A federal judge yesterday blocked plans by the Department of Housing and Urban Development to sell nearly $500 million worth of mortgages on low-income rental housing, saying that tenants living in the more than 250 housing projects involved in the planned sale would be "irreparably" injured because federal restrictions keeping the rents low would be lifted.
Judge Robert F. Peckham issued a preliminary injunction in the case, which was filed in the U.S. District Court for the Northern District of California by the National Housing Law Project, a housing advocacy organization, on behalf of three tenants. He said in the injunction that the plaintiffs had a "substantial likelihood" of winning because HUD failed to consider provisions of the National Housing Act and did not provide an opportunity for public comment before deciding to sell the loans.
The judge also approved a motion making the case a nationwide class action, meaning that residents of all the buildings are plaintiffs in the suit.
HUD offered 304 mortgages for sale in early June and accepted bids, but it agreed not to actually sell the loans until July 8, giving housing advocates and Congress time to halt the sales. The department withdrew 47 of the loans from the sale after the California court action was filed, but offered the remaining 257 in the auction, according to a HUD spokesman. The spokesman added that the department had accepted 31 bids totaling $104 million.
Prospective buyers were required to deposit 10 percent of the unpaid balance of the loans on which they submitted bids. Those deposits will be returned to the bidders, according to the spokesman.
Some of the mortgages are government-insured loans that HUD took over after owners defaulted. Others are loans made by the department in order to sell properties it had taken back after previous defaults.
Three of the projects are in the Washington area. They are the Rockview and Hartford Terrace apartments in the District and the Leesburg Manor Apartments in Leesburg.
In most cases, low-income residents of the projects would not have been protected against rent increases after the sale, according to the lawsuit.
HUD attorneys told Peckham that the agency was acting under the instructions of the Office of Management and Budget when it tried to sell the mortgages, according to court documents. The lawyers also said the budget agency would not permit HUD to sell the loans with federal insurance, which could have permitted the department to impose restrictions that would keep the projects available to low-income residents.
Arguing against the class action certification, HUD lawyers said that tenants were not the intended beneficiaries of regulatory agreements and thus could not sue the government.
Sales of federally subsidized mortgages are part of OMB's $5 billion loan-asset sales program. The budget agency "has no reaction" to Peckham's decision, said spokesman Edwin L. Dale. "We had good reasons for the sale and we'll pursue them in court," he said.
The HUD spokesman said it had no comment on the decision.
Congresssional committees and housing organizations have become more outspoken about their fears that more than half of the nation's 600,000 privately owned, federally subsidized units could be lost from the low-income housing stock over the next 15 years. Federal regulations mandating the housing's use for low- and moderate-income tenants will expire during that period, according to several estimates.
Seven members of the House Banking, Finance and Urban Affairs Committee's housing subcommittee sent HUD a letter in late May, urging the department "in the strongest possible terms to cancel the planned sale."
Housing legislation now ready for a Senate-House conference committee contains regulations that would govern the sale of low-income housing property.
The preliminary injunction holding up the June auction is the second setback for the loan sales program. In early May, Federal Housing Commissioner Thomas T. Demery asked HUD to call off the sale of another $410 million worth of mortgages on rental apartment buildings with an estimated 36,000 units scattered throughout the country, including about 15 projects in the Washington area. He said the low-income tenants in the buildings needed better protection from rent increases.