Dozens of homes in Washington have become eligible for purchase by tenants in recent years under a federal low-income housing program, the majority in Whatcom County.
None have yet transferred ownership.
That disparity is front and center in a recent audit of the state Housing Finance Commission’s oversight of tenant purchase options in the federal Low-Income Housing Tax Credit program, which offers tax credit incentives to low-income housing developers. When applying for the program, which the commission manages, developers can indicate they will let residents purchase their homes after a 15-year waiting period, though that option is rarely used.
On Wednesday, Dec. 4, the state auditor’s office presented findings it called “disappointing” in its report to a legislative subcommittee.
In the report, auditors wrote the commission did not stick to its own plan to request updates from project owners every five years and “did not develop sufficient guidance for project owners to implement tenant purchase options.” However, auditors wrote the commission “met legal requirements” for oversight and noted the federal government offers “only minimal guidance” to states about managing the program.
A high-profile dispute over evictions of households disenrolled from the Nooksack Indian Tribe thrust the program into the spotlight, prompting legislators to call for an audit last year. Auditors did not examine the Nooksack case in their report, however, because they have “limited authority” to audit tribal governments, Senior Performance Auditor Brenton Clark explained in an interview.
In the eyes of Gerry Pollet, one of the state representatives who urged the state auditor to act, the commission let private entities “get away with bloody murder” in not monitoring tenants’ progress to home ownership.
But commission staff stressed the federal program’s primary goal is to promote affordable rental housing and suggested aggressively enforcing against housing providers would be counterproductive.
“We definitely agree with the recommendations on improving our oversight,” commission Executive Director Steve Walker said during Wednesday’s hearing, “and have spent the past two years working hard on a wide range of improvements.”
Legislator ‘truly alarmed’
Last year, 135 homes in Washington qualified for tenant purchase having passed the 15-year mark. Another 254 housing units will reach that point by 2030.
Tribal governments manage all but one of the 18 projects in the state offering tenant purchase options, according to the state audit. The Nooksack tribe owns all 85 of the homes offering tenant ownership in Whatcom County. All are currently eligible for purchase.
In an email, commission spokesperson Margret Graham explained the tribes in question all seem to have used the same consultants to put together their program application who recommended they take the eventual tenant ownership option.
Graham added tribal developers typically build stand-alone homes instead of apartments, which could smooth the way for tenant purchase, and can access other federal home ownership resources.
The Nooksack Tribe did not respond to requests for an interview or to an emailed list of questions.
Pollet, who started digging into the program because of the Nooksack evictions, said he found oversight was “a circus” when he looked into it.
“I became truly alarmed about their total management breakdown and failure in regard to the home ownership program,” he said.
The audit clarifies that the tenant purchase option differs in key ways from “rent to own” programs. An important distinction: Tenants do not receive the homes automatically once the waiting period is complete and can choose whether to purchase or not. Project owners decide the price and do not have to put tenants’ rent payments over the years toward the eventual purchase.
“This tenant ownership option needs greater clarity — in communicating how it works, what tenants’ options are, and the goals of policymakers in offering it.”
— State Auditor Pat McCarthy
Auditors did not review new policies the commission approved in August after nearly two years of work. In a staff response included in the audit, the commission laid out how the new policies would address the auditor’s recommendations.
For example, going forward project owners will have to submit annual progress reports about the coming property transfer once their developments are 13 years old.
Clark reiterated the new policies were outside the scope of the audit, but said “it did appear like they were addressing the areas of the recommendations that we made in the report.”
Tenant ownership homes escape oversight
In past years, the commission prioritized monitoring that applied to all rental properties in the program, not just those offering tenant ownership, Vatske said in an interview.
But when the first developments started hitting 15 years, commission staff discovered their transfer plans were “inadequate for handling the complex property transfer process,” wrote commission Asset Management and Compliance Director Wubet Biratu in an email.
The process is complicated “largely due to the evolving nature of property laws and regulations and the added layer of complexity due to the involvement of the (Bureau of Indian Affairs) on tribal lands,” she wrote.
The audit mentions other complications, including “preparing tenants for the financial obligations of ownership.”
The first project to turn 15 years old was a Nooksack housing development in Everson in 2020.
In an interview, Biratu and Vatske said the Nooksack Tribe had been unresponsive to commission requests for progress updates on their transfer plan since litigation related to the evictions began. Graham wrote in an email that the commission has reported the tribe to the Internal Revenue Service for noncompliance due to the non-response.
Before that, the commission was in the final stage of approving the tribe’s transfer plan, Biratu said, which involved transferring units to tenants for just $1. Vatske noted the commission’s lawyer and the tribe’s attorney have communicated.
Vatske said the lack of ownership transfers in the program in Washington was not unusual nationwide. Commission staff looked at other states’ policies when designing their new procedures, she said, and only a couple had seen successful property transfers.
Biratu added “initially the (Low-Income Housing Tax Credit) program is a tool designed to develop rental units and not for home ownership programs. And so that has (been) a factor in…how effective it can be in creating home ownership.”
At Wednesday’s hearing, state Rep. Jake Fey called the eventual tenant ownership option “a wishful-thinking gleam in the eyes of Congress” after the commission’s Walker explained how rarely it was used.
“I won’t dispute your characterization,” Walker responded.
Avenues for addressing noncompliance
The audit notes “commission staff said they have few options to respond to project noncompliance beyond reporting it to the (Internal Revenue Service).”
Pollet takes issue with that statement, saying the commission has other options like withholding state contracts from noncompliant entities.
Vatske said the commission “would rather be in collaboration and partnership” with housing providers instead of preventing them “from providing housing to the folks that need it the most.”
Biratu said staff believe the “new policies are much stronger in holding the owners and the developers accountable,” adding a requirement that owners sign a legally binding agreement with tenants about the terms of a future property transfer.
Despite the fact the program hasn’t produced homeowners so far, the audit notes “tenants have received other meaningful benefits,” like access to below-market-rate rents.
“In my view,” state Auditor Pat McCarthy concluded, “it is telling that auditors could find little information on the federal intent behind including a relatively small incentive for the ownership option in housing projects that otherwise focus on rental units.”
She continued, “this tenant ownership option needs greater clarity — in communicating how it works, what tenants’ options are, and the goals of policymakers in offering it.”
Sophia Gates covers rural Whatcom and Skagit counties. She is a Washington State Murrow Fellow whose work is underwritten by taxpayers and available outside CDN's paywall. Reach her at sophiagates@cascadiadaily.com; 360-922-3090 ext. 131.
