Owner Must Repay HUD for Leasing Unit to Ineligible Tenant Despite Good Intentions

In a recent case, the U.S. District Court for the District of South Dakota ruled that an owner must repay HUD more than $57,000 after leasing a two-bedroom apartment to a tenant who didn’t meet eligibility requirements under federal rules governing the Project-Based Rental Assistance (PBRA) program. Despite the owner’s claim that it acted in good faith while the tenant pursued custody of his children, the court found the owner failed to follow HUD regulations, and the repayment obligation stood.

Background

In April 2018, the owner approved a two-bedroom rental unit for a single man who claimed he would soon gain custody of his two children. At the time of move-in, however, he couldn’t provide required Social Security documentation for the children, citing a custody dispute with his ex-wife. The owner accepted his explanation and approved him for the unit. Over the next several years, there was no evidence the children ever moved in, and no follow-up was documented by the site.

A 2022 HUD Management and Occupancy Review discovered the error. Under federal rules, a single person without dependents who isn’t elderly or disabled isn’t eligible to receive rental assistance for a two-bedroom unit. HUD ordered the owner to repay the full amount of assistance paid. The owner appealed, arguing that the contract administrator failed to catch the issue earlier and that COVID-era eviction moratoriums made it difficult to act.

Takeaway

The court rejected the owner’s arguments and upheld HUD’s repayment order. The court emphasized that federal law strictly prohibits non-exempt single tenants from occupying multi-bedroom PBRA-assisted units. Even if HUD failed to detect the violation earlier, the owner had a legal duty to conduct annual recertifications and ensure tenant eligibility. In other words, the owner has the ultimate responsibility to verify tenant eligibility and conduct annual recertifications. The eviction moratoriums didn’t prohibit the owner from terminating subsidy payments, and previous HUD waivers cited by the owner applied only to specific tenants at other sites and didn’t excuse its long-term noncompliance.

• Baha Townhouses, LLP v. HUD, May 2025