD-approved budget. (Sec. 982.157(b)(1))
The budget must be submitted to HUD at such time and in such form as
HUD requires. (Sec. 982.157(a)) Previously, these requirements were
stated in the consolidated ACC, but were not explicitly recited in the
program rule.
Comments recommend that the Department should consolidate the
budget and requisition process for the certificate and voucher
programs. The Department agrees, and has established uniform budget
procedures for the tenant-based programs. Of course, the budget process
must continue to reflect statutory differences in the program subsidy
computation for the certificate and voucher programs.
Comments ask HUD to eliminate separate budgeting and financial
reporting for renewal funding (funding to provide continued assistance
after the end of an ACC funding commitment). HUD procedures already
have been changed to combine budgets and financial accounting for new
units and renewals.

[[Page 34667]]

N. Program Records

The rule codifies and clarifies basic requirements governing the
HA's obligation to maintain and retain program records. (Sec. 982.158)
Comments approve HUD's clarification of requirements for retention of
program records.
Comments recommend that HUD should reduce the burden of accounting
and record-keeping requirements. Comments suggest that the rule should
describe what record media are allowed or disallowed, and should
specify that record-keeping requirements apply to any form of
permanent, retrievable record (including electronic records), not just
paper files.
The rule provides that HUD and the Comptroller General must be
allowed full and free access to program accounts and records.
(Sec. 982.158(c). See 42 U.S.C. 1435) Comments suggests that the rule
should state specifically that such access must be reasonable, so that
examination of HA records doesn't jeopardize HA operation.
The final rule does not describe what record-keeping media are
allowed or prohibited by HUD. Such details will be provided in program
handbooks or notices. However, the rule is revised to specify that
program records must be in the form prescribed by HUD.
(Sec. 982.158(a))
Since HAs now make extensive use of computers in management of the
program, and since HAs often maintain major program record systems in
computerized form, the rule specifies that the HA must comply with HUD
requirements governing ``computerized or electronic forms of record-
keeping''. (Sec. 982.158(a)) In the rule, HUD also recognizes and
addresses the special problems in examination and audit of computerized
records. Effective examination of such records may require knowledge of
the system (hardware and software), and of passwords, commands and
instructions needed to access data held in the system. The final rule
specifically provides that the HA must grant the examiner (HUD or the
GAO) full and free access:

``to computerized or other electronic records, and to any computers,
equipment or facilities containing such records, and shall provide
any information or assistance needed to access the records.''
(Sec. 982.158(c))

The rule is also revised by restating terminology and language for
consistency and simplicity. In particular, the rule now refers to
``records'', to cover all the various accounts, forms and documentation
used to maintain program information, and including all of the media in
which such data may be maintained.
HUD has not adopted the recommendation to specify that access must
be reasonable. Of course, all requirements should be administered in a
reasonable fashion.
An HA administering Section 8 is not subject to federal Freedom of
Information Act (FOIA) and Privacy Act requirements. Comments recommend
that an HA should be required to make program records available for
public inspection as under the FOIA. This recommendation is not
adopted. The decision whether to release or deny release of program
information generally rests in the discretion of the HA, subject to any
restrictions under State or local law (but see Sec. 813.109(b)
concerning disclosure of information obtained pursuant to the family's
verification release or consent).

O. Conflict of Interest

Under the rule, certain officials or employees of an HA,
contractors, subcontractors or agents of an HA, and members of
Congress, are prohibited from holding a direct or indirect interest in
any program contract or arrangement. (Sec. 982.161(a)) Members of these
classes must disclose their interest or prospective interest to the HA
and to HUD. (Sec. 982.161(b)) As in the past, a HUD field office may
waive the conflicts requirements ``for good cause'' in an individual
case. (Sec. 982.161(c))
A comment recommends that a request for waiver should be deemed
automatically allowed unless rejected in 30 days. This recommendation
is not adopted.

P. Contract Forms

The HA must use the contract and other program forms prescribed by
HUD. (Sec. 982.162) Comment asks that HUD list the forms. The
regulation lists certain basic program contracts that must be used.
However, the rule does not give a complete list of the contracts and
other program forms. A HUD handbook or other HUD directive will list
the HUD-prescribed forms. There is no reason to clutter the regulation
with this information.
Q. Fraud Recovery

Comments state that an HA has no incentive to recover program funds
lost because of bad debts or fraud. In response, HUD notes that
existing regulations permit an HA to retain fifty percent of Section 8
fraud losses that the HA is able to recover from a family or owner by
litigation, court order or repayment agreement. (24 CFR part 792;
Section 326(d) of the Housing and Community Development Act of 1981 (42
U.S.C. 1437f note), as amended by 106 Stat. 3711, 10/28/92) The law and
regulation are intended to encourage HAs to investigate and pursue
fraud and abuse in the Section 8 program. The rule contains a cross-
reference to the separate regulation on Section 8 fraud recoveries.
(Sec. 982.163)

IV. Leasing a Unit

A. Information When Family Is Selected

1. Briefing and Information Packet
When a family is selected to participate, the family needs to know
how the program works. The HA gives the family an oral briefing, and an
information packet. In the HA briefing, the family receives a broad
description of how the program works, family and owner
responsibilities, and areas where the family can lease a unit. The
information packet reinforces the briefing, and supplies more detailed
information to the family. The final rule modifies requirements on the
briefing and information packet. (Sec. 982.301)
In the final rule, several elements are removed from the listing of
items that must be covered in the oral briefing, but are included in
the written information packet--a description of the housing quality
standards (HQS), and of factors the family should consider in renting a
unit.
The final rule drops a proposed provision that would have required
the HA to give prospective landlords information about the family's
rental history or about drug-trafficking by family members. Under the
final rule, the HA has the choice whether to furnish this type of
information to landlords. (Sec. 982.307(b)(2)) The HA is only required
to tell a prospective Section 8 landlord (from information in HA
records) the family's current address, and the family's current and
prior landlord. The HA policy on furnishing other information about the
family to landlords must be stated in the HA administrative plan.
(Sec. 982.54(d)(7)) The HA policy must be stated in the information
packet for the family. (Sec. 982.301(b)(8))
The oral briefing and information packet must explain where the
family may lease a unit, inside and outside the HA jurisdiction.
(Sec. 982.301(a)(1)(iii) and Sec. 982.301(b)(5)) If the family
qualifies to move outside the HA jurisdiction under portability, the
briefing and information packet must explain how portability works.
(Sec. 982.301(a)(2) and Sec. 982.301(b)(5))
The final rule adds a new provision that if the jurisdiction
includes any high poverty census tract, and if the family

[[Page 34668]]
is living in such a census tract, the HA briefing must explain the
advantages of moving to an area that does not have a concentration of
poor families, such as improved employment, educational opportunities
and decreased dropout rates. In the briefing, the HA may not discourage
the family from choosing to live anywhere in the HA jurisdiction, or
outside the HA jurisdiction under portability procedures.
(Sec. 982.301(a)(3))
The final rule provides that the briefing packet must include a
copy of the HUD prescribed ``lease addendum'' (required lease
language), and the form of request for lease approval. (Sec. 982.301(b)
(6) and (7))
The proposed rule would have required that the HA supply the family
certain types of information on prevention of lead-based paint
poisoning. The final rule provides that the HA must give the family the
HUD-prescribed lead-based paint brochure. (Sec. 982.301(b)(11))
2. Information About Landlords
The proposed rule would have provided that if requested by the
family, the HA would give the family available information about
prospective landlords. Comments state that the HA should provide
information about ``units'', rather than about prospective
``landlords''. Other comments state that the HA should not be allowed
to release landlord information without the landlord's consent, or that
HAs may be accused of steering families to landlords in particular
areas. HUD has not followed these suggestions.
The final rule requires that the briefing packet include a list of
landlords or other parties known to the HA who may be willing to lease
a unit to the family, or help the family find a unit.
(Sec. 982.301(b)(13)) The list may include owners or rental agents for
specific properties or units known to the HA (for example, an apartment
house with units rented to other program participants), or entities
that may provide access to numerous units and locations in the local
market, such as real estate agents, rental agents or social service
agencies with listings of possible rental openings. The HA may or may
not provide a listing of specific ``units''. The name of a single
listing agent may provide access to many specific units in the local
housing market.
In providing listings to assist a family, the HA is subject to
general program requirements designed to protect the family's practical
and legal freedom to search for an available unit. The HA may not
discourage the family from choosing to live anywhere in the HA
jurisdiction, or outside the HA jurisdiction under portability
procedures. (Sec. 982.301(a)(2)). The HA may not directly or indirectly
reduce the family's opportunity to select among available units.
(Sec. 982.353(f)) These general requirements apply both to the
provision of landlord and agent listings to the family, and to other
aspects of program administration. The HA may not design such lists in
order to steer families to particular areas, thereby reducing a
family's opportunity to select available units, or discouraging the
family from living anywhere the family may choose.
At the same time, the rule leaves the HA broad discretion and
authority to provide information to families in a practical and helpful
way. The HA is not required to provide a listing of every possible
landlord known to the HA. The rule does not state that the HA must
provide any specific number of listings.
Comments suggest that the HA should be required to give the tenant
a list of owners that are barred from participation, so families don't
waste time. HUD agrees that such information might be helpful in some
markets, or for some owners or units. However, HUD is not persuaded
that this practice will be universally beneficial, or should be
mandated by federal regulation. In many cases, it may be difficult for
tenants to correlate lists of barred ``owners'' with listings of units
available for rental in the local market.
3. Information for Disabled Persons
The proposed rule would have required that if a member of the
family were disabled, the HA must have provided information about
current ``available'' accessible units known to the HA. Comments state
that the HA does not know whether housing is available. Comments also
state that the HA should be required to give the family information
available to the HA of locations and contacts for accessible housing or
other assistance.
HUD agrees that HAs can only furnish available information on
possible openings in accessible units. The final rule provides that at
the request of a family that includes a disabled person the HA must
provide a current listing of accessible units ``known to the HA that
may be available'' for rental to program participants.
(Sec. 982.301(b)(14) (emphasis supplied))
Comments suggest that the oral briefing should use appropriate
procedures for communication with the disabled. Existing HUD
regulations at 24 CFR part 8 prohibit discrimination against disabled
persons in administration of HUD assistance programs. Section 8.6 of
these regulations requires recipients to take appropriate steps to
assure effective communication with applicants and beneficiaries. The
present rule is revised by adding a reference to these requirements.
(Sec. 982.301(a)(4))

B. Giving an Owner Information About a Family

The proposed rule would have provided that the HA must give a
prospective owner information in the HA's possession about rental
history or drug-trafficking by members of the family.
Some comments agree that HUD should require or allow the HA to
release information about the family to a prospective Section 8 owner.
The comments claim that providing the information to owners will
improve relations between the HA and landlords. Comments state that the
HA should both inform the family about the owner, and the owner about
the family.
Other comments contend that the HA should not act as a
clearinghouse for tenant information. HUD should not require or allow
an HA to give landlords information about prospective tenants.
Determination of tenant suitability is the responsibility of the owner.
The HA should not be involved in owner screening of tenants. The owner
can check tenant references. The proposed and final rule provide that
the HA must tell the owner that the HA has not screened the family for
suitability, and that such screening is the owner's responsibility.
Comments agree that the HA should so inform the owner.
The rule is revised to add a new provision stating that:

``Owners are permitted and encouraged to screen families on the
basis of their tenancy histories. An owner may consider a family's
background with respect to such factors as:
(1) Payment of rent and utility bills;
(2) Caring for a unit and premises;
(3) Respecting the rights of others to the peaceful enjoyment of
their housing;
(4) Drug-related criminal activity or other criminal activity
that is a threat to the life, safety or property of others; and
(5) Compliance with other essential conditions of tenancy.''
(Sec. 982.307(a)(2))

Comments state that the release of information about a family to
prospective owners may expose the HA to potential legal liability, or
violate confidentiality requirements under federal or State law. The
obligation for the HA to give landlords information on prospective
tenants adds a new bureaucratic requirement, and forces an HA to
maintain rental or behavioral data on individual tenants. Comments note
that HA release of tenant information

[[Page 34669]]
may block the family's effort to find suitable housing.
Comments ask HUD to clarify what types of ``rental history'' must
be communicated to a prospective landlord: Whether this term means
rent-paying history, and whether the requirement is limited to bona
fide file information or first hand information.
Other comments note HA files may contain hearsay, or inaccurate or
disputed information about the family. Comments state that the HA
should not release tenant information unless the HA obtained the
information as the family's landlord, or has other direct knowledge
that the information is truthful. Comments state that the HA should not
give out information without a release from the tenant, or that the
family should have the right to challenge information in the HA file.
HA communication gives legitimacy to allegations of a prior landlord.
Comments also suggest that landlords don't need information from the HA
since landlords can check references, and criminal convictions are a
matter of public record.
The final rule provides that when a family wants to lease a
dwelling unit, the HA ``may offer'' an owner HA information about
family tenancy history or drug trafficking. (Sec. 982.307(b)(2)) The
rule does not require the HA to release the information.
However, the final rule provides that the HA must give the owner:

--The family's current address, as shown in the HA records.
--The name and address (if known to the HA) of the landlord at the
family's current and prior address. (Sec. 982.307(b)(1))

The final rule requires the information packet for a newly selected
family to include a statement of the HA policy on providing information
to owners. (Sec. 982.301(b)(8)) The HA must give the same types of
information to all families and to all owners. (Sec. 982.307(b)(3))
Under the final rule, the policy on release of family information
to prospective landlords rests in the hands of the HA, the local agency
charged with administration of the tenant-based program. The final rule
merely confirms that HAs ``may'' offer the owner information about the
family in the HA's possession, thus confirming that there is no federal
bar to release of tenant information. However, the choice to exercise
this option is the election of the HA. Some HAs will wish to release
available information on program families, to enhance general owner
confidence and willingness to lease units under the tenant-based
programs. Other HAs will elect to avoid the legal exposure and
potential administrative problems in processing or releasing tenant
information.
In some States, there may be State or local laws affecting release
of tenant information to owners. Such laws may require the release of
such information, or may restrict the release of the information. The
federal regulation is not intended to pre-empt the operation of such
State or local laws.
If the HA wants to release tenant information, the HA must adopt a
policy on providing information to owners. The release of information
by the HA may not be left to casual ad hoc decisions of HA officials,
but must be based on an explicit HA policy.

C. Requesting HA Approval To Lease a Unit

After a family is selected, the HA issues a certificate or voucher
to the family. The family may search for a unit. The family must get HA
approval to lease a unit with assistance in the program. The final rule
restates and clarifies the procedure for requesting HA approval.
(Sec. 982.302; Sec. 982.303; Sec. 982.305; Sec. 982.306)
The proposed rule would have provided that the family requested
approval to rent the unit, but did not refer to a ``request for lease
approval''. The old program rules provided that a family submitted a
request for lease approval to the HA. Public comments state the rule
should keep the requirement to submit a request for lease approval.
Comments note that a request for lease approval is signed by the
landlord, confirms the landlord's agreement to rent the unit, and gives
basic information on terms of the proposed leasing. The form of the
request for lease approval facilitates review by the HA.
The final rule provides that the family must submit a request for
lease approval, and a copy of the proposed lease, during the term of
the certificate or voucher. (Sec. 982.302(c)) The HA has the discretion
to permit a family to submit more than one request at a time.
(Sec. 982.302(b)) The final rule also states that the HA may specify
the procedure for requesting approval to lease a unit, and that the
family must submit the request ``in the form and manner required by the
HA''. (Sec. 982.302(d))

D. Term of Certificate or Voucher

The family must request lease approval during the term of the
certificate or voucher issued by the HA. Extension or suspension of the
term gives the family more time to find a unit and request HA approval.
(Sec. 982.302; Sec. 982.303)
Comments offer different recommendations on the extent of HA
discretion to limit the term of a certificate or voucher. Some comments
stress that an HA should be required to give a family ample time to use
a certificate or voucher. Other comments state that HAs should have
broad discretion to set local policies on the certificate or voucher
term, and concerning any extension or suspension of the term. Comments
note that the administrative plan should include the HA standards for
granting extensions of the term.
Comments assert that the initial term should be longer than 60
days, or that the HA should be required to extend the initial term.
Some comments state that families need more time to find housing, or to
find units in non-minority or non-poverty neighborhoods. A comment
recommends that the certificate or voucher should have an initial 120
day term. The comment states that the HA should be required to grant
further extension if the family has made reasonable efforts to find
housing during the initial term.
Other comments state that HUD should retain the maximum 120 day
term (60 days plus an extension of up to 60 days) as under the old
rule. 120 days is a reasonable time to find a unit. Comments also state
that allowing HA discretion to set longer terms allows too much
variation between local HA programs.
Some comments state that the rules should require the HA to suspend
(toll) running of the term when the family has asked the HA for
approval to lease a unit, and is waiting for HA action on the family's
request. Unless the HA grants a suspension, the term continues to run,
and the family may be discouraged from trying to lease a unit in non-
minority or non-poverty areas. The family cannot control the time used
by the HA in deciding to approve or disapprove the unit. The family may
not have time to find another unit if the original unit is disapproved.
Other comments suggest that suspension is unfair to other applicants
waiting for housing.
Under previous HUD rules, the initial term of a certificate or
voucher was a minimum of 60 days. At its discretion, the HA could
extend the initial term up to a maximum of 120 days from the beginning
of the initial term. This basic 60 day to 120 day pattern is continued
in the final rule. The proposed rule did not set any maximum term. The
HA could decide whether to grant extensions, and the length of any

[[Page 34670]]
extension. The final rule provides, as under the old rule, that the
initial term plus any extensions may not exceed a total of 120 days.
(Sec. 982.303(b)(1))
The family may ask the HA to extend the term up to the 120 maximum
as a reasonable accommodation for a disabled person.
(Sec. 982.303(b)(2)) If the HA believes that a longer time is necessary
for this purpose in a special case, HUD will consider a request for
regulatory waiver of the 120 day maximum.
At its discretion, in accordance with HA policy as described in the
administrative plan, an HA may grant a ``suspension'' (tolling) of the
certificate or voucher term if the family submits a request for lease
approval during the term of a certificate or voucher. (Sec. 982.303(c))
``Suspension'' means stopping the clock on the term of a family's
voucher or certificate after the family submits a request for lease
approval. (Sec. 982.4; Sec. 982.54(d)(2)) The final rule permits the HA
to grant a suspension for ``any part of'' the period running from the
family's request for lease approval up to the time when the HA approves
or denies the request. (Sec. 982.303(c))
The rule requires the HA to establish in the administrative plan a
policy on when and whether extensions or suspension of the term may be
granted, including how the HA decides whether to grant extensions or
suspensions, and the length of any extension or suspension.
(Sec. 982.54(d)(2))

E. HA Approval To Lease a Unit

The HA must determine that a unit meets program requirements.
Before approving rental of a unit with assistance under the program,
the HA must determine that:
--The unit is eligible housing;
--HA inspection shows that condition of the unit satisfies the housing
quality standards (HQS);
--The lease is approvable and includes the ``lease addendum'' language
required by HUD;
--The rent to owner is reasonable; and
--If the unit will be assisted under the certificate program, the total
of contract rent plus any allowance for tenant-paid utilities does not
exceed the FMR/exception rent limit. (Sec. 982.305(a)) The HA may not
execute a HAP contract until all these requirements are satisfied.
The rule provides that all of the following actions must be
completed before the beginning of the lease term:

--The HA has inspected the unit, and determined that the unit satisfies
the HQS;
--The landlord and the tenant have executed the lease; and
--The HA has approved leasing of the unit in accordance with HUD
requirements. (Sec. 982.305(b))
A public comment states that the rule should allow an HA to execute
the HAP contract up to 60 days after commencement of the lease. Another
comment argues that execution of the HAP contract before the HA has
approved the unit would force the HA to pay rent to the owner before
the HA has approved the unit and the lease. The final rule is
consistent with the recommendations in these comments.
The final rule requires that the HAP contract must be executed no
later than 60 days from the beginning of the lease term.
(Sec. 982.305(c)(1)) However, the HA must use ``best efforts'' to
execute the HAP contract before the beginning of the lease term. The HA
may not approve the unit or execute the HAP contract until the HA has
determined that the unit and lease meet all program requirements.
(Sec. 982.305(a))
Comments object to the requirement that the lease must be executed
before the beginning of the lease term. The final rule retains this
requirement.
From the beginning of the lease term, the family's tenancy must be
subject to the statutory and basic tenancy requirements stated in the
required lease addendum. By execution of the lease, containing the
required provisions, the lease requirements are contractually binding
on the owner and the tenant. The lease makes explicit the intention of
the family and the owner to establish a tenancy in accordance with
requirements of the tenant-based programs.
Lease execution before commencement of the lease term is not
difficult. Each family is given a copy of the lease addendum in the
information packet. In general, owners are also familiar with this
requirement. The requirement to execute the lease before the
commencement of the term is also consistent with general practice in
the private rental market.
The HA may not approve the unit or execute the HAP contract, until
the HA determines that the tenancy meets all program requirements (as
listed in the rule). (Sec. 982.305(a)) The HA must make ``best
efforts'' to execute the HAP contract before the beginning of the lease
term. (Sec. 982.305(c)(1)) The HAP contract must be executed within a
maximum of 60 calendar days from the beginning of the lease term.
(Sec. 982.305(c)(1)) In accordance with normal administrative fee
procedures, the HA receives its administrative fee for each whole month
the unit is under lease.
The rule is revised to clarify what happens if the HAP contract is
not executed before the beginning of the lease term. The final rule
provides that:
--The HA may not pay any housing assistance payment to the owner until
the HAP contract has been executed. (Sec. 982.305(c)(2))
--If the HAP contract is executed during the first 60 days of the lease
term, the HA will pay housing assistance payments after execution of
the HAP contract (in accordance with the terms of the HAP contract), to
cover the portion of the lease term before execution of the HAP
contract (a maximum of 60 days). (Sec. 982.305(c)(3))
--Any HAP contract executed after the 60 days period is void, and the
HA may not pay any housing assistance payment to the owner.
(Sec. 982.305(c)(4))
Comments recommend that the rule should require the HA to approve
the unit and lease in a specific short period from submission of the
family request for lease approval. A period of 7 days is suggested. The
recommendation to prescribe a rigid uniform period from family
submission to HA approval is not adopted. The imposition of a uniform
deadline is not practical for HAs operating in different housing
markets, and as applied to the special circumstances of particular
cases--for example, time needed so that an owner can correct HQS
deficiencies. As noted above, however, the HA must execute the HAP
contract within 60 days after commencement of the tenancy.

F. HA Disapproval of Owner

1. Mandatory Denial
The rule requires that the HA must not approve rental of a unit
from an owner if the owner is subject to certain federal sanctions
(debarment, suspension or denial of participation under 24 CFR part
24). (Sec. 982.306(a)) The HA may or may not know that an owner is
subject to these sanctions. The final rule therefore specifies that the
HA's obligation to reject the owner only applies if the HA has been
informed of this fact by HUD or some other source.
The proposed rule would also have provided that the HA could never
approve rental from the owner if HUD had initiated an enforcement
action under the Fair Housing Act. The final rule is revised to provide
that the HA must not approve rental from the owner if so directed by
HUD when the owner has been the subject of equal opportunity
enforcement proceedings.

[[Page 34671]]
(Sec. 982.306(b)) Automatic disapproval of owners who have committed
fair housing violations might operate to deny housing opportunities for
low-income or minority families. Such automatic denial may be
inconsistent with fair housing policies. The appropriate remedy should
therefore be determined by HUD in the circumstances of the particular
case.
In addition, the final rule broadens the description of the
proceedings for which such rejection should apply. The HA must
disapprove the owner (when directed by HUD) if:

--The federal government has instituted an administrative or judicial
action against the owner for violation of the Fair Housing Act or other
federal equal opportunity requirements, and such action is pending.
--A court or administrative agency has determined that the owner
violated the Fair Housing Act or other federal equal opportunity
requirements. (Sec. 982.306(b))
The new provisions cover fair housing enforcement actions:

--By administrative or judicial action.
--For violation of the Fair Housing Act or other equal opportunity
requirements.

Comments suggest that the HA should only be required to reject an
owner because of complaints referred by the HA to a fair housing
enforcement agency. This comment is not adopted. Rejection of an owner
supports federal fair housing statutes, regardless of whether the
complaint originated with the HA itself.
2. Discretionary Denial
The rule provides that the HA has administrative discretion to deny
approval to lease a unit from an owner in certain other specified
cases. (Sec. 982.306(c))
The proposed rule would have provided that the HA could deny
approval if the owner had not paid State or local real property taxes.
Comments both support and object to allowing or requiring the HA to
refuse approval of an assisted tenancy on this ground. The final rule
permits the HA to deny approval if the owner has not paid State or
local real estate taxes, fines or assessments. (Sec. 982.306(c)(6)) The
rule does not direct the HA to exercise this authority. Each local HA
has administrative discretion whether or not to reject owner
participation for this reason. By rejecting participation of owners who
have not paid local levies, the HA gives the locality leverage for
collection of delinquent accounts. Under the final rule, the HA may
exercise this discretion for non-payment of local fines or assessments,
in addition to local real property taxes.
The proposed rule would have provided that the HA could deny
approval to lease a unit from an owner who had committed fraud or made
any false statement in connection with any federal housing program. The
final rule amends and broadens this language to provide that the HA may
deny approval if the owner has committed ``fraud, bribery or any other
corrupt or criminal act'' in connection with a federal housing program.
(Sec. 982.306(c)(2))
The revision protects the integrity and purpose of federal housing
assistance. The revision is intended to make clear that the HA has
broad authority to reject participation of a Section 8 owner who has
engaged in bribery or any other corrupt or criminal activity related to
a federal housing program. The HA may decline to accept an owner,
regardless of whether the owner's crime meets the technical indicia of
``fraud'' as defined by federal or State law. In a parallel revision,
the rule also provides that the HA may deny or terminate assistance for
a family that has committed corrupt or criminal acts in a federal
housing program. (Sec. 982.551(k); Sec. 982.552(b)(5))
The rule provides that the HA may reject an owner who has engaged
in ``drug-trafficking''. (Sec. 982.306(c)(3)) As defined in the rule
(Sec. 982.4), this term refers to commercial drug-dealing (manufacture,
sale or distribution of narcotics), but does not cover illegal drug
use. Comments ask why the rule only allows the HA to reject an owner
who engages in drug-trafficking, but not for any other drug-related
criminal activity. HUD believes that the rule is appropriately targeted
at allowing the HA to bar drug dealing owners from its program.
The HA may reject an owner with a ``history or practice'' of
violating Section 8 HQS or applicable housing standards under other
federal housing programs. (Sec. 982.306(c)(4)) Comments mistakenly
assert that the rule would require the HA to reject a unit if any owner
has a history of minor HQS violation. In fact, the rule leaves the
decision whether to reject an owner to the HA's administrative
discretion. Comments recommend that HUD should define ``history or
practice''. HUD believes that this is a sufficient description of the
case to be covered. The individual HA may more precisely focus on types
of owner behavior that should be reason for rejecting owner
participation.
The rule specifies that for purpose of the provisions on HA
disapproval of an owner, the term ``owner'' includes a ``principal or
other interested party''. (Sec. 982.306(e)) Rental real estate is often
held by a legal entity such as a limited partnership or corporation,
rather than an individual. A real estate investor may have an interest
in various properties held in the name of different legal entities, or
may have an interest in various partnerships or enterprises. The rule
clarifies that the ``owner'' is not merely the nominal entity that
holds legal title to the property to be rented, but also covers other
persons with an actual interest in the property. In applying the
authority for rejection of an ``owner'' in specific cases, the HA may
penetrate the veil of the form of ownership. The HA may deny approval
to rent a unit from an entity in which the principal or other
interested parties have engaged in activities that are grounds for
denial. For example, the HA may deny approval to rent from a
partnership where a general or limited partner has committed fraud in
connection with a federal housing program.
Comments recommend that HUD should require disclosure of any
individual or corporation with an ownership interest of more than 10
percent. The HA may require a prospective owner to disclose ownership
information, so that the HA can determine if the owner should be
rejected or approved. However, HUD will not direct HAs to require
disclosure, and will not regulate the nature or form of owner
disclosure.
Comments recommend that HUD should allow an HA to reject an owner
who has used foul language or threats against HA staff or tenants. This
comment is not adopted.
3. HA Policy
Comments suggest that an HA should not have discretion to decide
the criteria for disapproving owners. The HA should only determine
whether an owner has committed an action that is grounds for
disapproval. Comments also recommend that the rule should require an HA
to use the same criteria for approval or disapproval of all owners.
Comments state that HUD should only permit disapproval based on
reliable and credible evidence, and that the HA should only be allowed
to disapprove an owner because of ``recent'' owner action.
The final rule provides that the HA administrative plan must
include the HA policies on disapproval of owners. (Sec. 982.54(d)(8))
Since HUD has eliminated the requirement for HUD approval of the
administrative plan, the HA policies on owner approval are not
routinely submitted for HUD review or

[[Page 34672]]
approval. (Of course, HA administrative policy and practice are subject
to HUD audit, review and required revision.)
HAs may only reject owners for any of the grounds listed in the
rule. However, HAs retain broad discretion is deciding whether and how
to exercise the authority to reject owners for any of the allowable
discretionary grounds. The HA may determine the practicality and
benefit of rejecting owners for such grounds, in the locality, and as
applied to the circumstances of each individual case.
The decision to reject the owner rests in the discretion of the HA.
HUD will not require the HA to establish any special type of process or
evidentiary standard. HUD believes that the imposition of such
requirements would discourage HAs from rejecting owners for good and
substantial reasons, such as the owner's practice of renting units that
violate local code. The rule confirms explicitly that owners do not
have a right to participate in the program. (Sec. 982.306(d)) Therefore
the rejection of an owner's participation does not affect any owner
right or property interest. The HA may exercise its discretion to
reject an owner in accordance with local policy, and available
information.

G. Tenancy

1. Tenant Definition
The proposed rule would have added a new definition of the term
``tenant''. The proposed definition would have provided that a tenant
was the ``adult'' member of the assisted family who executed the lease
as lessee of the dwelling unit. Comments state that the new definition
is helpful, and approve adding this defined term.
The final rule revised the proposed definition by removing the
provision that the tenant must be an ``adult'' member of the family. In
the final rule, the term ``tenant'' is defined as ``the person or
persons (other than a live-in-aide) who executes the lease as lessee of
the dwelling unit''. (Sec. 982.4) The rule text clarifies that a tenant
must have legal capacity to enter into a lease under State and local
law. (Sec. 982.308(a)).
2. Approval of Lease
Any new lease or revision must be approved by the HA. Before
approval, the HA must determine that the lease meets program
requirements under the rule. (Sec. 982.308(b))
A lease must be executed by the tenant and the owner before the
beginning of the lease term. (Sec. 982.305(b)(2)) The lease must also
be approved by the HA before the beginning of the term.
(Sec. 982.305(b)(3)) Any new lease or revision must be approved in
advance by the HA, and must comply with program requirements.
(Sec. 982.308(b); Sec. 982.309(e)(1))
The rule provides that if the tenant and the owner enter into a new
lease or revision, the HA and owner must enter into a new HAP contract
to subsidize the tenancy under the new lease or revision.
(Sec. 982.309(e)(1)) Comments recommend eliminating the requirement for
execution of a new HAP for this purpose. This recommendation is not
adopted. The rule continues to require the use of a simple and uniform
process for commencement of the assisted tenancy--by execution of a
lease and HAP contract in each case. The HAP contract expresses the
HA's agreement to subsidize the tenancy under the new or revised lease.
3. Contents of Lease
The proposed rule would have required the lease to include word-
for-word all provisions required by HUD, and barred any provisions
prohibited by HUD. The lease language required by HUD is called the
``lease addendum''. (Sec. 982.308(c)(1)) The final rule provides that
the lease must include word-for-word all provisions required by HUD.
(Sec. 982.308(c)(2)) The rule provides that if there is any conflict
between the provisions required by HUD (lease addendum) and other
provisions of the lease, the provisions required by HUD shall control.
(Sec. 982.308(c)(3))
The lease addendum must state that certain types of lease
provisions are prohibited. (Sec. 982.308(d)) The statement of
prohibited lease provisions for the certificate and voucher programs in
the proposed rule is the same as language previously used in the old
voucher rule. This language is similar to, but more simply and clearly
stated, than the description of prohibited lease provisions in the old
certificate rule. A comment recommends that HUD should use the version
of prohibited lease provisions in the old certificate rule. This
comment is not adopted.
In all cases, the assisted lease must include the verbatim language
of the lease addendum. An HA may develop a model program lease that may
be offered for use by families and owners. A model lease must include
the language of the lease addendum, and must comply with program
requirements. However, the new rule prohibits the HA from requiring
families and owners to use a model program lease prescribed by the HA.
(Sec. 982.308(c)(2))
HA comments object to the prohibition against requiring use of an
HA model lease. Comments state that use of a model lease saves an HA
the cost of reviewing leases to assure compliance with required lease
provisions. HUD believes that mandating use of a model lease may unduly
restrict family choice of available housing. Owners may refuse to
execute program leases in the form of the HA-prescribed model lease
rather than using a form of lease familiar to the owner.
Comments recommend that the HA should be permitted to disapprove a
lease that does not comply with State or local law. This comment is
adopted. The final rule provides that the HA may review the proposed
lease to determine if the lease complies with State or local law, and
may decline to approve the lease if it does not comply with State or
local law. (Sec. 982.308(f)) It should be emphasized, however, that the
federal rule does not require that the HA review the lease for
compliance with State or local law. The decision to undertake such
review, or to decline lease approval for this reason lies in the HA's
discretion.
4. Term of Tenancy
The rule provides that the initial term of the lease must be for at
least one year, and must provide for ``automatic renewal'' after the
initial term. The lease may renew by an automatic indefinite extension
or by automatic extension for successive definite terms (for example,
month-to-month or year-to-year). (Sec. 982.309(b) (1) and (2))
The lease terminates if any of the following occurs:

--The owner terminates the lease.
--The tenant terminates the lease.
--The owner and the tenant agree to terminate the lease.
--The HA terminates the HAP contract.
--The HA terminates assistance for the family. (Sec. 982.309(b)(3))

The term of the lease and the HAP contract are the same. The term
of the HAP contract follows the term of the lease. (Sec. 982.309(a)(1))
The lease ends when the HAP contract ends. (Sec. 982.309(b)(2)(iv)) The
HAP contract ends when the lease ends. (Sec. 982.309(a)(2))
Comments approve the clarification that the initial lease term is
one year. Comments also approve the new language on automatic extension
of the initial year term, noting that the new regulation clears up
confusion under the prior rule. (Sec. 982.309(b) (1) and (2))
The owner may offer the family a new lease, for a term beginning at
any time after the initial term. The owner must give the tenant at
least 60 days written

[[Page 34673]]
notice of the offer. Comments recommend that the owner should also be
required to send the HA a copy of the offer. The comment is adopted.
(Sec. 982.309(e)(2))
Rent to the owner and the family share of rent may change during
the assisted lease. The rule does not require the execution of a new
lease or HAP contract for a change in family share in accordance with
HUD requirements, or a change in rent to owner in accordance with the
HA approved lease.
5. Termination of Tenancy
The rule and the statute provide that an owner may terminate an
assisted tenancy for serious or repeated violation of the lease,
violation of tenancy obligations under federal, State or local law, or
other good cause. (42 U.S.C. 1437f(d)(1)(B)(ii); Sec. 982.310) The
final rule provides that the owner may terminate tenancy for these
grounds ``during the term of the lease''. (Sec. 982.310(a)) The federal
requirements for termination of tenancy only apply during the term of
the assisted lease, but do not apply after a termination of the
assisted lease--for example, where the lease has terminated
automatically because the HAP contract has terminated.

Other Good Cause

As under the old rule, the rule provides that ``other good cause''
for termination of tenancy by the owner may include, but is not limited
to, any of the following examples:

--Failure by the family to accept the offer of a new lease or revision;
--A family history of disturbance of neighbors or destruction of
property, or of living or housekeeping habits resulting in damage to
the unit or premises;
--The owner's desire to use the unit for personal or family use; or
--A business or economic reason for termination of the tenancy (such as
sale of the property, renovation of the unit, desire to lease the unit
at a higher rental). (Sec. 982.310(d))
Comments recommend that HUD give more definition of ``other good
cause'', and suggest that the existing provisions have been used as
``legal loopholes'' for owner eviction of tenants. The recommendation
is not adopted. The statute permits eviction after the first year for
``other good cause'', as well as for family violation of the lease.
Eviction for good cause is not a ``loophole'', as asserted by the
comment, but is a ground for eviction specifically provided in the
statute. If an owner seeks to evict for this reason, the existence or
non-existence of cause is determined by the court in the owner's
eviction action. The good cause provisions in the present rule are
largely the same as provisions promulgated by the Department in 1984
for the certificate program (and subsequently incorporated in
regulations for the voucher program). In the preamble to the 1984 rule,
the Department noted that:

``a comprehensive regulatory definition of good cause in the
Section 8 Existing Housing Program (i.e., the certificate program)
is neither possible or desirable. The good cause category should
remain open to case by case determination by the courts. It is a
prime virtue of this statutory category that it permits termination
by owner in types of cases which cannot be readily foreseen.'' (49
FR 12233, March 29, 1984)

The rule recites key ``examples'' of cases that may be good cause,
but explicitly states that ``other good cause'' is not limited to the
listed examples. In the 1984 rule, HUD stated that:

``The good cause concept should be flexible and open to
application in concrete cases, but there is a critical need to
provide explicit regulatory assurance to prospective section 8
owners that legitimate owner concerns will be recognized as grounds
for termination of tenancy * * *. (T)his assurance may be essential
to promote broad participation by owners.'' (Id.)

Criminal Activity

The rule provides that the owner may evict a tenant for any
criminal action that threatens persons who reside in the ``premises''
or the ``immediate vicinity''. (Sec. 982.310(c)) In the rule,
``premises'' is defined as the building or complex in which the
dwelling unit is located, including common areas and grounds.
(Sec. 982.4) Comments support allowing eviction because of threats to
persons who reside in the vicinity. However, comments also recommend
that HUD should allow the owner to evict because of criminal activity
that is a threat to the owner's representative or staff.
An owner may only terminate a tenancy in Section 8 existing housing
for the grounds specified in the law. (42 U.S.C. 1437f(d)(1)(B)) The
rule implements statutory provisions which explicitly confirm that the
owner may evict a tenant for criminal activity that is a threat to
residents. The statute does not refer to criminal activity that is a
threat to other persons, who do not reside in the housing or the
vicinity, and does not refer to representatives of the owner. However,
threats or harm to owner representatives by the assisted household or
its guests may be ground for eviction if the threatening activity
constitutes a serious or repeated lease violation or is ``other good
cause'' for eviction of the tenant.
The rule permits an owner to evict the tenant for drug-related
criminal activity ``on or near'' the premises. (Sec. 982.310(c)(3))
Comments state that the program should not assist persons who engage in
drug-trafficking, whether the activity occurs on or off the premises.
The law provides that the owner may terminate tenancy because of any
drug-related criminal activity ``on or near'' the assisted premises.
(42 U.S.C. 1437f(d)(1)(B)(iii)) The language of the HUD rule follows
the eviction standard prescribed in the law.
During the term of an assisted lease, an owner may not evict a
tenant for drug crime unless the crime takes place ``on or near'' the
housing (unless the behavior is a serious or repeated lease violation
or is otherwise ``other good cause'' for eviction of the tenant).
However, the HA may terminate program assistance for drug-related
criminal activity or violent criminal activity by a family member,
regardless of where the criminal activity takes place. (Sec. 982.553)
HUD has explained the reason for this policy:

``The Department has not limited the proscribed (drug-related or
violent criminal) activities under this rule to activities carried
out on or near the premises. Section 8 certificates and housing
vouchers are a very mobile form of housing assistance. The holder
can lease suitable housing with Federal subsidy assistance anywhere
in the PHA's jurisdiction, in the metropolitan area, or in a
contiguous metropolitan area. If a PHA were (only) permitted to
terminate assistance for activities on or near the assisted
premises, the deterrent effect of this policy would be substantially
diminished because the family could lease housing outside the area
where the family member engages in the proscribed activities.
Furthermore, if the rule were limited to activities engaged in on or
near the premises which are being leased with Section 8 assistance,
the rule would not authorize a PHA to deny Section 8 assistance to a
former public housing tenant evicted for drug-dealing in public
housing * * *.'' (55 FR 28538, 28540, July 11, 1990)

The lease terminates when the HA terminates assistance for the family.
(Sec. 982.309(b)(3)(v))
Under the law and this rule, the owner may evict for drug crime
``on or near'' the premises. Comments suggest that the rule should
cover crime in an adjoining street, alley or other public right of way.
In this rule, HUD tracks the statutory standard, and does not attempt
to further define when a crime location is considered ``near'' the
assisted project or building. In general, this standard would cover
drug crime in a street or other right of way that adjoins the project
or building where a Section 8 unit is located. A landlord-tenant court

[[Page 34674]]
can apply the statutory standard to the circumstances of a particular
case.
6. Nature of Assisted Tenancy
Comments claim that the rule provides for a perpetual lease, and
discourages owner participation. Comments state that the rule prohibits
the owner from selling the assisted unit, and allows the HA to reduce
owner rents at will. Comments state that rule should allow termination
of tenancy without cause by the family or the owner after the first
year of the lease term. Comments assert that the owner is locked in,
whereas the family can terminate the lease on 60 days notice at the end
of the first year. By contrast, other comments claim that the rule
undermines existing protections for the tenant.
In fact, the rule does not undermine existing protections for the
tenant or the owner. Rather, HUD believes that the rule reflects a
reasonable balance between the interest of the assisted tenant and the
owner within the context of the existing law. On the one hand, the
lease protects the tenant against arbitrary and ungrounded termination
by the owner. On the other hand, the owner is not locked in, but may
terminate the tenancy for lease violation or other good cause.
After the initial year, the family may terminate the tenancy on
notice to the owner. After the initial year, the owner may terminate
the tenancy for other good cause--specifically including a ``business
or economic reason'' for termination of the tenancy. The rule does not,
as claimed by the comments, prohibit the owner from selling the unit.
The rule specifically states that a business reason for termination
after the initial year may include ``sale of the property''.
(Sec. 982.310(d)(1)(iv))
7. Notice by Owner

Notice of Grounds for Termination

By law, the owner must give the tenant a written notice that
specifies the grounds for termination of tenancy. (42 U.S.C.
1437f(d)(1)(B)(iv))
The proposed rule would have provided that the owner's notice of
grounds for termination could have been combined with and run
concurrently with any notices required under State or local law.
Comments suggest that the owner should be required to give the notice
of grounds with owner's notice to vacate, not later with the summons,
complaint or other pleading. HUD should require a minimum notice period
before commencement of the eviction action. The comment notes that
advance notice of eviction allows time for the tenant to negotiate a
resolution, and gives an opportunity for the HA to protect both the
tenant and the HA interest.
The final rule clarifies that the owner must give notice of the
grounds for eviction at or before commencement of the eviction action.
(Sec. 982.310(e)(1)(i)) The notice may be included in, or may be
combined with, any other owner eviction notice to the tenant.
(Sec. 982.310(e)(1)(ii)) Such other owner eviction notice means a
notice to vacate, or a complaint or other initial pleading used under
State or local law to commence an eviction action.
(Sec. 982.310(e)(2)(i))
Comments recommend that the rule require notice with sufficient
specificity to prepare a defense. The rule does not specify the form or
contents of the statutory notice. The rule also does not prescribe the
point at which the notice must be given, so long as the owner gives
notice of grounds at or before commencement of the eviction action.
Comments propose that the owner should be required to notify the HA
at the same time as the tenant. The final rule provides that the owner
must give the HA a copy of any owner eviction notice to the tenant.
(Sec. 982.310(e)(2)(ii))

Termination of HAP Contract--90 Days Notice

The owner must give 90 days notice before a termination of a
tenant-based HAP contract because of:

--Owner ``opt-out''.
--``Expiration'' of the HAP contract.

The owner must give written notice of the termination to the family,
the HA and HUD. (42 U.S.C. 1437f(c)(9) and (10), Sec. 982.455(b)(3))
The rule provides that expiration occurs in two cases:

--Automatic termination of the HAP contract. The proposed rule would
have provided that the contract terminates automatically three months
after the last housing assistance payment. The final rule now provides
that the HAP contract terminates six months (180 calendar days) after
the last housing assistance payment. (Sec. 982.455(a))
--A HUD determination to terminate the HAP contract because there is
insufficient funding to support continued assistance for the family.
``Opt-out'' refers to owner termination of tenancy for a business
or economic reason. (Sec. 982.455(b)(2)(ii); see 42 U.S.C. 1437f(c)(9))
On receiving the owner notice, the HUD field office must review the
notice and consider whether there are additional actions which should
be taken to avoid the termination. (Sec. 982.455(b)(4)(i)) The final
rule adds a new provision clarifying that the owner may proceed with
eviction whether HUD approves or disapproves, or fails to complete the
required review of the owner notice before expiration of the 90 day
review period. (Sec. 982.455(b)(4)(iv))
For a unit assisted under the certificate program, the proposed
rule would have provided that when HUD received notice of an opt-out or
expiration, HUD would have been required to offer the owner the
opportunity to enter into a new HAP contract at the maximum rent
allowed for a new program tenancy (subject to the FMR/exception rent
limit and the reasonable rent limit). The final rule provides that HUD
must offer a new HAP contract only when the owner gives notice of an
opt-out, but not in the case of an expiration.
(Sec. 982.455(b)(4)(ii)(B))
Comments recommend that the 90 days notice procedure should apply
to a termination because an owner wants to use the unit for personal or
family use. HUD should evaluate the lawfulness of the termination, and
offer incentives for the owner to keep the unit in the program. This
comment is not adopted. In the tenant-based programs, an ``opt-out''
only applies to an owner's termination of tenancy for a business or
economic reason.
Comments recommend that the requirement to give notice of grounds
for eviction should not apply to an owner opt-out. This comment is not
adopted. Owner's 90 days opt-out notice must state the reasons for the
termination, and will simultaneously satisfy the requirement to give
notice of grounds for termination.
8. Rent

Nonpayment of Housing Assistance Payment

The final rule provides that the family is not responsible for
payment of the portion of rent to owner covered by the housing
assistance payment under the HAP contract between the owner and the HA.
(Sec. 982.310(b)(1); Sec. 982.451(c)(4)(iii)) The HA failure to pay the
housing assistance payment to the owner is not a violation of the lease
between the tenant and the owner. During the HAP contract term, the
owner may not terminate the tenancy of the family for nonpayment of
this amount. (Sec. 982.310(b)(2))
Application of Tenant Payments

Comments recommend that the rule should specify how tenant payments
are applied. The comments state that HUD

[[Page 34675]]
should require that tenant payments must first be applied to current
rent, and that any excess should be first applied to other rent, and
only then to other non-rent purposes. The comment is not adopted. HUD
has no reason for such micromanagement of the Section 8 tenancy. HUD
will leave such questions for resolution in accordance with the lease
and local law.
9. Owner Late Fee
As in the past, the rules do not include any federally-imposed
limitation on owner charges of fees against the tenant for late payment
of rent in accordance with the lease and State and local law. Comments
recommend that the rule should limit owner late fees, should allow a
grace period for late payment of rent, and should prohibit eviction for
non-payment of late fees. The comments are not adopted.
HUD seeks to minimize interference in the relationship between
landlords and assisted tenants in order to encourage owner
participation in the program. In these programs, any regulation of
tenant-paid late fees will be left to local policy, rather than
encumbered by special HUD-imposed requirements that only apply to a
subsidized tenancy. HUD also believes that owner assessment of late
fees can perform a legitimate role as an encouragement for timely
payment of the tenant share of rent.
The owner receives the total rent (``rent to owner'') from two
sources--the housing assistance payment portion from the HA, and the
tenant portion from the family. Comments propose that HUD should
prohibit charging late fees to the tenant for delays in the HA payment
to the owner. The rule is revised to clarify the respective obligations
of the HA and the family to the owner for payment of the HA and tenant
portions of the rent, and for late fees for late payment by the HA or
the tenant. The rule now provides that the tenant is not responsible
for paying the HA share of the rent. This change will eliminate any
basis for a late charge against the tenant for the HA share of the
rent.
The final rule is revised to confirm that the HA must pay the owner
promptly when the housing assistance payment is due in accordance with
the HAP contract. (Sec. 982.451(c)(5)) In addition, the rule provides
that if the HA fails to make timely payment, the HA ``may be
obligated'' to pay a late fee ``in accordance with State or local
law''. However, unless authorized by HUD, the HA may only use
administrative fee income or administrative fee reserve for payment of
any such late fee. The HA may not use other Section 8 program receipts
to pay a late fee to the owner.
10. Termination and Notice by Family

Notice of Termination or Move

The family may terminate a lease after the first year. The lease
may not require the family to give the owner more than 60 days notice
of the termination. (Sec. 982.309(d)(1))
The family must notify the HA before moving from the unit, and must
give the HA a copy of any lease termination notice by the family to the
owner. Failure to notify the HA before the family moves, or to give the
HA a copy of the family's termination notice to the owner, is a breach
of family obligations under the program. (Sec. 982.309(d)(2);
Sec. 982.309(f); Sec. 982.551(g)(2))

Family's Right To Terminate the Lease

Comments express some confusion concerning the family's right to
terminate the lease on notice to the owner (under the existing and the
proposed rule). Some comments state that the family can move on one day
or other short notice to the landlord. Other comments state that such
short notice to landlords is unfair, discourages owner participation,
and is inconsistent with standard leasing practice. Other comments
assume that the tenant is required to give 60 days notice. Comments
recommend that the family should be required to give the owner and the
HA at least 30 days notice of termination. Comments state that the
family should be required to give minimum notice to the owner in
accordance with State and local law. Comments ask HUD to clarify the
relation between termination by tenant notice, and the provisions for
definite or indefinite extension of the initial lease term.
Some Section 8 lease requirements are prescribed by HUD. These
requirements are contained in the required ``lease addendum''. Except
for these program lease requirements, the terms of a Section 8
tenancy--like any private market tenancy--are governed by State law and
the language of the particular lease executed by the tenant and the
owner. The individual lease between a particular tenant and owner
contains both the standard lease addendum and any other lease
provisions agreed by the parties.
A tenant's right to terminate the lease, and the length of any
required termination notice, depend on the terms of the lease. It is
not true, as assumed by some comments, that the rule gives a Section 8
tenant the right to terminate the tenancy during the first year, or
that the tenant may terminate on one day or other short notice. In
fact, there is nothing in the HUD rule or HUD-prescribed lease addendum
permitting the tenant to terminate the lease during the first year of
the lease term.
The Section 8 tenant may terminate the lease at any time after the
first year. (Sec. 982.309(d)(1)) The program rule and lease addendum
only provide that the lease may not require the tenant to give more
than 60 days notice to the owner. In other respects, the particulars of
the tenant's right to terminate the tenancy depend on local law and the
terms of the tenant's lease.
In allowing the tenant to terminate after the first year (on no
more than 60 days notice to the owner), the rule seeks to provide rough
symmetry between the legal positions of the tenant and the owner.
During the first year, an owner may not terminate the tenancy for
``other good cause'' unless the owner is evicting because of some
action or non-action by the family. (Sec. 982.310(d)(2)) After the
first year, the owner may terminate for any ``other good cause''
(including termination for a business or economic reason), not limited
to termination because of action or non-action by the family. After the
first year, the tenant may terminate the lease on notice to the owner.
11. Security Deposit and Owner Claims When Family Moves

Proposed Rule

The owner may collect a security deposit from the family. As in the
past, the proposed rule would have limited the amount of the security
deposit. The proposed rule would have provided that the maximum
security deposit was one month's rent.
The proposed rule would have provided that an owner could claim
reimbursement from the HA for tenant damage and unpaid rent. The owner
could collect a claim for one month's rent minus the maximum security
deposit allowed by the HA. Under the proposed rule, the HA could
therefore have eliminated owner reimbursement claims by permitting the
owner to collect one month's rent as a security deposit.

Comments

Comments make various recommendations concerning the amount of the
maximum security deposit. Some comments claim that a tenant can't
afford to pay a one month deposit. Comments claim that the
authorization to collect one month's rent as a security deposit forces
the

[[Page 34676]]
family to lease a unit where the rent is low. Comments recommend that
the security deposit should be one month's family contribution
(generally 30 percent of family income).
Comments recommend allowing owner damage claims for up to two
months rent. These comments assert that the damage claim protection is
an important tool in persuading owners to rent to program families.
Other comments suggest that it would be better to eliminate owner
claims by increasing the maximum allowable security deposit. Family
payment of the security deposit promotes family responsibility. The
security deposit gives the tenant an incentive to minimize the owner's
claim for damage or unpaid rent.
Comments recommend that HUD should direct HAs to comply with a
federally-mandated timetable for processing of owner claims.
Final Rule

The final rule eliminates the right of the owner to claim
reimbursement from the HA for damages or other amounts owed by the
tenant under the lease. In this respect, the assisted tenancy will
function more like an ordinary tenancy in the private market. The owner
must look to the tenant for payment of any damages.
The final rule also eliminates the HUD-imposed limit on the amount
of owner security deposits. The rule provides that the owner may
collect a security deposit. (Sec. 982.313(a)) The HA is not required to
set any limit on the owner security deposit. However, the HA has
discretion to prohibit security deposits in excess of private market
practice, or in excess of security deposits for the owner's unassisted
units. (Sec. 982.313(b))
HUD believes that these changes tend to produce significant
benefits.

--Elimination of unnecessary distinctions between the tenant-based
program and a private market tenancy encourages broader participation
by owners of units outside of areas of minority and high poverty
concentration.
--The owner can no longer rely on the HA to pay tenant damages or
unpaid rent. This change gives the owner a stronger motivation to
screen assisted families the same as for unassisted private market
tenants, and to check for unit damage during occupancy.
--This change in turn reinforces the incentive for a program family to
take care of its unit before and during assisted occupancy.
--As suggested by comments, the need for the tenant to make a larger
security deposit from its own pocket creates a greater incentive to
avoid damage to the unit, and owner claims against the security
deposit.
--The elimination of owner claims relieves a major administrative
burden. The old owner claim procedure forced HAs to determine whether a
unit was damaged during occupancy, and whether any damage was the fault
of the tenant. Under the old system, it was often hard for the HA to
know who caused unit damage, and to sort out bona fide owner claims.
Elimination of the old claim system eliminates the need to develop and
operate a claims process that is fair to both families and owners.
--Since HAs will not pay owner claims, HAs will not deny or terminate
assistance for failure to pay such claims. The change will tend to
eliminate over time issues concerning denial or termination of a
family's assistance for failure to reimburse amounts paid by the HA in
owner claims on behalf of the families, including the need for
repayment agreements or for hearings to determine whether an owner's
claim was properly paid.
--Elimination of the old claim system saves both the amounts paid out
in claims and the cost of administration.
12. HA Payment After Family Move-Out
The rule provides that if a family moves out, the owner may keep
the housing assistance payment for the month when the family moves out.
The HA may not make any further payments. (Sec. 982.311(d)(1)) Comments
state that HUD should allow vacancy payments for an additional month.
The comments claim that an additional vacancy payment is an incentive
for owner participation, and is needed to attract owners of higher
quality units. Comments state that the elimination of vacancy claims
for the month after move-out is unfair to participating owners.
The final rule provides, as proposed, that payments will not be
made after the month of move-out. In the voucher program, the statute
prohibits assistance payments after the month the unit is vacated. (42
U.S.C. 1437f(o)(4)) The provision of a vacancy payment absorbs funds
that can be used to subsidize actual occupancies. Further, the use of
subsidy payments for vacant units is an unnecessary departure from
normal private market incentives and practice. In the tenant-based
programs as in the private market, owners can charge a rent comparable
to rents for a private unassisted rental. HUD is not persuaded that
this additional incentive is necessary or desirable to give program
families a reasonable access to units in the rental market. The voucher
progra

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A95-15906. Public record. Not legal advice.