WSHFC Issues Report on Transfer Disputes in the LIHTC Program

The Washington State Housing Finance Commission (WSHFC) recently released a report on transfer disputes, titled “Nonprofit Transfer Disputes in the Low Income Housing Tax Credit Program: An Emerging Threat to Affordable Housing.” The report discusses the recent increase in the number of challenges that private firms have made on nonprofit partners’ project transfer rights in the affordable housing community, which the WSHFC asserts is detrimental to the public interest.

According to the report, the LIHTC program has facilitated partnerships between mission-driven nonprofit organizations and for-profit investors seeking to benefit from federal tax credits, for the sole purpose of generating affordable rental housing for low-income families across this nation. In furtherance of this goal, the program has afforded the nonprofit partners a special privilege to secure, at the outset, a right to obtain eventual ownership of the project at a minimum purchase price after 15 years, once the investor has claimed all tax credits and before the program’s rent restrictions expire. For most of the program’s history, the vast majority of participating nonprofits have secured this transfer right, exercised it, and obtained full ownership to continue the project as low-income housing in accordance with their missions.

In recent years, however, some private firms have begun to systematically challenge nonprofits’ project-transfer rights and disrupt the normal exit process in hopes of selling the property at market value. The report asserts that rising values in certain markets have created an opportunity for these firms to profit far beyond the original investors’ expectations. Some firms are taking advantage of the investor interests they already hold in LIHTC projects, while others have been acquiring investor interests in LIHTC partnerships en masse for this purpose

The report outlines the challenges this trend presents to the availability of low-income housing in Washington and other states, and provides guidelines that it suggests courts follow in resolving disputes. The report notes that the case law surrounding the issues of the LIHTC statute and right of first refusal continues to develop.

The report can be found here.