Texas Court’s Fair Housing Decision Raises Wider Scrutiny of Tax Credit Allocation Policies

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By Harry J. Kelly, Nixon Peabody LLP

Tax Credit Advisor, December 2010: For years, developers and investors have known that in order to qualify for low income housing tax credits (“LIHTCs”), owners have to show that their units are “available to the general public.” According to Treasury Reg. ¤1.42-9(a), this means that, among other things, the units must be rented in a manner that is consistent with HUD rules implementing the Fair Housing Act (“FHAct”).

But what about the state housing finance agencies that allocate those tax credits – what are their obligations under the FHAct? In late September, a Federal district court in Texas attempted to answer that question in Inclusive Communities Project, Inc. v. Texas Dept. of Housing and Community Affairs, No. 3:08-CV-0546-D, 2010 U.S. Dist. LEXIS 102777 (N.D. Tex. Sept. 28, 2010). Inclusive Communities is one of those decisions that law professors love, because it turns on obscure rules concerning shifting burdens of proof, permissible inferences drawn from the evidence, and the conflicting procedural requirements of different motions under the rules that govern litigation in Federal courts. Sifting through these procedural issues, however, the Inclusive Communities decision outlines a new sort of fair housing case that challenges decisions by state housing finance agencies – and potentially, owners and developers of LIHTC properties – concerning where tax credit properties are located and how tax credits are allocated. Read More…