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Housing Agency Prepares for Lawsuits Following Recent Legislative Action

A legislative mandate to return $190 million to state coffers is landing Florida housing officials in court as disgruntled developers sue the agency for backing out on contracts to build affordable housing units around the state.

The Florida Housing Finance Corp is responding to 11 challenges on plans to cancel agreements worth $52.8 million in state-backed low interest loans for rental units, “for-sale” homes, townhouses and apartments.

The cases are being prepped for informal negotiations or formal proceedings before the Division of Administrative Hearings. Though specific details differ, the petitions charge housing officials with breaching contracts with companies that relied upon the state-backed loans for up to 30 percent of construction costs.

The agency is stepping away from the contracts to comply with legislation passed in January requiring it to return $190 million to general revenue to fill a budget gap. The agency made the payment June 1. Unlike typical budget cuts, FHFC was required to dip into funds already committed to be spent.

FHFC officials warned lawmakers in January that such deep cuts would likely result in legal action by developers who were earlier told they had a deal pending final underwriting approval. Instead, lawmakers decided to ax the program, justifying the move, in part, by saying the state’s rapidly rising foreclosure rate would make housing more affordable.

“We begged them to say where to they wanted the money to come from,” said Wellington Meffert, FHFC general counsel. “I think some thought they were doing us a favor by leaving the decision up to the agency. They weren’t.”

Among the list of disgruntled builders is Prime Home Builders, a Hollywood-based construction firm that is suing to retrieve $20 million promised by FHFC for separate projects worth nearly $60 million.

Some of the developers have spent hundreds of thousands of dollars, some more than a million, to jump through the hoops when they thought they had the agency’s go-ahead, said Jeff Sharkey, a Tallahassee attorney representing some of builders.

“They thought they had a deal,” Sharkey said.

The cases being challenged were funded under a pilot program created in 2006 to construct affordable rental and ownership housing for essential public employees in areas of the state where the housing costs are high. In all, the agency axed $84 million for projects to build 1,100 affordable homes and 264 rental units.

The State Apartment Incentive Loan Program, which provides low-interest loans for developers who agree to set aside 20 percent of units for low-income tenants, was cut $107 million. Farm worker housing also took a $10.4 million hit.

Most of the 47 targeted developers withdrew without challenging the decision. Changes in the housing market, a credit crunch and other factors combined to make the projects less viable.

The state is expected to argue that it had given only preliminary approval to the developers because the projects had yet to receive approval by underwriters. Officials also contend the Legislature’s decision to rescind money already earmarked was extraordinary, leaving the agency with no alternative.

If successful in the administrative hearing process, developers would likely still have to go to circuit court and win to get any money back. The agency could be on the hook for legal fees, but only if the hearing officer determines its case was especially weak. Regardless of the outcome, Sharkey said the action will cause some developers to think twice before working with the state agency charged with housing Florida's less affluent residents who provide essential services to the state.

“Unfortunately this has wounded the Housing Finance Corp, which has a stellar record,” Sharkey said.

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