A bonanza for older Sec. 8 landlords?

A July federal court decision could let Sec. 8 landlords sue for as much as $1.3 billion, according to a Recap Advisors analysis posted today.

Statesman II Apartments, Inc. v. United States, decided July 20 by the Federal Court of Claims., found that when Congress passed a law in 1994 changing the procedure for Annual Adjustment Factors increasing Sec. 8 rents, it breached the contracts of property owners who had entered agreements with HUD based on the earlier procedure.

The two plaintiff property owners in Statesman II had signed contracts with HUD in the early 1980s that promised automatic annual rent adjustments, but the 1994 law put the burden on the owners to prove each year that the rent increases would not push Sec. 8 rents higher than comparable rents in the private market. The two plaintiffs each went eight years without either claiming or receiving rent increases from HUD. Last month the court agreed with them that they should have received the increases automatically.

The decision relied in part on two earlier Supreme Court cases on the rights of private contractors to enforce contracts against the federal government despite subsequent legislation: U.S. v. Winstar Corp. and Franconia Associates v. U.S. Housing folks may remember that the Franconia case allowed owners of subsidized rural housing to prepay their mortgages despite legislation that attempted to preserve the housing stock by stopping prepayments.