Bid to Sell Subsidized Housing Projects Blocked

A federal judge on Monday derailed a Reagan Administration effort to sell up to 311 federally subsidized housing projects nationwide in a ruling that could complicate future attempts to transfer government-backed loans to private investors.

In issuing the preliminary injunction barring sales that were to become final on Wednesday, U.S. District Judge Robert F. Peckham chastised the Housing and Urban Development Department for failing to consider the effects on low-income tenants.

The housing agency acted on directions from the Office of Management and Budget, which had called for the sale as a deficit-cutting measure. Peckham found, however, that such a goal is “not even remotely related to the objectives of national housing policy.”

“As the plaintiffs point out, the sales will cause tenants to lose substantial legal protections that are available only for mortgages held or insured by HUD,” Peckham wrote in the 30-page decision.

The ruling is believed to be the first court decision blocking such a sale. The Administration has been selling parts of the estimated $1-trillion worth of loans and property from such agencies as the Farmers Home Administration, Veterans Administration and the Education Department.

The sales are intended to reduce administrative costs and bring in billions of dollars of revenue. But critics contend that the policy is a quick-fix for the budget deficit, and that once the loans are sold to private industry, people who benefit from the federally backed loans will have less protection.

The sale of HUD-owned buildings has been particularly controversial. Democratic congressional leaders, including Sen. Alan Cranston (D-Calif.), have protested the policy.

In his ruling, Peckham said tenants stood to lose rent subsidies, plus guarantees written into loan documents that the buildings be kept in good repair, and clauses prohibiting discrimination against families with children.

Peckham wrote that HUD “blindly adhered” to the Office of Management and Budget policy “without stopping to consider whether the policy is in accord with HUD’s statutory duty to further the goals of national housing policy.”

HUD had planned to sell the buildings and mortgages at 80% of their face value--or about $400 million, said Catherine M. Bishop of the National Housing Law Project, one of two legal aid groups that brought the suit in May.

The ruling came in a class-action suit brought on behalf of residents of three specific low-income projects, including a 156-unit apartment in San Francisco’s Tenderloin area, a 56-unit project in the low-income town of Marin City and a third project in Richmond.

Because the ruling came in a class-action lawsuit, it affects 311 complexes in every region in the country. It also put in doubt another sale planned for August of more of the agency’s 1,500 housing projects.

Southern California complexes include the Turner Apartments on South Hoover Street in Los Angeles, the Garden Manor in Garden Grove, the Fairwood Manor in Anaheim and the Rancho and Mill Apartments in Colton.

“It (the sale) was part and parcel of this Administration wanting to get out of the business of providing low-income housing and turn it over to the private,” Bishop said. “Hopefully, this will make HUD rethink that.”

Bishop predicted that the ruling will give the Administration pause before it sells other loans to private institutions.

Office of Management and Budget spokesman Edwin Dale noted, however, that “this is only a temporary injunction.” The government could have the injunction overturned after a full-blown hearing before Peckham, or after an appeal.

Under its housing program, the agency insures mortgages on the projects as part of a federal effort to provide low-cost housing. If the buildings’ owners default, HUD insures private lenders that it will cover mortgage payments.

The agency acquired the bulk of the buildings through foreclosures. In the projects, tenants need only pay 30% of their income and may receive federal rent subsidies of up to several hundred dollars a month.

On May 1, HUD announced that it would sell the mortgages it holds on the housing projects, prompting the suit against the Department of Housing and Urban Development and HUD Secretary Samuel R. Pierce.

A key benefit for tenants of HUD projects is low rents. At San Francisco’s Marlton Manor, for instance, rent ranges from $387 to $434 a month. Subsidies are from $200 to $300 for individuals and families.

“The tenants still have protections, which they otherwise would have lost” if Peckham had allowed the sale to go through, said Edward G. Weil of San Francisco Neighborhood Legal Assistance Foundation, which also worked on the suit.

“If this ruling discourages HUD from doing this in the future, that is an improvement. HUD has responsibilities other than maximizing government revenue and in this case, they didn’t consider that.”