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In re Application for a Rental Increase at Zion Towers Apts.

October 29, 2001

IN THE MATTER OF THE APPLICATION FOR A RENTAL INCREASE AT ZION TOWERS APARTMENTS (HMFA #2).


Before Judges Ciancia, Parrillo and Bilder.

The opinion of the court was delivered by: Parrillo, J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued: October 10, 2001

On appeal from the New Jersey Housing and Mortgage Finance Agency.

This is an appeal from a New Jersey Housing and Mortgage Finance Agency (HMFA) recommendation to the United States Department of Housing and Urban Development (HUD) to approve a rental increase at Zion Towers Apartments (Zion Towers), a rental housing project owned and operated by Zion Towers Incorporated (Sponsor). Appellant Samuel Rivers, a tenant at Zion Towers, challenges HMFA's decision as being arbitrary and capricious and in contravention of governing regulations. A threshold issue is whether this appeal is properly before us. We hold it is not. HMFA's recommendation to approve the rental increase does not constitute final agency action and is, therefore, not appealable. Even if it were, principles of comity and federalism would require us to stay our hand.

The material facts are not in dispute. Zion Towers is a large apartment complex in Newark, New Jersey, owned by the Sponsor, a non-profit corporation. The building consists of 268 rental units housing primarily low-income families. The apartment complex is financed, subsidized, and regulated pursuant to the National Housing Act (Act), 12 U.S.C.A. §§ 1701 to -50 (1970), implemented through HUD. See 24 C.F.R. § 200.1.3 (1977). HUD provides funding and mortgage subsidies to private building owners in exchange for their provision of low income housing through the "Section 236" program of the Act. 12 U.S.C.A. § 1715z-1. As part of its "Section 236" Rental Assistance Payment (RAP) program, HUD covers 100% of the necessary rent increases for eligible tenants, who comprise 90% of Zion Towers' housing units. 12 U.S.C.A. § 1715z-1(f)(2), -1(f)(4). Zion Towers also receives financial assistance from HUD through periodic interest reduction payments made on behalf of the owner (Sponsor) Zion Towers, Inc. See 12 U.S.C.A. § 1715z-1(a), -1(r).

HUD delegates primary responsibility for the administration of Section 236 funds to state or local governmental agencies, 12 U.S.C.A. § 1715z-1(o), (p), such as the HMFA in New Jersey. The HMFA was established by the New Jersey Housing and Mortgage Finance Agency Law of 1983, L. 1983, c. 530, and is charged with maintaining "adequate and affordable housing in the State." N.J.S.A. 55:14K-2(e)(2). In accordance with its statutory mission, the HMFA initially financed Zion Towers by a first mortgage in the amount of $5,413,000 through bond anticipation notes. The HMFA also holds subordinate mortgages on Zion Towers. In exchange for low cost financing, the Sponsor agreed to regulatory control by the agency, including HMFA review and approval of rent increases pursuant to regulations, N.J.A.C. 5:80-9.1 to 9.14, promulgated by the HMFA. N.J.S.A. 55:14K-63.

On account of federal assistance, HMFA's approval of rent increases is subject to approval by HUD, 24 C.F.R. § 245.10; 24 C.F.R. § 245.330(b); N.J.A.C. 5:80-9.8; N.J.A.C. 5:80-9.7(b)(1), and in fact is governed by HUD statutes and regulations. 12 U.S.C.A. § 1715z-1(e). The final decision on any rent increase for Zion Towers is made by HUD and includes a review of the HMFA's initial approval. HUD's determination, following its review of the state agency's, is made pursuant to regulations that generally mirror state rules governing the HMFA's rent increase approval process, but the federal regulations prevail where inconsistent. N.J.A.C. 5:80-9.2.

Under current regulations, it is incumbent upon the owner to notify tenants of prospective rent increases, N.J.A.C. 5:80-9.6, and the reasons therefor, N.J.A.C. 5:80-9.4(a)(4). All tenants are accorded the right to inspect the rent increase application, file objections, or otherwise comment upon the proposed increases. 24 C.F.R. § 245.310, § 245.330(a)(1); N.J.A.C. 5:80- 9.6(a)(4), -(a)(5). The owner is obliged to submit its application to the HMFA, N.J.A.C. 5:80-9.4(a), in conformance with the requirements of both agencies. N.J.A.C. 5:80-9.1 to 9.14; 24 C.F.R. § 245.305 to .330. The HMFA is to provide written notice of the reasons for its decision approving any rent increase, N.J.A.C. 5:80-9.11(a), and then forward the rent increase application to HUD for final action. N.J.A.C. 5:80- 9.7(b)(1), -9.8(b). The HMFA is to notify the owner of HUD's final decision. 24 C.F.R. § 245.330(d); N.J.A.C. 5:80-9.11.

On March 31, 1999, the Sponsor notified Zion Towers tenants, through its managing agent, that it was applying for a two- percent rental increase with the HMFA and invited the tenants to submit written comments within thirty-days to either the HMFA or the Sponsor. That same day, the managing agent submitted the two-percent rental increase application to the HMFA.

After reviewing the rental increase application, the HMFA notified the managing agent that certain operating reports were not included in the application package. Those reports were forwarded to the HMFA on or about April 19, 1999. The tenant comment period was extended an additional thirty-days because of this delay, affording tenants nearly two months to respond. Notices to that effect were posted at Zion Towers.

Appellant, through his attorney, submitted comments to the HMFA in May and June 1999 in opposition to the rental increase*fn1 and requested an administrative hearing.*fn2 On June 9, 1999, the HMFA answered in writing, denying the request for a hearing but fully responding to appellant's comments.

On June 11, 1999, the HMFA approved the two-percent rent increase and several days later forwarded the application to HUD for review and final approval. In January 2000, HUD approved the increase and, on February 4, 2000, the HMFA notified the managing agent of HUD's final approval for a two-percent rent increase, which amounted to $18 per month. The tenants were given final notice of the increase on February 28, 2000, effective April 1, 2000. This appeal follows.

The threshold issue, as noted, concerns our jurisdiction to review HMFA's approval of Zion Towers' rental increase application. This issue, in turn, depends on whether HMFA's decision ...


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