[Federal Register Volume 63, Number 95 (Monday, May 18, 1998)]
[Rules and Regulations]
[Pages 27434-27437]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-13157]


      

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Part V





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Part 982



Section 8 Rental Voucher and Certificate Programs; Restrictions on 
Leasing to Relatives; Final Rule

Federal Register / Vol. 63, No. 95 / Monday, May 18, 1998 / Rules and 
Regulations

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 982

[Docket No. FR-4149-F-02]
RIN 2577-AB73


Section 8 Rental Voucher and Certificate Programs; Restrictions 
on Leasing to Relatives

AGENCY: Office of the Assistant Secretary for Public and Indian 
Housing, HUD.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule would limit the circumstances under which a 
landlord could lease a unit with Section 8 voucher or certificate 
assistance to a relative of the landlord. It would permit such leasing 
only if an HA determines that the leasing would accommodate a person 
with disabilities. The rule is intended to reduce the potential for 
misuse of Section 8 assistance.

EFFECTIVE DATE: June 17, 1998.

FOR FURTHER INFORMATION CONTACT: Gerald Benoit, Director, Operations 
Division, Office of Rental Assistance, Public and Indian Housing, 
Department of Housing and Urban Development, Room 4220, 451 Seventh 
Street, SW, Washington, DC 20410, telephone (202) 708-0477. Hearing or 
speech impaired individuals may call HUD's TTY number (202) 708-4594 or 
1-800-877-8399 (Federal Information Relay Service TTY). (Other than the 
``800'' number, these are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

I. Discussion

Proposed Rule

    On March 10, 1997, the Department published a proposed rule at 62 
FR 10786. Under that proposed rule, a housing agency (HA) may not 
approve a unit for lease if the owner is the parent, child, 
grandparent, grandchild, sister, or brother of the Section 8 voucher or 
certificate holder that is seeking to rent the unit. (Under 
Sec. 982.306(e), ``owner'' includes a principal or other interested 
party.) The HA, however, could still approve the unit for lease, if the 
HA determines that approving the unit would provide reasonable 
accommodation for a family member who is a person with disabilities.
    When implemented, the policy would apply to new admissions and to 
moves with continued assistance. HUD would add to HAP contract forms a 
simple certification by the owner that the owner is not a parent, 
child, grandparent, grandchild, sister, or brother of any member of the 
family. HUD would also add a comparable certification to the rental 
voucher and the rental certificate.
    After considering the comments discussed below, the Department has 
decided to publish this final rule as it was proposed.

Summary of Public Comments and Responses

    The Department received 154 public comments. Sixty comments came 
from individuals that either were Section 8 tenants leasing from 
relatives or were landlords leasing to relatives with Section 8 
assistance. Sixty-six comments were from housing agencies (HAs). One HA 
included 119 letters addressed to the HA from Section 8 tenants and 
landlords. The Department also received comments from two Congressmen, 
several cities, trade associations, and entities involved in managing 
housing. The following summarizes the major comments and gives the 
Department's response.
A. Comments on the Merits of the Policy
    The following public comments, both pro and con, concern the 
overall merits of the policy of prohibiting leasing to close relatives 
with voucher or certificate assistance.
    1. The Presence or Absence of Program Abuse. Several commenters 
urged HUD to adopt the rule because it would curtail program abuse. 
Some of them noted instances where property was quitclaimed and 
reconveyed to relatives and then leased to the former owner and other 
instances where the tenant was listed as a co-owner of the property. 
Some commenters noted instances where families were paying for their 
homes with Section 8 assistance by leasing to their relatives. Others 
indicated that there are times when landlords do not collect the full 
amount of tenants' share of the rent when they lease to relatives.
    Other commenters said they did not see fraud where a landlord is 
renting to a relative. They argued that tenants have to follow the same 
policies whether they rent from relatives or nonrelatives and that HUD 
audits and reviews could see if the HA is being consistent when leasing 
with relative and nonrelative landlords. They claimed that the preamble 
to the proposed rule indicated that HUD's reviews did not disclose 
program violations. Some contended that there is no need for the rule 
if the HA is doing its job. If there is a problem in detecting fraud or 
abuse, it should be addressed by additional documentation, not by the 
proposed rule.
    Some commenters viewed the rule as a reaction by HUD to bad press. 
They asserted that the reason HUD is proposing the rule is appearances. 
They thought the rule corrects a public perception more than program 
misuse. They believed HUD's arguments for the rule to be speculative 
with no documentation for the assertion that current policy encourages 
families that can house family members to obtain Federal assistance 
that would otherwise be available to more needy families. To assume 
that there is something improper in renting to relatives is a faulty 
assumption. HUD should not focus on an area that has yet to be proven 
misused but should focus on actual fraud cases. HUD should gather data 
showing abuse before it issues restrictions on housing choice.
    Other commenters, however, pointed out that halting a practice that 
may appear to be improper is an important step in maintaining the 
integrity of the programs and the HAs operating them.
    Some commenters saw the rule, if adopted, as increasing the 
possibility of abuse. They noted that the family relationship may be 
difficult to verify. An ``other interested party'' might not be on the 
deed. Some believe that the prohibition could be avoided by landlords 
``trading'' relatives. HAs do not have the staff to verify property 
ownership.
    2. Extent of Practice of Renting to Relatives. There was 
disagreement among commenters (mostly HAs) on the perceived extent of 
the practice of renting to relatives. A few commenters argued that 
there was little need for the rule because in their experience there 
were few instances of renting to relatives.
    Other commenters, however, favored the rule because in their 
experience the practice is not rare. One HA indicated that about 12 
percent of the units under lease were in units owned by immediate 
family. This commenter claimed that, from conversations with other HAs, 
this number may be representative of HAs in general. The commenter gave 
specific examples of landlords with a number of rental properties 
renting under Section 8 to a parent or child.
    3. Effect on Supply of Affordable Housing. Another group of 
commenters acknowledged that the practice of leasing to relatives may 
be extensive, but favored the practice because they believed that it 
increased the supply of affordable housing. One commenter noted that 
20% of its certificate holders rent from relatives and that its 
locality had a vacancy rate of 2 percent.
    Some commenters asserted that the prohibition on leasing to 
relatives

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would severely decrease the supply of affordable rental housing in 
small communities and rural areas which have few rental properties. 
Because of tight housing markets, family members purchase mobile homes 
and lease to relatives participating in the Section 8 program. The 
commenters stressed that their relatives are as needy as other Section 
8 participants. They believed that the rule will reduce the base of 
participating owners. A relative is more likely to rent to a family 
member with a history of problems or a disability.
    A few commenters thought that HUD was sending a mixed message 
because under HUD Notice PIH 97-13, ``Lease-Purchase Agreements in the 
Section 8 Tenant-Based Rental Voucher and Certificate Programs,'' HUD 
clarified that Section 8 regulations do not prohibit lease purchase 
arrangements.
    For these reasons some commenters recommended one or more of the 
following exceptions: for tight rental markets and for families working 
toward self-sufficiency; for HAs with fewer than 500 certificates and 
vouchers; and for rural areas.
    4. Landlords are not generally affluent. Many of the commenters 
that were opposed to the rule believed that landlords who rented to 
relatives, in general, were not affluent and were not in a position to 
provide low rents without the Section 8 assistance. They argued that 
the owner/relatives are continuing to take responsibility for their 
family members even though some cost is borne by the Federal Government 
and that the rule would make it more difficult for relatives to assume 
some responsibility for a needy relative. Many of the comments from 
individuals explained how they either were aided by renting from 
relatives or were aiding relatives by renting to them. The most 
frequently described situation was of an owner renting to a low-income 
adult child, single-parent family. Some commenters believed that the 
current policy encourages family unity or promotes self-sufficiency.
    While most of these commenters wanted HUD to drop the rule, some 
commenters recommended exceptions for certain owners. These 
recommendations included exceptions for owners: with fewer than 100 
units; with fewer than 5 units; that own only one property; that cannot 
allow the unit to go unrented. One commenter asked for an exception for 
an owner-occupied duplex where one unit is occupied by an elderly 
relative or a relative with child care needs.
    Another approach that was recommended was to permit leasing to 
relatives but require business financial statements from a landlord 
that is a relative. This commenter recommended that an HA's 
determination of an owner's ability to forgo rent should include 
considering family size. One commenter, a landlord, expressed a 
willingness to provide financial information to show inability to 
support the relative.
    5. Costs. The commenters disagreed on whether the rule would 
increase or decrease program costs. Some commenters indicated that 
their experience was that many voucher holders would probably give up 
assistance if they could not rent from a relative, indicating that 
assistance would become available for more needy families. Other 
commenters argued that contract rents generally are lower than average 
when a landlord leases to a relative. They believed that, if families 
do not rent from relatives, they will rent elsewhere; therefore, the 
rule could result in paying out higher assistance payments. One 
commenter's experience is that young families who rent from relatives 
do not stay on rental assistance long.
    Some commenters noted that rental units owned by relatives are 
usually in good condition. Repairs generally are made quickly. They 
believed that there are fewer landlord-tenant problems and the tenant 
is more likely to help maintain the unit. Related owners are likely to 
provide transportation and child care which addresses obstacles to 
employment.
    6. Only Concerns Should Be Eligibility of Applicant and Condition 
of Property. Some commenters objected to the proposed rule as seriously 
negating the goal of ``maximum housing choice for assisted families.'' 
They believed that there should be no exception to current general 
policies on participation. That is, participants should choose where to 
reside and landlords should be able to lease to anyone as long as the 
tenant is income eligible and unit is in good condition. Income and 
assets of other relatives, they asserted, have never been a 
consideration in determining eligibility. They saw the rule as creating 
a back-door method of means testing of relatives without Congressional 
intent to do this. This is not an owner-income tested program, but 
rather a tenant-income tested program. Some commenters noted that food 
stamps and energy assistance can be used to buy food or fuel from a 
relative.
    Some commenters saw the rule as injecting a morality that they did 
not believe belongs in regulations. They argued that there is no legal 
obligation for closely related individuals to provide for each other 
financially. Unless there is a means to hold families accountable for 
housing all of their members, this rule will accomplish little. The 
Federal government and the HA are not in a position to determine if an 
owner can or should be responsible for housing a low income relative.
    HUD Response. The Department acknowledges that information on the 
practice of owners leasing to relatives is anecdotal. Nonetheless, the 
Department continues to believe that both the actual instances of 
program abuse and allowing leasing among closely related persons create 
a systemic incentive to misuse the program. In addition, public 
perception that the program can be used in such a manner is itself 
detrimental to the program.
    The restriction on leasing to a relative does not change the 
general eligibility requirements of these programs. The rule does not 
in any way impose a means test on owners. It should not substantially 
restrict housing choice to the certificate or voucher holder. The vast 
majority of affordable housing within the market remains available to 
voucher and certificate holders. It is only housing that is owned by a 
close relative which cannot be leased. Indeed, the argument that 
prohibiting leasing to relatives will decrease the supply of affordable 
housing underscores the doubt that such housing is truly available 
under the voucher and certificate programs. Rather, its availability 
appears to be dependent upon the family relationship between the 
landlord and tenant.
    Adopting this rule should not increase the risk of fraud under the 
program. The practice of leasing to relatives exists in large part 
because it is permitted under current policies. Certification by the 
owner and the certificate or voucher holders is a minimally burdensome 
way of implementing this requirement.
B. Comments on Specific Elements of the Policy
    1. Comments Concerning Scope of Restriction and Exceptions.
    Comment. Some commenters recommended that the rule also exclude 
leasing to other relatives, such as, aunts, uncles and cousins. Other 
commenters believed that the restriction should apply to in-laws and 
step parents. They thought it might be easy to get around the proposed 
restriction if the restriction were not expanded.
    HUD Response. The Department is not inclined, at this time, to 
expand the scope of relatives to which the restriction applies. This is 
both to keep the restriction easier to apply and because the Department 
believes that

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the class of relatives covered is sufficient to cover the circumstances 
in which the program is most likely to be abused.
    Comment. Most comments on the exception for persons with 
disabilities were favorable. They indicated that the exception should 
be kept because rentals for persons with disabilities are not readily 
available and relatives are better able to assist a family member who 
is a person with disabilities. Some commenters asked for a complete 
description of ``person with disabilities.'' Others requested that 
persons with mental disabilities be included. One commenter recommended 
that the exception should also apply when the owner is the person with 
disabilities.
    A few commenters were opposed to an exception for the persons with 
disabilities because they believed that many times such persons have 
other resources to rely on. One commenter was not opposed to the 
exception, but noted an inconsistency between restricting leasing to 
relatives (a resource issue) and allowing leasing to persons with 
disabilities regardless of the wealth of the owner.
    HUD Response. The Department has retained the exception permitting 
leasing to a relative when the HA determines that approving the unit 
would provide reasonable accommodation for a family member who is a 
person with disabilities. In the rental voucher and rental certificate 
programs, the term ``person with disabilities,'' for purposes of 
reasonable accommodation and program accessibility for persons with 
disabilities, means ``individual with handicaps'' as defined in 24 CFR 
8.3. For purposes of determining eligibility based upon disability 
status, ``Person with disabilities'' is defined for these programs in 
section 3(b)(3)(E) of the United States Housing Act of 1937.
    Comment. A number of commenters argued that the exception should 
apply to the elderly. They believed that it was less costly to enable 
the elderly to live independently with assistance than to be placed in 
a nursing home. A commenter argued that it would create a hardship if 
he could not rent the adjacent duplex to his mother. Some commenters 
recommended that the exception should include: elderly, persons with 
disabilities (any form of disability not just physical), HIV positive, 
and AIDS tenants. Some commenters asked how the rule is fair to the 
elderly when they are allowed to transfer assets to become eligible for 
Medicaid.
    HUD Response. This rule does not prevent the elderly person who is 
qualified for Section 8 assistance from living independently. If the 
elderly person is also a person with disabilities then he or she would 
qualify for that exception.
    Comment. Some commenters recommended an exception for a tenant that 
is losing project-based assistance, such as under moderate 
rehabilitation.
    HUD Response. Subject to the availability of funds, these tenants 
would receive a voucher or certificate. The Department does not see a 
reason for treating such a tenant differently than other certificate or 
voucher holders.
    2. HA Discretion. A number of commenters argued that the rule 
should be discretionary for HAs. They characterized the rule as 
``overkill.'' They recommended that HAs should be able to address how 
to deal with leasing to relatives in their Administrative Plans if they 
perceived a problem. The Department has not adopted this recommendation 
because it believes that a uniform policy will better ensure the 
integrity of the Section 8 program.
    3. Alternatives to Prohibiting Leasing to Relatives. There were a 
number of comments recommending restrictions that fell short of a 
general prohibition on leasing to relatives altogether.
    One recommendation was that the contract rent for a relative should 
be set at 90 percent of the lower of the FMR for authorized or actual 
bedroom size when the landlord rents to a relative; others recommended 
that the rent be set at some percentage below FMR. Some of these 
commenters would prohibit such leases if the relative resides in the 
same building and would otherwise set the initial contract rent at no 
more than rent previously charged for the unit.
    One commenter recommended that HUD require every such tenant to pay 
one quarter of the total rent.
    HUD Response. The Department does not believe that any of the 
restrictions on rent deal directly with the problem which is avoiding 
having relatives structure arrangements where a family member receives 
assistance for housing that would be provided anyway.
    4. Affect on In-Place Tenants. A number of commenters agreed with 
applying the new policy only to new admissions and moves. To do 
otherwise, they noted, would require HAs to apply the restriction to 
existing rental agreements which would create unnecessary confusion and 
hardship. One commenter contended that forcing someone who is eligible 
for assistance to relocate would not serve the overall goals of the 
program.
    Other commenters believed that current participants leasing from 
relatives should not have the lease renewed in place. They recommended 
that current participants be given 6 months (some suggested 5 years) to 
locate another unit. Others thought that current tenants should have 
their assistance terminated at the next annual review if they did not 
move. Another recommendation was that, if a relative is allowed to 
remain in the unit, the owner should not be allowed a rent increase.
    HUD Response. The Department recognizes that the rule does not 
address the concern about families that are currently benefiting from 
Section 8 by taking advantage of the fact that there was no prohibition 
on renting to relatives. These participants, however, have existing 
living arrangements that presumably were entered into in conformity 
with then applicable regulations. The Department is reluctant to alter 
these arrangements through this rulemaking.
    5. Issue of Discriminatory Practice. Some commenters questioned 
whether the proposed restriction was a fair housing violation. Many 
commenters characterized the policy of refusing to allow landlords to 
rent to relatives as discriminatory.
    HUD Response. The policy is not discriminatory. It does not 
distinguish between people based on a prohibited status. Rather it 
imposes a restriction based on a legal relationship that exists between 
individuals.

II. Findings and Certifications

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR Part 50, 
which implement section 102(2)(C) of the National Environmental Policy 
Act of 1969 (42 U.S.C. 4332). The Finding of No Significant Impact is 
available for public inspection between 7:30 a.m. and 5:30 p.m. 
weekdays in the Office of the Rules Docket Clerk at the above address.

Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866, Regulatory Planning and Review, issued by the 
President on September 30, 1993 (58 FR 51735, October 4, 1993). Any 
changes to the rule subsequent to its submission to OMB are identified 
in the docket file, which is available for public inspection between 
7:30 a.m. and 5:30 p.m. weekdays in the Office of the Rules Docket 
Clerk, Department of Housing

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and Urban Development, Room 10276, 451 Seventh Street, S.W., 
Washington, D.C.

Regulatory Flexibility Act

    The Secretary has reviewed this final rule before publication and 
by approving it certifies, in accordance with 5 U.S.C. 605(b) (the 
Regulatory Flexibility Act), that this final rule does not have a 
significant economic impact on a substantial number of small entities 
because it simply restricts leasing with assistance between certain 
related individuals and does not otherwise restrict or impose burdens 
on the use or availability of Section 8 rental certificate or rental 
voucher assistance.

Unfunded Mandates Reform Act

    The Secretary has reviewed this final rule before publication and 
by approving it certifies, in accordance with the Unfunded Mandates 
Reform Act of 1995 (2 U.S.C. 1532), that this final rule does not 
impose a Federal mandate that will result in the expenditure by State, 
local, and tribal governments, in the aggregate, or by the private 
sector, of $100 million or more in any one year.

Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that the policies 
contained in this final rule will not have substantial direct effects 
on States or their political subdivisions, or the relationship between 
the Federal Government and the States, or on the distribution of power 
and responsibilities among the various levels of government. The final 
rule does not alter the relationship between HUD and the HAs. Rather, 
it simply amends one of the conditions for receipt of Federal 
assistance.

Catalog

    The Catalog of Federal Domestic Assistance numbers are 14.855 and 
14.857.

List of Subjects in 24 CFR Part 982

    Grant programs--housing and community development, Housing, Rent 
subsidies, Reporting and recordkeeping requirements.

    Accordingly, 24 CFR part 982 is amended as follows:

PART 982--SECTION 8 TENANT-BASED ASSISTANCE: UNIFIED RULE FOR 
TENANT-BASED ASSISTANCE UNDER THE SECTION 8 RENTAL CERTIFICATE 
PROGRAM AND THE SECTION 8 RENTAL VOUCHER PROGRAM

    1. The authority citation for part 982 continues to read as 
follows:

    Authority: 42 U.S.C. 1437a, 1437c, 1437f, 3535(d).

    2. In Sec. 982.306, paragraphs (d) and (e) are redesignated as 
paragraphs (e) and (f) and a new paragraph (d) is added to read as 
follows:


Sec. 982.306  HA disapproval of owner.

* * * * *
    (d) The HA must not approve a unit if the owner is the parent, 
child, grandparent, grandchild, sister, or brother of any member of the 
family, unless the HA determines that approving the unit would provide 
reasonable accommodation for a family member who is a person with 
disabilities.
* * * * *

    Dated: May 8, 1998.
Deborah Vincent,
General Deputy Assistant Secretary for Public and Indian Housing.
[FR Doc. 98-13157 Filed 5-15-98; 8:45 am]
BILLING CODE 4210-33-P