27434 Federal Register / Vol. 63, No. 95 / Monday, May 18, 1998 /Rules and Regulations

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

§ 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
Federal Register / Vol. 63, No. 95 / Monday, May 18, 1998 /Rules and Regulations 27435

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, ‘‘LeasePurchase 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 tenantincome 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
27436 Federal Register / Vol. 63, No. 95 / Monday, May 18, 1998 /Rules and Regulations

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
Federal Register / Vol. 63, No. 95 / Monday, May 18, 1998 /Rules and Regulations 27437

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 TENANTBASED 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 § 982.306, paragraphs (d) and (e)

are redesignated as paragraphs (e) and

(f) and a new paragraph (d) is added to

read as follows:

§ 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