Selling an apartment building with Section 8 tenants

What happens to the HAP contract when you sell?

The lease goes to the buyer. The HAP contract does not, unless the housing authority agrees. The Housing Assistance Payments contract is your agreement with the authority, written on HUD's form HUD-52641, and it may not be assigned to a new owner without the authority's prior written consent.

Keep the two documents apart. The tenant's lease sets the rent and the terms between you and the tenant, and HUD's tenancy addendum, form HUD-52641-A, is attached to it. That lease passes at closing with every other lease in the building. The HAP contract is what obliges the authority to pay its share of that rent to the owner each month, and a buyer steps into it only after the authority says yes in writing.

Tell the authority about the sale as soon as you have a buyer, and expect the buyer to deal with it directly as well, because the buyer is the owner the authority will be paying.

Which housing authority is on the other side?

Inside the City of Los Angeles, the voucher program belongs to the Housing Authority of the City of Los Angeles, HACLA. The Los Angeles County Development Authority, LACDA, runs it in the unincorporated parts of the county and in 62 incorporated cities, and it publishes a list of the areas it serves. Some other cities in the county run their own.

You need no map for this. Each HAP contract names the authority that signed it, and that authority is the one whose consent the buyer needs. A building with several voucher tenants holds several contracts, so read each one.

What each authority asks for at a sale

HACLA handles a sale through its ownership or payee change packet. The proof of ownership it asks for is the recorded grant deed from the Recorder's Office, or a certified, stamped copy of the title company's closing statement. Neither exists until escrow closes. HACLA puts the Section 8 payment on hold once it receives the completed form, and it changes nothing about the payments until every required document is in and verified.

LACDA asks a new owner to report the change as soon as possible, because that report starts the transfer of its payments. When its Ownership Services Unit gets the request form, LACDA holds the housing assistance payment for the following month. Its owner FAQ on ownership changes says the documents for the change go out within a week.

Plan for a payment to be held while the paperwork is processed, whichever authority it is. Settle in the purchase contract who is owed each held payment, and who forwards it if it lands with the wrong party. Escrow can prorate the tenant's own share the way it prorates any rent, while the authority's share arrives on the authority's schedule and needs a line of its own.

What source-of-income law means for a buyer

California has treated a housing voucher as income since January 1, 2020. SB 329 rewrote the definition of source of income in Government Code section 12955 to take in federal, state and local housing subsidies, and it names vouchers issued under Section 8 outright. The definition also covers a Veterans Affairs Supportive Housing voucher. Section 12955 bars a housing owner from discriminating against a person because of source of income. At closing, the buyer becomes that owner.

So a buyer who plans to replace tenants because they hold vouchers, or to screen future applicants as though the voucher were not part of their income, is planning conduct the statute reaches. If an offer turns on which units hold vouchers, take it to an attorney before you answer it.

Whether a buyer may decline to take a HAP contract by assignment, and what becomes of that tenancy if it does, are questions for a fair housing attorney to settle before the purchase contract is signed. Shaya is a real estate agent and not a lawyer, so his part is getting every buyer to raise them early.

Raising the rent on a voucher unit

HACLA asks for 60 days' notice before a rent increase takes effect. Its owner materials allow one request a year once the lease's initial term is over, and HACLA reads each request against the lease and HUD's tenancy addendum. LACDA processes a request within 30 days of receiving it, pays an approved increase back to the approved date, and tells owners on its contracting and rent page not to charge the tenant the increase before approval. It turns down requests made in a lease's first 12 months, and requests from owners whose contracts are in abatement for owner violations.

The authority's approval is one limit among several. The tenant still gets the written notice Civil Code section 827 requires for an increase. If the unit is under the RSO or the statewide cap, check the new rent against that limit before you ask the authority for it. Everything a buyer asks about raising rents before a sale applies to these units as well.

A request still pending at closing needs a sentence in the purchase contract. LACDA pays an approved increase back to its approved date, so part of that money can cover months when you still owned the building.

The voucher file a buyer will ask for

A buyer is paying for rent that depends on a contract with a third party, so it will want to see that contract and its history. Pull these for each voucher unit before you list:

• the HAP contract, with the name of the authority that signed it
• the lease with HUD's tenancy addendum attached, and any amendments
• the latest inspection notice or report the authority sent for the unit, and proof that anything it flagged was fixed
• a payment history showing the authority's payments and the tenant's share, month by month, matched to your ledger
• every rent increase request, with the authority's answer
• any notice that a contract went into abatement, and how that ended

When the estoppel certificates go out in escrow, word the one for a voucher tenant so it confirms the tenant's share of the rent separately from the authority's. The two numbers come from different payers, and a buyer checking your rent roll will want each one confirmed by someone other than you.