HUD Can't Stop City's Condemnation of Subsidized Property

Facts: The City of Joliet, Ill., condemned a subsidized multifamily complex it believed to be so run-down that it constituted a public nuisance. The owners of Evergreen Terrace went to court to stop the city's condemnation, arguing that because the complex is a Section 8 development, federal law barred the city from acting. After the court ruled that Section 8 of the Housing Act of 1937 [42 U.S.C. §1437f] does not preempt local law, HUD intervened in the case. In 2006, HUD restructured the mortgage financing at Evergreen Terrace, and the owners agreed to a new 20-year commitment as a Section 8 site. In court HUD argued that the laws permitting the restructuring and the new subsidy preempted state and local law, and barred the city from condemning the property. HUD claimed that the intent of Congress in Section 221 of the National Housing Act [12 U.S.C.S. §1715l] and in the Multifamily Assisted Housing Reform and Affordability Act of 1997 [42 U.S.C.S. §1437f note] was to increase the stock of affordable housing. According to HUD, the laws' purpose is to enlarge, or at least preserve, the amount of housing available for low-income people. Because the city's action would hinder this goal, the city could not act.

Decision: The United States Court of Appeals for the Seventh Circuit rejected HUD's argument and allowed the city to condemn the property.

Reasoning: The court ruled that the statutes HUD cited do not specifically bar the city from condemning affordable units. In fact, HUD's own regulations under Section 8 and Section 221 contemplate condemnation. They allow the possibility of an owner withdrawing from the program and then demolishing his property. If Joliet thinks that a given parcel of land should be put to a public use, federal law does not prevent it. The federal laws HUD cited do not preempt any state or local laws, so owners of subsidized developments must abide by them. The laws state a broad legislative goal of preserving affordable housing. While “Congress desired (and hoped) that §211 and the 1997 Act would increase the stock of low-income housing…a text that preempts state or local legislation is not among the steps that Congress took toward that objective,” the court said.

• City of Joliet, Illinois v. New West, L.P. and New Bluff, L.P., April 2009