Judge Nixes Low-Income Tenants' Preliminary Request To Force Gentrifying Landlord Of Recently-Purchased 698-Unit Complex To Continue Accepting Section 8 Housing Subsidies While Fair Housing Lawsuit Plays Out; Housing Advocates Say New Rental Policy Leaves Minority & Disabled Tenants Disproportionately Affected

In Richfield, Minnesota, Minnesota Lawyer reports:

• The Richfield landlord accused of discriminating against low-income tenants scored a victory [] when a federal judge decided not to require the property owner to continue accepting rent subsidies.
  
  Several dozen residents of the Crossroads at Penn complex, now known as Concierge Apartments, urged a federal judge to force Brooklyn Center-based Soderberg Apartment Specialists to honor Section 8 vouchers while they resolve a lawsuit over rent hikes and policy changes at the 698-unit property.
  
  But U.S. District Judge Ann Montgomery ruled Soderberg gave residents enough notice — several months ahead of time — that it planned to discontinue Section 8 at the property, purchased for $41 million in August. At that point, roughly three dozen households relied on the subsidies to cover their rent.
  
  “The court recognizes that these are difficult options for plaintiffs, many of whom are low-income or disabled,” the judge wrote. “However, eight months is significantly more notice than plaintiffs were entitled to under their leases.”
  
  In addition, Montgomery pointed to several Section 8 residents that have already moved out, suggesting there is other housing within reach of the remaining subsidy-reliant tenants. Several current and former residents — including one now living in a homeless shelter — said earlier this month they were frustrated by a lack of options.
  
  Soderberg plans to start phasing out Section 8 next month, severing its ties to the voluntary government program. The landlord has contended that requiring it to participate would impinge on its freedom to conduct business the way it wants and add an administrative burden.
  
  “We believe that had we, as new owners, been compelled to sign on and participate in a program that the federal government, and the state of Minnesota, has recognized as voluntary, it would have had a significant chilling effect on new investment and renewal efforts for Minnesota residential real estate, affecting everyone from large management companies to owners of small single-family rental homes or fixer-upper duplexes,” Soderberg said in an email statement on Monday.
  
  After Soderberg unveiled its planned changes last year, the Richfield Housing and Redevelopment Authority — which administers the Section 8 program in the city — agreed to help tenants temporarily bridge the gap between what they could afford and rising rents.
  
  Montgomery zeroed in on the agency as a key player in the dispute because any Section 8 extension would require its continued involvement. But she noted, as Soderberg had in an earlier filing, that the authority is not named in the suit, placing it out of the court’s reach.
  
  The judge also questioned whether, even if the court forced Section 8, Soderberg could work around the ruling by simply raising rents again.
  
  A court-ordered Section 8 requirement would have served as a warning shot for the growing number of investors scooping up aging multifamily properties in the bustling Twin Cities market. As with Soderberg, those deals often come with high-end upgrades and pumped-up rents — frequent drivers of tenant turnover.
  
  So far, the Richfield case is the first of its kind to hit the courts in Minnesota. But depending on how it shakes out, others could follow. A change in ownership at the historically affordable 551-unit Meadowbrook Manor in St. Louis Park, for example, recently stirred similar controversy.
  
  The Section 8 issue is one facet of the broader discrimination case filed against Soderberg earlier this year. Tenants say the landlord planned a $10 million-plus renovation at the Concierge, including a pet spa and high-end fitness center, to replace longtime low-income residents with “young professionals.”
  
  Soderberg also imposed tougher tenant standards and announced it would eventually halt Section 8 and other rent subsidies at the property.
  
  The tweaks sent tenants scrambling, some for other affordable housing and others for a way to stay put. As of January, tenants have said, more than 150 households had cleared out as a result of the changes.
  
  Residents contend Soderberg’s overhaul disproportionately affects minority and disabled tenants, two groups that had been well represented at the complex and protected from unfair treatment under the federal Fair Housing Act.
  
  The tenants’ case marks an unconventional application of the act, often used to contest zoning policies that target people of color. No existing case law deals with its exact circumstances.
  
  Again on Monday, Soderberg billed its improvements as a much-needed boost that will make the Concierge stand out in the Richfield market.
  
  “By providing value at a reasonable cost, we believe that the property will be an asset to the City of Richfield and satisfy a market need for a privately funded and privately managed housing choice,” Soderberg said in its statement.
  
  Montgomery still needs to decide on other aspects of the suit — namely, whether to keep it in play.
  
  Soderberg in February asked the court to dismiss the lawsuit outright, saying the tenants haven’t shown how its practices violate the law. The judge at a hearing earlier this month said that decision could take a while, given the complexity of the case.
  
  She echoed that in her [] decision. She gave both sides credit for making compelling arguments but noted “many legal and factual questions yet to be determined and little controlling authority to offer guidance.”
  
  For his part, Tim Thompson, the attorney who heads the St. Paul-based Housing Justice Center and is representing the tenants, said that while Friday’s ruling was a blow, it did not necessarily spell trouble for the broader suit.
  
  “It’s a disappointment, but I think it’s clear that there are some serious issues here that are going to need some further development,” he said. If the judge strikes down Soderberg’s motion to dismiss, the residents’ counsel will get access to internal information from the landlord that Thompson expects will strengthen their case.
  
  Soderberg is represented by attorneys from Minneapolis law firms Meagher & Geer and Hanbery & Turner.

Source: Ruling favors Soderberg in Richfield apartment lawsuit.