BUDGET: Lax Loan Prepayments Could Land You With An ELIHPA Violation

No room for negotiating out of affordable housing requirements even with fed's OK.

If you are looking to prepay outstanding loans, tread carefully or risk running afoul of the Emergency Low Income Housing Protection Act of 1987 (ELIHPA). Such was the lesson learned by Oregon property owners in a recent appellate decision.

The relevant details of the case began in the mid-1970s when DBSI/TRI IV Properties (DBSI) entered into loan agreements with the Rural Housing Service (RHS) -- an administrative division of the U.S. Department of Agriculture -- in order to fund six affordable housing properties. The loans were disbursed in accordance with Section 515 of the National Housing Act of 1949.

Background: The Section 515 program, intended to encourage low-income housing development in rural areas, provides owners with low interest rates and operating subsidies in exchange for guaranteed low-income rentals for the life of the loans.

However, if the owner prepays the loan, the properties can be released from affordable housing rental requirements.

RHS Agreement Doesn't Supersede ELIHPA Prepayment Process

As part of DBSI's original loan agreements, RHS granted the owners the right to prepay the loans at any time, but noted that this condition would be subject to present and fut......