Apartment Loan Defaults at Record Levels

Defaults on multi-family loans issued by U.S. banks rose to 4.6% in the first quarter of this fiscal year, nearly two times the level from a year earlier, as additional borrowers did not pay loans that were approved at the top of the market, according to a report by Real Capital Analytics.

The defaults on apartment mortgages increased from 4.4% in the fourth quarter of last year, and from 2.4% during the same period in 2009. Other types of commercial loan defaults also increased in the first quarter, which included loans for office, retail, hotel and industrial properties.

"Apartment defaults are leading other commercial real estate," said the chief global economist of the group that prepared the report. "Banks tended to make more aggressively underwritten apartment loans earlier during this last cycle. Credit and pricing reached their peaks for office properties and other commercial assets later."

The report noted that during the past two years the global recession reduced the demand for apartments, office space, retail space, hotels and warehouses as people lost their jobs and consumers reduced their spending.

For the past three quarters, defaults on multi-family loans exceeded the previous record set in 1993. In 1993, the savings and loan disaster caused 3.4% of multi family loans to default. And it was in 1992 when defaults on the other types of commercial loans crested at 4.6%.

The report predicted that multi-family properties may guide the recovery in commercial real estate in 2010 as vacancies reach their peak. It estimates that the vacancy rate will crest at 8.2% nationally; the highest level since the group began collecting data in 1980. The vacancy rate, it said, should begin its decline in 2011.

AAGLA Offers RRP Certification

The new Environmental Protection Agency (EPA) lead-based-paint Renovation, Repair and Painting (RRP) rule became effective on April 22, 2010, as reported in Apartment Age for the past few months.

The new rule requires that a trained renovator must carry out any renovation or repair work undertaken on pre-1978 properties if that work will disturb more than six square feet of interior surface area, or 20 square feet of exterior area.

Under the new rule, unless tested and found free of lead, you must assume that any pre-1978 properties have lead paint, and they must be handled under the new RRP rules. This includes notices to tenants, and their written acknowledgment of them prior to the commencement of any work covered under the rule.

AAGLA is holding classes for landlords, contractors and painters to become RRP certified and familiar with the requirements under the new law. Call Yvonne for more information.

Colorado Rent Control Ban Remains In Tact

The Colorado Apartment Association (CAA) was able to successfully block an attempt to create a loophole in the state's ban on rent control.

The legislature had initially drafted legislation that would have permitted local governments to force developers to set aside a portion of newly-developed units for affordable housing as a condition to receiving permission to build.

The legislation was amended before it was voted on and approved by the legislature to prohibit local governments from denying development permit applications because developers reject entering into agreements to set aside portions of the developments and subjecting units to rent control.

Commercial Real Estate Meltdown on the Horizon

In February, the Congressional Oversight Panel that is responsible for watching over the Treasury Department's Troubled Asset Relief Program (TARP) issued a report expressing concern that an upsurge in foreclosures of commercial real estate loans over the next four years might put the stability of a number of lending institutions at risk.

The report said that about $1.4 billion in commercial real estate loans will become due from 2010 2014, adding that roughly half of those loans are already in trouble due to property value declines.

The Congressional Oversight Panel, emphasizing what national groups, such as the National Apartment Association (NAA) and the National Multi Housing Council (NMHC), have been calling for in the form of attempts by the federal government to ensure liquidity for the apartment sector, indicated that significant defaults of commercial mortgages could set off economic harm that could then negatively affect almost every American.

In particular, the report noted that the percentage of mortgage defaults in the apartment sector was less than half of those in the commercial mortgage market. The report asserted that the most important factor in stabilizing the commercial mortgage market Is a quick recovery of the economy.

In response to the report by the Congressional Oversight Panel, and along with other signs of weakness in the commercial real estate sector, the Senate Banking Committee has asked the U.S. Department of the Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation to report on their efforts to aid the commercial real estate sector.

The Senate Banking Committee specifically wanted information on how lenders have applied the guidelines issued last October, which gave banks some flexibility to extend or refinance commercial real estate loans, and if this is having any effect on stabilizing the commercial real estate market.

The three agencies were also asked what additional steps they will take that will help the commercial real estate market.

U.S. District Court Dismisses Equal Rights Center Lawsuit — But…

I n a significant decision for the housing industry, the U.S. District Court for the District of Colombia dismissed a lawsuit filed against a large apartment company filed by an advocacy group that alleged violations of the accessibility requirements of the Fair Housing Act (FHA). The lawsuit was filed by the Equal Rights Center (ERC), which portrays itself as a non profit civil rights organization. ERC previously has sued several large apartment owners.

The court ruled that ERC lacked standing to bring the lawsuit because any injuries suffered by the organization were solely the result of the group's decision to investigate the properties owned by the company and were self-inflicted.

In its lawsuit, which was filed in November 2006, ERC claimed that 58 of the company's properties are not usable or accessible. Previously, the court ruled against ERC in April 2007 when it requested that the company be prohibited from selling any of the 58 properties until the outcome of the litigation was determined.

The court, in its April 2007 ruling, said that ERC had failed to prove the likelihood of success in the litigation on the merits of its claim, and also noted that the standards to which ERC sought to hold the company "do not constitute mandatory requirements upon builders, and, although compliance with the (Safe harbors) are sufficient to satisfy the FHA's requirements, they are not the exclusive means of doing so."

ERC has the ability to appeal the court's ruling. Also, the U.S. Department of Justice, which filed a friend of the court brief in support of ERC's lawsuit, has the ability to file a lawsuit against any property owner that it believes has violated the Fair Housing Act or the Americans With Disabilities Act (ADA). More on this as it develops.

Federal Court Upholds E Verify Program

A federal court upheld the federal government's regulation requiring most federal contractors to use the E-Verify system, the government's system requiring an employer to verify an employee's legal status.

The court's decision resulted from a lawsuit filed by a coalition of business groups opposed to the E Verify Program. In its decision, the court also rejected the group's request for an emergency injunction to prevent the regulation from being implemented pending its appeal of the court's decision to uphold it.

Apartment owners with federal contracts, which include those that participate in the project-based Section 8 program and provide military housing, are encouraged to consult with legal counsel to determine their compliance obligations.

Section 8 Funding Deficits?

The Section 8 program is facing a potential funding deficit in its voucher program. Approximately 15% of the public housing authorities across the nation that administer the Section 8 program on the local level are thought to be facing funding shortfalls in the Section 8 Voucher Program.

This shortfall is reportedly due to the late passage of the 2009 fiscal year appropriations bill that did not provide adequate funding for the program, and due to rising rents and declining incomes for participants.

In anticipation of the problem, the Department of Housing and Urban Development (HUD), has said it has $11 million left in voucher contingency funds for the 2009 fiscal year should any local public housing authorities experience shortfalls.

HUD said that it has already allocated $89 million as of July 27 for those public housing authorities that had applied for assistance by the June 4 deadline. Since the funding deficit could result in the termination of existing Section 8 housing vouchers, property owners who participate in the program and accept Section 8 housing vouchers should contact their local public housing authority to determine whether their local agency is facing any funding deficits that may affect their participation in the program.

Livable Communities Act Introduced

The Chairman of the Senate Banking, Housing and Urban Affairs Committee, Christopher Dodd (D-Connecticut), introduced the Livable Communities Act of 2009.

As previously reported, this legislation would create a grant program for communities to plan for housing and transportation projects, including public transportation, transit-oriented development, redeveloping "Brownfield" sites, and affordable housing.

Under the proposed legislation, local communities could receive grants from the federal government to implement such plans. The legislation would also create the Office of Sustainable Housing and Communities, which would be under HUD direction.

The Interagency Council on Sustainable Communities would then be established, and consist of the Secretary of HUD, the Secretary of Transportation, and the Administrator of the EPA.

The National Multi-Family Housing Council (NMHC), a national industry group that represent the interests of multi-family housing providers, has pledged to continue its efforts to educate lawmakers and policymakers that apartments are the most sustainable form of housing and a key ingredient in smart growth.

Seizure of Distressed Properties Proposal Amended
as NHMC Meets with Barney Frank

T he Chairman of the House Financial Services Committee, Barney Frank (DMA), has given assurances to apartment industry groups that he has no intention of allowing the federal government to seize distressed apartment properties as part of the $2-billion Affordable Housing Fund legislation, which is part of Congress' TARP for Main Street bill.

An earlier version of the bill included an amendment introduced by a Representative from New York that would have allowed the federal government to prematurely force apartment properties into bankruptcy and then sell them at lower prices to entities that agree to convert them to affordable housing.

The National Multi-Family Housing Council (NMHC), a national industry group that represent the interests of multifamily housing providers (including AAGLA), met with Chairman Frank and members of the committee to express the concerns of the industry.

After the meeting, lawmakers made it known they had revised the legislation that, among other things, would transfer $2 billion in dividends from banks that received TARP funds to the U.S. Department of Housing and Urban Development (HUD) to stabilize apartments that are in default or foreclosure, or that have recently been foreclosed.

The legislation would provide loans, advances, and insurance to reduce and restructure current financing, fund-operating reserves, and underwrite rehabilitation activities. Thanks to the intervention by NMHC, the revised legislation would require the consent of the property owner to facilitate the transfer to a new owner.

NMHC also recommended that the program would be improved if it emphasized the importance of crafting the legislation to avoid further distressing of capital markets and wasting taxpayer dollars. It also made clear that any government assistance program must not compete with private sector equity investors, but should attract investment capital to areas currently not served by private investors.

Moreover, NMHC stressed that the apartment industry does not under any circumstances support the transfer or taking of a property without the consent of both the property owner and lender, and asked that Congress define exactly what constitutes a mortgage default that would trigger government assistance and what precisely is an at risk property.

Frank assured NMHC that he wanted the committee to work on the concerns it has raised, and said that the root of the current housing crisis is the imbalance in federal housing policy that caused support for rental housing to decline, and which over-emphasized homeownership. He said that providing funding to stabilize troubled multi family properties would help address that imbalance.

The legislation still remains controversial, because Republicans have argued that any dividends from the TARP program should be used to pay down the deficit and that recycling the dividends to pay for new programs violates the appropriation process established by the Constitution. NMHC said it will continue to work with Congress to influence the legislation and educate it on how this legislation will impact the multi-family housing sector.

FCC Exclusive Access Agreements Ban Arguments Heard by Court of Appeal

I n mid-April, the United States Court of Appeal for the District of Columbia Circuit heard arguments in a lawsuit which seeks to reverse the Federal Communications Commission (FCC) retroactive ban on exclusive access agreements between apartment owners and cable television providers.

The lawsuit, filed by the National Multi Housing Council (NMHC), a national association representing the interests of the larger, major apartment firms in the country, is supported by the National Apartment Association, the Manufactured Housing Institute and the National Cable Television Association.

The three-judge panel heard oral arguments against the FCC policy adopted in October 2007. NMHC's position is that the FCC lacks the legal authority to order the ban, and that it was not the intention of Congress when it enacted the Communications Act to give the FCC the authority to regulate exclusive access agreements.

The groups also argued that current conditions in the apartment industry and cable television market do not demonstrate the need for the regulation enacting the retroactive ban. During questioning of the FCC at the hearing, the judges asked why it had not made a comparison of cable television costs in states that prohibit exclusive contracts to those states that do not ban exclusive agreements in order to ascertain whether the prohibition actually promotes competition, which is a key rationale given by the FCC for enacting the regulation.

However, the judges also acknowledged that there is legal precedent for giving federal agencies deference for its decisions if the court determines they have acted reasonably, and that the action of the agency which is being challenged is not arbitrary and capricious.

While the FCC was considering adopting the regulation for the retroactive ban, apartment industry representatives, including NMHC, argued against it, stating that exclusive agreements may well promote competition in the industry and benefit apartment occupants as cable television providers have incentives to offer better service and lower prices in order to get contracts.

Groups supporting the appeal to overturn the prohibition note that it also acts as a preemptive challenge to the FCC's claimed authority to regulate other agreements it may deem to be anti-competitive. Had the groups not acted, they believe they may have lost the opportunity to challenge any future regulations or actions adopted under this "authority" the FCC claims it has.

FEDERAL JUDGE UPHOLDS EXCLUSIVITY

Owners Can Once Again Receive Income from Service Providers

A federal court in Texas issued a favorable ruling for apartment owners confirming the right to choose to contract with a telecommunications provider without having to consider whether the exclusive contract with one telecommunications provider restrains competition.

The federal judge dismissed the lawsuit brought against a telecommunications provider by residents of an apartment building where the company provided exclusive services under a contract with the building owner.

In their lawsuit, the tenants claimed that the exclusive contract with the telecommunications provider was detrimental to their interests as it restricted competition with other providers. The lawsuit was dismissed by the court on the basis that the tenants' argument that exclusive contracts with the provider obstruct competition really involves the investigation of the general area in which the apartment building is located, rather than analyzing a single property.

In its decision, the court noted its agreement with the telecommunications company's argument that a sole apartment building is not significant enough economically to establish an antitrust claim.

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Analog to Digital Switch Delayed

The long-planned February change from analog to digital television signal across the country has now been delayed until June 12. The delay was opposed by Republications in the House, who stated that any difficulty faced by consumers on the original February transition date could be solved by providing additional funding for consumers to obtain a coupon for converter boxes to convert their signals to digital.

The National Telecommunications and Information Administration (NTIA) is the federal agency tasked with the implementation of the converter box coupon program, but has run out of funding, apparently due to demand.

Consumers who do not own digital televisions, or have cable or satellite television service, need converters to receive digital signals. There are roughly 3.7 million requests for converter box coupons that have not been fulfilled.

The coupon program was not part of the original legislation for signal conversion, and additional funding will likely have to be dealt with by Congress.

The delay in implementing the conversion was supported by broadcasters, consumer advocates and public safety officials, who said that the backlog in providing converter coupons would have had an effect on the original date regardless of whether sufficient funding was available at the time.

TARP Bailout for Apartments?

T he National Multi Housing Council (NMHC), a national association representing the interests of the larger, major apartment firms in the country (AAGLA is also a member), asked Congress to allocate some of the remaining $350 billion from the original $700 billion Troubled Assets Relief Program (TARP) bailout to a commercial and multifamily loan facility.

The request that some of the remaining TARP funds be used to create a loan facility for both commercial and apartment properties was moving forward at press time as the U.S. House of Representatives met over a bill to reform TARP.

The allocation of these funds to such a loan facility is deemed crucial in light of the significant amount of commercial real estate debt that will mature in 2009. Even properties with positive cash flows may have difficulty refinancing during the credit crunch and could face default.

Barney Frank (D), the Chair of the House Financial Services Committee, sponsored the reform bill, which is primarily directed at the accountability of management at lending institutions and the use of TARP funds.

If the bill is adopted by the House, it still may not pass in the Senate. Nevertheless, NMHC believes provisions in the TARP bailout give the Treasury Department the authority to create a lending facility, and the organization will urge the Treasury Secretary to create one.

It is important that apartment owners contact their Representatives and Senators and inform them of the important housing issues that affect the industry, including addressing the shortage of capital for rental housing.

Both elected representatives and policy makers need to make a distinction between financing for single family homes and multifamily properties so that funding is available for multifamily properties during and after the current lending and financial crisis.

NMHC research establishes the importance of the rental housing industry and that too many defaults could lead to a serious housing shortage if capital is not available.

The industry has also supported President Obama's request to extend estate tax laws. The tax law had progressively phased out the tax from 2001 to 2009, repealed it for a year in 2010, then had it reverting back to 2001 levels with high taxes and low exemption levels.

Apartment owners, like everyone else, are facing difficult market conditions and a reduction in demand due to job losses and the economic decline. The market tightness index, measuring changes in occupancy rates and rents, fell sharply in the second quarter.

While the sales volume index increased slightly, it was the sixth consecutive quarter where those responding to the survey said that sales volumes were reduced. The equity financing index increased a bit, but respondents to the survey said equity financing was less available than during the previous quarter.

Some Repairs Require Disseminating New Lead Brochure

T he Environmental Protection Agency (EPA) has mandated new and additional disclosures for notification of lead hazards to homeowners and renters occupying housing built before 1978. For some time now, apartment owners and the sellers of residential properties have been required to provide prospective renters and buyers of residential property built before 1978 (which includes apartment properties, condominiums and single-family homes) with the brochure published by the EPA titled Protect Your Family From Lead In Your Home.

In addition to that brochure, a disclosure form or notice must be provided to the prospective renter or buyer, disclosing, among other things, any lead hazards the owner is or is not aware of, and an acknowledgment that the brochure was provided. Generally, this disclosure is contained in the rental agreement or a separate disclosure form used during a real estate sales transaction.

The requirement to provide this information and the disclosure has not changed. What is new is the requirement to provide individuals information on their rights involving repairs and renovations in housing built before 1978 if the repair or renovation is for a painted interior area of more than six square feet, or a painted exterior area of more than 20.

This new requirement applies to housing, which is our focus here, but it also applies to childcare facilities and schools built before 1978.

Routine repairs and renovations often involve sanding, cutting or demolishing painted surfaces. Because of this, disturbing the paint can lead to exposure to lead dust or chips if lead paint is present. This, in turn, can lead to ingestion by children, adults and pets, either by hand-to¬mouth contact, or from breathing in particles that may be microscopic and unseen by the eye.

Now, every time prior to beginning any repair or renovation covered under the new requirements, the owner or occupant must be given the brochure Renovate Right: Important Lead Hazard Information For Families, Child Care Providers and Schools, and a pre-renovation form.

The brochure provides information to the homeowner and occupants about lead hazards, its effects, what can be done to mitigate exposure, how to prepare for the work, and proper methods for contractors to limit exposure when work is done.

That means if you begin a repair or renovation covered under the new requirements one day, and then start another one the next day or a month later, the information must again be provided to the homeowner or occupant.

Beginning on April 1, 2010, federal law will require that contractors who work in housing built before 1978 be certified and to follow specific work practices to prevent lead contamination.

For more information about this, and to download any brochures or forms the EPA has written on it, go to www.epa.gov/lead/ and visit their website.

E-Verify System May Be Challenged

T he Bush Administration has issued the final rule for contractors to use the controversial E-Verify system. The rule, issued in November, will require numerous federal contractors to verify the legal status of some employees using the U.S. Department of Homeland Security's (DHS) allegedly faulty E-Verify system.

The E-Verify system began as a voluntary program that allowed employers to use the Internet to determine if employees are legally eligible to work in the U.S. by comparing information provided by them with government records. The National Multi Housing Council (NMHC), which is a national association representing the interests of larger, major apartment firms in the country, opposed efforts by Congress to make participation in the program mandatory.

NMHC says that the E-Verify screening program is full of inaccuracies that could eventually result in financial and legal liability for all employers. The group is also concerned over possible discrimination issues in making employment decisions, as well as privacy issues.

The effectiveness of the system is weakened because it depends on identification documents that are susceptible to theft and fraud. The final rule adopted by the Bush Administration applies to federal contracts lasting more than 120 days with a value of more than $100,000, and subcontracts for services over $3,000 in value.

NMHC plans to: review the final rule to see if it applies to housing providers who receive any federal assistance. The group's initial analysis finds that companies that have been awarded competitively-bid contracts, including those that provide military housing, are probably subject to the new rule.

But the initial analysis also found that housing providers who participate in federally funded subsidy programs, like Section 8, or who receive government funds, are not likely to be considered government contractors. Furthermore, it appears that not all employees of a company or housing provider are required to be screened by the E-Verify system.

Only existing employees who work on government contracts covered by the rule have to be screened. All new employees of a company or housing provider that has government contracts covered by the rule also must be screened, not just new employees who may work under covered contracts.

Several business organizations are taking a closer look at this, and they may challenge the legality of the E-Verify system and the new rule. Stay tuned for more on that.

Congress Clarifies "Disability" Standard in ADA

C ongress voted to approve amendments to the Americans with Disabilities Act (ADA) that reverse court decisions which have narrowed the interpretation of disability under the ADA. The legislation specifically addressed decisions made by the Supreme Court and lower courts that denied ADA coverage to individuals who used medication or medical equipment to manage their disabilities.

This legislation embodies an agreement between the business community and disability activists that reinstates individual safeguards under the ADA without imposing new or unwarranted obligations on employers.

Previously proposed forms of the legislation were fervently opposed by the business community. They would have expanded the meaning of disability under the ADA outside of what Congress originally had in mind when the ADA was passed. The original definition under the ADA described a physical or mental impairment as one that substantially limits one or more major life activities.

Earlier proposed versions of amendments were intensely resisted by the business community. They would have changed that definition to include anybody with a physical or mental impairment, a record of that type of impairment, or anyone who is regarded as having that kind of impairment.

Unless the language adopted in the final amendment qualified the definition, coverage under the ADA would have been extended to include anyone with any type of impairment, including the flu or poor eyesight.

In reaching a compromise on the language, the amendment retained the "substantially limited" language and clarified that the disability standard will be "without regard to mitigating measures," such as medication or prosthetics.

New Pool Rules Take Effect on December 19

B eginning on December 19, 2008, new federal regulations and requirements will take effect for all public pools and spas, includingthose in apartment buildings.

The new regulations were enacted by the federal Consumer Product Safety Commission (CPSC), which is charged with protecting the public from unreasonable risk of serious injury or death from consumer products that fall under the agency's jurisdiction. To read all about the new rules online, go to http://www.cpsc.gov/phth/vgpsa.pdf.

These new requirements were adopted after passionate lobbying of the CPSC by the family of former Secretary of State James Baker after his young granddaughter died when she was trapped by a spa drain.

According to the CPSC, in 2005, 2006 and 2007, roughly 283 children under the age of five died in either a pool or spa related accident, while another nearly 2,700 were treated each of those years in hospitals.

The new regulations do three things. First, effective December 19, 2008, all drain covers manufactured or distributed in the United States must conform to American Society of Mechanical Engineers and American National Standards Institute standards, specifically ASME! ANSI A112. 19.8-2007 standard, or any successor standard, for suction fittings for pools and spas.

Second, effective December 19, 2008, all public pools and spas, which include those in apartment buildings, must be outfitted with ASME/ANSI Al 12.19.8 2007 anti entrapment drain covers. There are additional requirements for pools and spas with single main drains (read about this near the end of this article).

The third part of the legislation establishes a grant program for states to educate the public and the industry about pool safety, for states to hire and train personnel to enforce the new requirements, and for them to establish that their requirements meet the new minimum federal standards.

Both civil and criminal penalties may apply for violating the new regulations, with a maximum penalty of $1.825 million resulting from one or more non-compliance violations.

Due to the possibility of considerable penalties for not complying with the new regulations, it is advisable that apartment owners check their pools and spas before December 19, 2008, to make sure the drains comply with their new federal regulations.

While the first part of the legislation applies to those who manufacture and distribute drain covers, it does not require them to provide drain covers that meet the new standards until December 19, 2008, the same date they must be installed. There are some concerns about the availability of enough drain covers that meet the new standards.

In response to this, the CPSC said: "If a pool is not compliant with the ASME standard by December 19, 2008, it should either find a way to be compliant or shut down until it can be compliant. CPSC has a level of confidence that there are enough products available, such as round covers, that will meet specifications for compliance."

It is also important that apartment owners and operators with pools and spas understand that the reference to public pools and spas includes those that are exclusive to the residents of an apartment property or residential development and not necessarily open to the general public.

Further, the new regulations apply to both newly constructed and existing pools and spas.

There are additional requirements for pools and spas with single main drains, which must have one or more anti-entrapment devices or systems, such as a safety vacuum release system, a suction limiting vent system, a gravity draining system, an automatic pump shut off system, or a drain disabling device.

Apartment owners and operators with pools and spas should keep in mind that the new federal regulations do not preempt state laws that may be more restrictive. The CPSC notes that the new federal legislation sets minimum national standards, and that the states are free to impose regulations that go above and beyond those requirements. Stay tuned.

Immigration Issues Surface in Congress Again

C ongress continues to consider legislation aimed at addressing the immigration issue. As we have discussed here before, one primary piece of pending legislation relates to employment verification. Before adjourning in August, the House passed legislation that would extend the electronic verification (E-Verify) program for five years when it expires in November. Some proponents of this program wanted it extended for 10 more years.

This is a part of the government's stepped-up enforcement actions that have targeted employers, both large and small, to properly verify employees' legal status to work in the U.S

The E Verify program has been a voluntary, federally-sponsored, internet-based employment verification system. One state now makes participation mandatory. There also is legislation being considered to make it mandatory for government contractors.

While the program allows employers to essentially register employees and verify that they are here legally, opponents of the E-Verify program claim that the system is prone to error and is not reliable.

The most controversial part of the government's effort to verify the legal status of an employee is the burden it places on the employer when an employee's Social Security Number (SSN) does not match information in the government's database.

The concern with this type of legislation has been that if a "no match" appears, an SSN does not match a name, the employer would have to respond and provide some type of proof within a set time period that the employee is here legally.

The chief fear then is that the government may use the employer's inability to provide this information as evidence that the employer knowingly hired or continued to employ a worker without proper work authorization.

The good news, for now, is that the legislation passed in the House this past summer continues to make the E-Verify program voluntary, and it also authorizes the Government Accountability Office (GAO) to study the effectiveness of the program and to identify the common types of errors within the program and their effect on small businesses.

The National Multi Housing Council (NMHC), which is a national association representing the interests of the larger, major apartment firms in the country (AAGLA also is a member), has lobbied for changes to the reporting program, including protection for employers against criminal and civil liability if they rely on federal data that contains errors.

Study Says Renter Creditworthiness is Improved

A ccording to a study looking at the creditworthiness of renters in a volatile housing market, those evicted from their homes due to the housing and mortgage crisis have not been rushing to enter the apartment rental market.

Because of this, the rise in foreclosures has not threatened the financial health of the apartment rental market, and the strength of prospective renters' credit quality has been stable, according to the study.

The study reports that only somewhere between 26% of apartment applicants are those who have lost their homes due to foreclosure.

Indeed, the study notes that the main impact the mortgage and foreclosure crisis has had on the apartment rental market is that fewer renters are giving up their apartments to become homeowners.

Because of that, the quality of prospective tenants' credit is actually improved, which is benefiting the apartment rental market by shielding it from some of the economic problems faced by the single-family-home market.

The study took a look at the financial issues affecting the creditworthiness of apartment applicants in the existing rental housing market. It looked at the credit scores of apartment applicants, the significance of the current credit rating system as it applies to the rental housing market, and what characteristics apartment owners should take into consideration when reviewing applicants.

As part of the research for the study, apartment owners and management firms were interviewed to see if they have been evaluating the policies they use to screen and accept prospective tenants, and whether or not they have changed their procedures to take into account the current mortgage and foreclosure crisis in light of their evaluation.

The findings, which are based upon those interviews, concluded that there is some division within the industry as to the degree of risk created by prospective tenants with late mortgage payments or foreclosures in their pasts.

Some owners and managers accept those prospects while others reject them outright. And there is a third group of interviewees who will accept applicants with late mortgage payments or foreclosures provided their credit scores are at acceptable levels if the foreclosures are not factored into the scores.

How is the Mortgage Crisis Affecting the Rental Housing Industry?

T he National Multi Housing Council, a national association representing the interests of larger, major apartment firms in the country (and AAGLA), conducted a research forum in April to examine to what extent, if any, the mortgage crisis and increasing number of mortgage foreclosures are having on the apartment rental housing industry.

The forum specifically wanted to explore the degree to which the quality of renters has changed, and whether or not those evicted from their homes after foreclosure are becoming renters.

The survey also wanted to take a look at the extent to which the shadow market for rentals — vacant homes and condominiums — are in competition with professionally managed apartment buildings.

According to those who participated in the survey, those who have lost their homes in foreclosure are not inundating the rental market, and embody only about 2–6% of all those applying for rentals in this market.

The main effect the home loan disaster seems to have had on the apartment rental market is the decrease in the number of renters who are entering the home ownership field.

Of those surveyed about whether the shadow market for rentals of single family homes and condominiums has affected the apartment rental market, it appears that the stock of new condominiums on the market for rent is much smaller than people have been led to believe.

And as far as the market for rentals of single family homes is concerned, there is not that much competition as they generally do not compete for the same pool of renters who are looking at apartment rentals.

While it was noted that the vacancy rate for single-family homes is relatively high in comparison to apartment rentals, it should be noted that the vacancy rate for single-family homes began to rise in 1995 and has had little or no relative impact on the apartment rental market since that time.

FCC Bans Exclusive Telephone Contracts, Too

I n March, the Federal Communications Commission (FCC) voted unanimously to prohibit apartment owners and telephone companies from entering into exclusive contracts. The prohibition applies to existing and new contracts for telephone services provided at apartment properties.

Although the FCC announced the ban on exclusive contracts following a vote at its meeting, the actual "Order" implementing the ban has not been released. Once it is released, there will be additional information and guidance for compliance.

This follows the FCC's vote last year to prohibit exclusive contracts between apartment owners and cable providers.

The National Multi Housing Council, which is a national association representing the interests of AAGLA as well as larger, major apartment firms in the country, has opposed these bans on exclusive contracts as inappropriate uses of power and ill-advised endeavors by the government to produce competition by regulating the industry rather than compelling companies to compete for business.

The FCC banned exclusive contracts between commercial property owners and telephone companies in 2001, but apartment properties were exempted because the FCC agreed that the ability to enter into exclusive contracts would further competition in the apartment industry.

Reasonable Modification Rules for Disabled Renters Clarified

Also in March, the U.S. Department of Housing and Urban Development (HUD) and the Department of Justice jointly issued written guidance to clarify the "reasonable modification" provisions of the Fair Housing Act. Housing providers must allow disabled residents to make structural changes at the residents' expense under the Act, provided the changes are necessary to allow residents to completely have the benefit and use of the property.

The jointly issued guidance generally covers who is entitled to ask for a modification, what kind of information a property owner can ask for before granting permission to make it, situations where the property owner may either refuse to allow the modification or suggest an alternative, what types of modifications residents are financially responsible for removing when they terminate their tenancies, and in which situations can property owners require residents to pay in advance for removal of modifications and restoration.

The document also tries to define the difference between a reasonable modification, which is a structural change to the property, and a reasonable accommodation, which is a change, exception, or an adjustment to a rule, policy, practice, or service.

The guidance clarifies that residents are responsible for the cost of reasonable modifications. Generally, apartment owners are responsible for costs associated with reasonable accommodations, unless they present undue financial and administrative burdens. However, if the property receives federal funds, the property owner must pay for the cost under the Rehabilitation Act of 1973.

FMLA Expanded and Telecommunications Update

I n late January, for the first time since it was enacted in 1993, the Family and Medical Leave Act (FMLA), was expanded significantly when President Bush signed into law changes affecting leave provided under FMLA. The change in the legislation provides FMLA protected unpaid leave for up to six months for employees covered by the act who care for a United States service member wounded while they are on active duty.

Another change permits up to 12 weeks additional unpaid leave to a family member of an active service member if a qualifying exigency occurs. Before the FMLA was amended, it typically permitted those eligible to take up to 1 2 weeks of unpaid leave so they could care for themselves or an immediate family member in the event of a serious health condition, or the birth or adoption of a child.

An individual must be employed by a covered employer for at least 12 months to be eligible for FMLA leave. A covered employer is commonly one with more than 50 employees.

In February, the U.S. Department of Labor (DOL) proposed a set of rules to implement the changes in the FMLA.

Exclusive Access Update: More Restrictions?

The Federal Communications Commission (FCC) has asked for comments on additional restrictions related to its order to ban exclusive access contracts between apartment owners and telecommunications providers.

The FCC also wants to ban bulk-billing and exclusive-marketing agreements. Comments from apartment industry groups, such as the National Multi Housing Council (NMHC), argue that not only has the FCC has reached the wrong factual, legal and policy conclusions in its order to ban exclusive contracts, it should not compound that error by adopting additional regulations that have no foundation in fact.

The NMHC further argued that exclusive marketing agreements and bulk-service agreements benefit residents, apartment owners and telecommunications providers. These agreements can actually lower the cost of video services to residents by nearly 60%, plus, they help foot the bill for the cost to install the infrastructure needed for telecommunications systems. The argument is that without these agreements and cost savings, property owners would have to pass through any costs to residents.

NMHC/NAA File Suit to Excommunicate New FCC
Telecommunication Regulations

T he National Multi Housing Council (NMHC) and National Apartment Association (NAA) filed a lawsuit asking the court to strike down a regulation recently issued by the Federal Communications Commission (FCC) that prohibits exclusive access contracts between apartment owners and cable and telecommunications providers.

Prior to the FCC regulation banning the exclusive-access agreements, which is retroactive, the position of the NMHC and NAA is that owners of apartment buildings were able to make use of the exclusive-access contracts as a negotiating tool to bargain for reduced rates, an increase in the range of products available, and for improved service for building residents.

NMHC and NAA also believe the exclusive-access contracts promote competition between cable and telecommunications providers, and allow smaller companies more time to recover the costs of wiring and installing equipment, thus allowing them to compete with larger companies.

In its lawsuit, the NMHC and NAA contend that there is no legal authority for the FCC to control agreements entered into between owners of private property and cable and telecommunications providers, and that the FCC rules banning exclusive access agreements were established using flawed and untested claims about the condition of the market place for those products.

Allowing the FCC's prohibition on exclusive access to stand without challenge would set a risky standard that may encourage the FCC to further interfere with private business discussions and decisions between private property owners and cable and telecommunications providers, according to the NMHC and NAA.

"These misguided regulations reveal a total lack of understanding on the FCC's part about how the multifamily video market actually works," stated Jim Arbury, Senior Vice President for Government Affairs for the NMHC and NAA. "Exclusive access contracts were the primary means through which apartment owners could force the large cable firms to: lower their prices and improve their service offerings. By taking this bargaining tool away from owners, the FCC has essentially removed a key incentive the cable firms had to negotiate," Arbury added.

We will watch and wait to see what results from this litigation as it works its way through the judicial process. Stay tuned.

Section 8 Reforms Fall Victim to Full Agenda

R eform of the Section 8 voucher program fell victim to a full 2007 congressional legislative agenda. Last July, the U.S. House of Representatives approved the most comprehensive reform of the voucher program in nearly 10 years.

The reforms in the bill revamped the program's repeated and onerous inspection standards, and repaired its imperfect method of determining how to fund renewals. Regrettably, the U.S. Senate was not able to take the bill up. Thus, the outcome of the bill in 2008 is not known at this time.

Also negotiated and secured in the Section 8 reform bill, was a provision that will require the U.S. Department of Housing and Urban Development (HUD), which administers the Section 8 program, to provide the translated documents mandated under the Limited English Proficiency (LEP) Translation Requirements.

This will, hopefully, lessen the effect of the LEP translation guidelines issued by HUD last year. Those guidelines made the property owner responsible for translating a broad range of necessary and essential documents if they receive HOME, CBDG or project based Section 8 assistance.

Along with the changes to the LEP requirements in the bill approved by the House, the Senate is considering separate legislation that requires HUD to provide the translated documents.

National apartment industry groups have been successful in getting Congress to secure funding for HUD to provide the translated documents, and have also filed suit in federal court requesting the HUD LEP guidelines be struck down as they are illegal and exceed HUD's authority.

At the end of 2007, the House passed an Omnibus Appropriations Act for the President's signature that increased funding for HUD by more than $2 billion over the Bush Administration's proposal of $37.6 billion.

The funding approved for the Section 8 voucher and Section 8 project based rental assistance programs was also a little higher than the administration's proposal.

FCC Bans Most Exclusive Access Agreements

T he Federal Communications Commission (FCC) announced it is retroactively banning the enforcement of exclusive building access agreements between apartment owners and most video service providers.

In general, an exclusive agreement is a contract between the owner of the apartment building and a cable provider, or any other operator of video services, where the agreement gives that operator some exclusive rights on the property.

The FCC's order bans the enforcement of any contract provision between an apartment owner and a cable operator if that agreement gives the cable operator the exclusive right to make video services available on a property.

In 2000, the FCC first looked at exclusive agreements, and banned exclusive access contracts between telephone companies and commercial property owners, though it made an exception for apartment owners who were exempt from the order.

Perhaps due to the entry of telephone companies into the video market, the FCC seems to have changed its thinking on exclusive agreements. Particularly with the advent of what is referred to as the triple play, a combination of video, internet and telephone service, that telecommunications companies bundle together to provide consumers with a complete package from one service provider.

The order applies to current and upcoming exclusivity provisions in contracts. However, the order does not void any existing contracts, it merely voids their exclusivity provisions, leaving legally-binding contracts while banning the exclusive right to provide service at properties.

The FCC order does not control apartment owners or force any mandatory access on properties. Apartment owners may continue to limit access by service providers, however, they may not give them exclusive access to properties. On the other hand, some states, and the District of Columbia, require mandatory access.

That said, in those areas the apartment owner is generally not prohibited from managing entry to the property, demanding indemnification, seeking recovery of any costs, and even charging a fee.

However, the order only applies to video providers. It does not apply to telephone or internet service providers. If a property owner has an exclusive contract with a service provided for the triple play, the order only bans exclusivity of the video service.

Private cable operators are not covered under the order. The ban on exclusive contracts for video service applies only to franchised cable operators, telecommunications common carriers that also provide video service, and open video system operators.

Although Direct Broadcast Satellite (DBS) and private cable providers are not covered under the order, the FCC has indicated it will consider whether they, and multi-channel video programming distributors, should be subject to the ban.

Finally, the ban does not have an affect on inside wiring, exclusive market agreements or bulk billing arrangements. Although, the FCC may also take a look to see if it should apply to them as well.

Preliminary Injunction Issued in SSA/DHS Dispute

A federal judge has issued a preliminary injunction, ruling that the government cannot use mismatched social security numbers to identify possible illegal immigrants, stating that this type of enforcement action would do "irreparable harm to innocent workers and employers." The ruling stops the implementation of new immigration enforcement rules regarding "no-match" letters issued by the Social Security Administration (SSA) and the Department of Homeland Security (DHS). The "no match" letters result from an employer submitting an employee's W 2 wage report to the government where the social security number (SSN) does not match the one in the federal database. Administration officials, some members of Congress, and groups opposing illegal immigration were critical of the ruling. Homeland Security Secretary Michael Chertoff said he would consider challenging the ruling or modifying the regulation to address the judge's concerns. "This is only one arrow in a whole quiver full of strategies that we are undertaking to continue to increase enforcement efforts directed at employers who hire illegals."

Business groups hailed the decision, contending the regulations were designed to punish companies that do not clear up discrepancies between their worker's names and social security numbers, possibly forcing employers to chose between compliance or going out of business. "It's a signal to the government that they can't do anything they want simply by calling it enforcement," said a spokesperson for the U.S. Chamber of Commerce. "The Department of Homeland Security overstepped its bounds on this one."

Prior to the adoption of the new regulations, the SSA took the position that the "no-match" letters it issued were for informational purposes only and that the employer had no obligation to respond.

However, under the new immigration enforcement regulations, the DHS's position is that "no-match" letters may be used as evidence that the employer has knowledge that the employee is using a bogus SSN or is otherwise in violation of work authorization regulations.

Because of the DHS's position, those "no match" letters will include a warning from them pointing out the increased liability the employer faces under federal immigration laws. Under the new regulations that the judge halted from being enforced, an employer would have 30 days after receipt of a "no-match" letter to confirm the mismatched SSN was not the result of the employer making a recordkeeping error in logging and reporting the SSN.

If the employer is unable to do that, he or she is required to request that the employee verify the accurateness of the employment records and settle any discrepancies about those records that the SSA may have.

If employers cannot resolve the problem within 90 days, they have three days to submit new 1¬9 forms and the employees are required to present photographs in order to establish their identity. If this is not done, the employer may be held civilly and criminally liable for possible violations of immigration laws.

The judge's ruling in the matter was in response to litigation filed by various labor unions and immigrant rights groups, and the preliminary injunction issued by the judge's ruling halts the SSA from issuing letters that contain the DHS warning notice to employers.

The injunction will remain in effect until it is overturned on appeal or the judge makes a final ruling after a trial, which could be several months away. Apartment industry groups have also weighed in and have asked for an extension for employers to comply with the immigration and employment regulations.

The West is the Best for Rent Increases:
Occupancy Levels are 2nd Best

A cross the nation, vacancy rates during the second quarter of 2007, April, May and June, for apartment buildings with five or more units demonstrated no clear trend.

According the United States Census Bureau, the vacancy rate for all rental units decreased from 10.7% in the first quarter of 2007 to 10.1% in the second quarter of 2007.

By comparison, a private research company's survey of investment grade apartment properties showed a vacancy rate of 4.9% for the second quarter of 2007, a slight increase over the vacancy rate of 4.8% in the first quarter.

The slight increase in the vacancy rate was entirely due to an increase in the vacancy rate in the South. Vacancy rates in all other regions of the country decreased from the first quarter. The vacancy rate in the South increased to 5.9% in the second quarter of 2007 from 5.6% in the first quarter, the highest vacancy rate in the South in over two years.

In the Northeast, the vacancy rate was 3.5% in the second quarter of 2007, down from 4.0% in the first quarter. And in the Midwest, the vacancy rate fell from 5.5% in the first quarter, to 4.8% in the second quarter. The West showed a similar vacancy rate decrease, going from 4.8% in the first quarter of 2007 to 4.2% in the second quarter.

Rents for apartments rose according to both public and private studies. According to a study prepared by a private research company, rents across the nation rose an average of 2.9% from one year ago.

Once again, as they have for the past two years, rents increased the fastest in the West. Not surprisingly, the region with the slowest growth in rents was the South.

When you consider that the inflation rate was 2.8% over the last year, all regions except the West had negative growth in real rents.

The Consumer Price Index (CPI) rent index, which includes all types of rental housing and not solely apartments, increased in the second quarter of 2007 by 4.4% over a year ago, just less than the 4.5% increase during the first quarter of 2007 over the first quarter of 2006.

Telecommunications Company Access Rules
Still Under Review

A coalition of national apartment industry and real estate industry groups, including AAGLA, have formed an alliance to review and comment on a proposal by the Federal Communication Commissions (FCC) to issue brand new regulations on exclusive agreements between apartment owners and telecommunication services providers.

The alliance was formed to comment on a proposed rule made by the FCC in March. The rule declared that the FCC has the power to control exclusive contracts made between apartment owners and private telecommunications companies if it believes those contracts impede competition.

Comments opposing the new rules argue that the regulations are not necessary in a situation where there is no evidence that the private market has failed and that government intervention is needed.

Part of the opposition to the new rules noted that the ability to enter into exclusive contracts has been supported in the past by the FCC as it enables the expansion of broadband access by allowing telecommunications providers to recover expenses for the installation of new facilities and for upgrading existing systems.

Furthermore, the FCC previously found that exclusive contracts in residential properties actually help create competition as they help property owners provide tenants with improved services at lower costs.

Indeed, the FCC specifically excluded apartment buildings from a 2000 FCC Order that prohibited exclusive contracts between the owners of office buildings and common telecommunication carriers.

The alliance is in the process of reviewing other comments submitted in response to the proposed new rules so that it can respond to them if necessary.

The alliance also plans to meet the FCC's staff to review the need to regulate as well as offer to serve as a resource to the commission on the apartment industry.

Lead-Safe Practices Proposal Goes Over
Like the Proverbial Lead Balloon

National apartment industry trade groups continue to urge the U.S.. Environmental Protection Agency (EPA) to revise a rule it is proposing that will require everyone, including apartment maintenance personnel, who is involved in renovation, repair, or painting activities that disturb lead-based paint in housing constructed prior to 1978, to undergo training in lead-safe work practices.

Those engaged in renovation, repair or painting activities, as well as the companies that employ them, would have to be certified. Those who provide training to the renovators would have to be accredited.

When the proposal was issued in May 2006, apartment industry groups submitted comments to the EPA that supported a goal of, training workers in lead-safe practices, but concluded that the EPA's proposal was unnecessarily cumbersome and expensive.

One of the comments submitted stated that two sets of data on lead-dust support the contention that apartment maintenance personnel can rely on visual inspection to assure appropriate lead-safe work practices that will result in lead-safe apartment units.

In April of this year, after the EPA requested further comments on two studies added by its rulemaking body, apartment industry, groups sent the EPA further, comments, and took the agency to task for seeming to ignore the data submitted by them last year.

Rental Aid to Hurricane Victims Extended

The U.S. Department of Housing and Urban Development (HUD) and the Federal Emergency Management Agency (FEMA) have announced that up to 30,000 victims of Hurricanes Katrina and Rita will continue to receive rental assistance until March 1, 2008.

Without this 18-month extension of rental assistance, aid was due to expire on August 30, 2007.

FEMA is in the process of developing plans for HUD to assume management of the rental housing assistance program starting this September. The plan also will require that starting March 1, 2008, those families participating in the rental assistance program will have to pay a portion of their rent.

HUD Reports 12% Increase in Discrimination Complaints

In what should be considered a wake-up call for apartment owners and managers across the nation, the U.S. Department of Housing and Urban Development (HUD) is reporting that housing discrimination complaints have increased by 12% during fiscal year 2006.

HUD reports that the 10,328 complaints it received are the highest number ever, according to its Annual Report on Fair Housing.

Disability and race were the most common sources of complaints. Respectively they made up 39% and 40% of the discrimination complaints received by the agency.

HUD reported that disabled persons encountered discrimination in half of their encounters with hearing impaired persons using telephone operator relays to search for rental housing. Wheelchair bound persons inquiring about housing in person encountered discrimination about one-third of the time.

Federal officials and non-profit fair housing groups continue to make enforcement of the federal accessibility requirements a top priority, particularly with the increase in complaints. Many of the lawsuits filed against large apartment firms have been filed by the same Washington D.C.-based non profit civil rights group.

Congress Considers Overhauling Section 8 Inspection Process

Congress is considering several pieces of legislation to reform the Section 8 housing voucher program, including modifying the burdensome inspection process that is being advocated by national apartment industry groups, including the National Multi Housing Council of which AAGLA is a member.

When the groups testified before Congress, they emphasized the need to overhaul the program's onerous and repetitious inspection standards, and to streamline the process for calculating income and rent and implementing changes that would make the program more consistent with the Low Income Housing Tax Credit program so the two can be used together more effectively.

The House is considering a bill that would reform the program and streamline the inspection process. While the measure is expected to pass the full House, Senate action in the near term is not expected.

Bothersome Bed Bugs Are Back

Properties from apartments to single-family homes to luxury hotels are experiencing a resurgence of dealing with an age old nemesis — bed bugs. For decades this insect has rarely been seen in the United States.

However, with the abolition of various pesticides and the increase in world travel, the pest is back and troubling residents, hotel guests and property managers.

Efforts to wipe out the pest are proving difficult because of its ability to endure in unfavorable circumstances for long periods of time.

The advice is to act immediately if the pest is suspected. Professional exterminators are best suited to develop a program to treat the infested areas. But be prepared for several treatments over the course of several months on the infested areas and even the areas adjacent to where the infestation has occurred.

Replacing Small Mailboxes Is Causing Big Problems

National apartment industry groups are still grappling with the United States Postal Service (USPS) over its mail delivery policies, urging the USPS to implement reasonable regulations that affect apartment owners throughout the country.

For example, this past December, the USPS directed an apartment complex in the Houston area to give the local postmaster a list with the names of each resident of the complex and their mailbox numbers or the USPS would suspend mail delivery to the apartment complex.

Facing opposition from national apartment industry groups, the USPS eventually withdrew its demand.

Furthermore, the USPS has agreed to review a long standing regulation that authorized local postmasters, under certain circumstances, to request that information on residents from the owners and operators of apartment buildings. This regulation is now under review by attorneys with the USPS.

Also, last December a Los Angeles area apartment complex was ordered to replace all its mailboxes or the USPS would suspend delivery of mail. This garden-style apartment community had no room to install the larger mailboxes that the USPS insisted be installed.

Apartment industry groups entered into discussions with the USPS about its demand that larger mailboxes be installed at the complex, which resulted in the order being withdrawn by the USPS.

Local Immigration Ordinances Challenged

On the immigration front, the City of Escondido announced in December it was withdrawing a controversial ordinance that would make it illegal to rent to illegal immigrants. The withdrawal settles a lawsuit filed by groups opposing the measure.

The Escondido law that was rescinded would have required apartment owners to file documentation with the city to establish a tenant was a legal resident if a complaint was filed with the city. The city would have then taken the documentation to the federal government to verify the residence status of the resident.

If it was determined a resident was not legal, the owner would have to evict him within 10 days or the apartment owner's business license would be suspended.

And in late December, three apartment owners in the Dallas suburb of Farmers Branch, Texas, filed suit to block enforcement of a similar ordinance. A coalition of civil rights groups filed a separate lawsuit to block the implementation of the ordinance.

Local Immigration Ordinance Goes to Court

A federal judge extended his temporary restraining order blocking the City of Hazleton, Pennsylvania, from implementing and enforcing two ordinances targeting illegal immigrants. The extension was given so that both sides in the litigation over the ordinances could prepare for trial. One of the ordinances, which was approved by the City Council in June, imposes fines of $1,000 on apartment owners for each undocumented person renting an apartment, along with an additional fine of $100 per day per person for continued occupancy without a city permit.

Under the ordinance, both current and future renters have to apply and pay $10 for permits from the city proving that they are legal residents before they can legally occupy apartments.

Apartment owners in the city would be required to request the permit from existing and prospective tenants. Every occupant of an apartment would have to obtain an individual permit. The other ordinance denies business permits to businesses that hire illegal immigrants.

ACLU and Hispanic organizations filed suit against the city, arguing the law violates the Constitution because the ordinances trample on the federal government's sole authority to control immigration.

The Mayor of the city contends that illegal immigrants have produced an increase in drugs, crime and gangs to the city, claiming there has been a 10% increase of crime from 2004 to 2005.

In his order, the judge wrote that apartment owners, tenants and businesses would face the prospect of irreparable harm from the enforcement of the ordinances. "We find it in the public interest to protect residents' access to homes, education, jobs and businesses," the judge wrote in his opinion.

The judge said his order would give both sides time to prepare for a motion for a temporary injunction sought by the ACLU. The Mayor of the city said he was confident the city would prevail and that the courts would uphold the laws.

Other cities across the country have passed similar laws, claiming the federal government has been lax in enforcing illegal immigration.

ICE to Crack Down on Illegal Immigrant Employers

It appears that the Immigration and Customs Enforcement (ICE) agency, formerly known as the Immigration and Naturalization Service, is developing employer enforcement units as an element of an assertive new strategy to mount workplace searches and criminal investigations of suspected immigration law violations. While the agency has not historically targeted the apartment industry for immigration enforcement, compliance efforts by employers in the apartment industry should be reviewed based upon the agency's policy.

Raids will be focused mainly on criminal prosecution in an effort to deport illegal immigrants, and to deter others from entering the country illegally. The agency also wants to imprison employers who violate the law.

The agency said one of its strategies will be to employ and pay subcontractors to inform on employers or contractors using illegal immigrants.

It would appear that the agency is no longer providing employers or contractors with the same level of protection it has in the past in complying with immigration procedures, but is shifting to reliance on the "reckless disregard" provision of the Immigration and Nationality Act.

The Act requires an employer who detects what appears to be foreign workers hired by a subcontractor arriving at a job site to make an inquiry of the subcontractor as to the workers' status.

House Passes Eminent Domain Act/Senate Fails To Act

Before Congress began its six-week recess on September 30, the House passed the Private Property Rights Implementation Act to expand the jurisdiction of the federal courts over state-based eminent domain claims. It was among the bills introduced in response to the U.S. Supreme Court's Kelo decision last year.

Opponents of the bill included the U.S. Conference of Mayors, which was concerned that local land-use matters are being wrested away from local control to the federal level.

However, there is no Senate measure to go along with the House bill at this time. Another bill passed in the House to limit the use of eminent domain has been sitting in the Senate since November 2005.

Smoking complaints Spark No Smoking Rules at Apartments and Hotels

Apartment management and ownership groups across the country are beginning to move toward banning smoking at their properties. This past September 1, Centrum Management LLC, a management company based in Virginia, banned age smoking at all of its 49 apartment communities. Previously, the company had only banned smoking in the common areas of their properties. It is a move that followed a decision earlier this past summer by Marriott International, the country's largest hotel chain, banning smoking on its properties. The Marriott company said that the demand for smoking rooms has gradually waned while the complaints about smoking have increased.

Another hotel chain, Westin, banned smoking at its properties last year and has reported an increase in revenue since the policy was implemented.

While a growing number of small apartment management companies have implemented prohibitions on smoking, according to the Legal Resource Center for Tobacco Regulation, Litigation and Advocacy, the Centrum company is the first regional company to ban smoking in its units. Centrum, which caters to residents over the age of 55, stated that its policy to ban smoking was adopted in reply to complaints from its residents about smoke. The new policy will be applied to new rental agreements only.

Although Centrum has not been the subject of lawsuits, other apartment management companies and owners have been sued by residents claiming their health has been damaged by exposure to second hand smoke. Apartment industry groups recommend that any ownership or management company considering a smoking ban at their properties should be aware that smokers are not a protected class and no federal law grants residents of rental housing an unfettered right to smoke. Apartment managers and owners should be able to restrict smoking by new residents in their properties much like they restrict pets and nuisances as terms of the rental contract.

Local Immigration Reforms Target Apartment Owners

Some state and local governments are unwilling to wait for Congress to take up immigration reform, so they are taking on this contentious issue themselves, in some cases targeting owners of rental housing. In July, the City Council in Hazelton, Pennsylvania, adopted a law that prohibits apartment owners from knowingly renting to un-documented persons, with fines of $1,000 per undocumented person renting an apartment, plus an additional $100 per day per person for continued occupancy without a permit.

Hazelton's Mayor announced that he expects the City Council to adopt an ordinance that would require current and prospective renters to apply for and pay $10 to acquire permits from the city proving they are legal residents in the city prior to being able to legally live in apartments.

Apartment owners in Hazelton would be required to request such permits from both current and prospective tenants. Occupants of apartments would have to obtain their own individual permits, and the permits would have to be removed if the tenants moved to a different apartment.

A landlord advocacy group, the Hazleton Area Landlords Organization, helped craft the proposed permit ordinance, and will be pressing the city to remove the burden of proof off of the property owner and on to the tenant.

The proposal calls for some exemptions, including multi-family units owned by "public authorities," and buildings where more than 75% of the residents are over age 65.

Advocacy groups for illegal immigrants said they may challenge the law in court.

In San Bernardino, an initiative by citizens that would crack down on illegal immigrants fell short of the number of signatures required to place the measure on the ballot.

The initiative, which was condemned by the city's Mayor and City Council, would have provided for severe penalties for apartment owners who rent to illegal immigrants.

A council member in Escondido, apparently motivated by the Hazleton and San Bernardino proposals, asked the city's manager to prepare a draft ordinance that would prohibit apartment owners from renting to undocumented persons.

The proposal, which has some support from other council members, would provide fines for apartment owners of $1,000 per undocumented person, and would impose criminal penalties for unpaid fines. Escondido's city manager apparently has expressed doubts about the legality of the ordinance and the city's ability to enforce it.

A Florida city also was expected to pass a similar law this summer.

At the state level, more than 500 immigration-related pieces of legislation have been introduced in state legislatures this year. Thus far, none of the 57 immigration bills enacted in 27 states target housing providers.

U.S. Supreme Court Rules for Developers

The United States Supreme Court ruled that the Army Corps of Engineers exceeded its authority under the Clean Water Act when it denied two Michigan developers permits to build on isolated wetlands that are only linked to larger bodies of a water through man made drainage ditches. In the 5 4 decision, the court ruled that a simple hydrological connection between a wetland and navigable water does not justify federal jurisdiction. An apartment industry group filed a friend of the court brief claiming there is no basis in science or law for extending federal jurisdiction to these isolated wetlands.

The assertion is that the current regulatory system is overly broad, unevenly applied and to the time and costs involved in the permitting process. Efforts over the past decade to obtain an administrative or legislative solution to issues proved unsuccessful, forcing property owners to pursue cases through the courts.

Estate Tax Reform Proposed

As lawmakers abandoned efforts to repeal the estate tax, a national apartment industry organization lobbied for a compromise reform bill. This came about after the Senate was unable to get the 60 votes needed to overcome a filibuster and get a bill for full repeal of the tax to the floor. After failing to end the filibuster, Senate leaders were able to persuade the House of Representatives, which has passed legislation several times to fully repeal the estate tax, to cooperate and approve a reform bill. This concession is notable as Republican leaders realized a full repeal is not likely to pass.

This compromise will hopefully lead to final action by the Congress to reform the estate tax. Apartment industry groups have opposed repeal favoring reform of the estate tax to preserve the step-up basis for property that is inherited. Without the stepped-up basis, the heirs of commercial property owners would be able to avoid the estate tax, but would be subject to substantial capital gains taxes of 55%.

As part of the reform strategy, the House passed legislation that would increase the estate and gift tax exemption to $5 million per person beginning January 1, 2010, and lower the tax rate on estates valued between $5 million and $25 million to 15%, the current capital gains rate. Estates over $25 million would be taxed at twice the capital gains rate.

The most significant reform, according to the apartment industry group, was to preserve the stepped up basis for inherited property by repealing the modified carryover basis rules that are scheduled to go into effect in 2010. If the reform legislation is enacted, President Bush is expected to sign it.

If Congress does not act to reform the estate tax, it will be repealed in 2010, and in 2011 will revert to its pre 2001 level, which is a $1 million exemption and a 55% tax rate.