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What California rental property investors should know about Section 8

Real estate investing

Do California landlords have to accept Section 8 vouchers? California implemented a new law at the beginning of 2020 that forbids property owners from rejecting applicants on the basis of their using Section 8 housing vouchers as an income source. Rental property owners cannot discriminate against those using housing vouchers.

Equivalent laws previously existed in certain California cities, but it is now the law statewide.

Section 8 housing choice voucher program helps low income families 

The federal Section 8 housing program was designed to allow very low income families, the elderly, and the disabled to find rental properties within their financial means on the private market, and, in the Golden State, the program is administered by the California Public Housing Authority. 

In order to help allay the state's housing crisis, California implemented Senate Bill 329, authored by Los Angeles Democratic State Senator Holly Mitchell and signed into law by Governor Gavin Newsom, at the beginning of 2020 to require landlords and property management companies to accept Section 8 housing vouchers as an income source from applicants. 

Mitchell said that the law was needed because many landlords rejected Section 8 applicants, citing a statistic that some 70 percent of vouchers expired before the intended recipients could find a landlord or property management that would accept Section 8 vouchers.

Nationwide, some 2.1 million renters live in Section 8 housing, either the renter-based Housing Choice voucher program or project-based Section 8 housing, in which owners set aside all units for Section 8 residents in return for guaranteed payments from the federal government. 

Generally, the applicant's income must be 50 percent or less of the median income of the city or county where the applicant seeks to live. By law, 75 percent of the vouchers must go to applicants who earn 30 percent of the area median income or less. Statewide, about 350,000 California households receive Section 8 vouchers. 

The Housing Choice voucher program allows renters to find their own program-approved housing. They list the Section 8 voucher as income on their rental application and the subsidy goes into effect when the applicant is chosen as a renter by the property owner or property management company. 

Because the renter is responsible for a certain portion of the rent, the property owner or property management company must ensure they will be able to pay their portion of the rent. 

To qualify for Section 8, applicants must be U.S. citizens or otherwise in the country legally, and meet income requirements. Those caring for young children or the elderly are often given preference. 

Section 8 for California landlords

Property owners or property management companies that are interested in accepting Section 8 can apply to be added to the Public Housing Authority's database. They should contact a local Housing Authority office. 

The state will conduct a health and safety inspection as part of the Section 8 process. The state is party to the rental contract, and must approve of the total rent charged. 

Homeowners who live in their condos, houses, or other single family homes and rent out only one room are exempt from Section 8. 

Property owners can reject applicants after giving their application due consideration, but they may face litigation, especially if the Section 8 tenant was the only applicant. 

Section 8 tenants must comply with all conditions of a lease agreement, which means that property owners can evict them for violations of the lease, as they can with other renters. 

The Authority receives funds from the Department of Housing and Urban Development, which are distributed in the form of vouchers to property owners directly, on behalf of the resident. Qualifying tenants pay 30 percent of their income toward rent, and the federal government pays the remainder. 

Investors who wish to sell their rental property have to notify the public housing agency, since the contract will terminate when the sale is executed. The housing agency will make efforts to transfer the Section 8 lease to a new owner. In the case of a foreclosure, the new owner must honor the Section 8 lease unless they plan to live in the property themselves. 

Advertising must reflect the law

California's property managers, property owners and investors cannot discriminate against prospective tenants with a housing voucher. Printed marketing materials and online advertising must reflect compliance with the law.

Federal fair housing laws require property owners to treat all applicants equally, including voucher holders. 

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Section 8 is treated as income

California already had a law, the Fair Employment and Housing Act (FEHA), that bars housing discrimination based on race, color, national origin, disability, gender, gender identity, familial status, sexual orientation, and some forms of income. 

Requiring specific kinds of income constitutes discrimination against some residents. Property owners must now view a housing voucher as part of an applicant's income.

Maintain fair and consistent screening criteria

The laws governing Section 8 do not impact any of the screening processes a property owner has in place. The same credit criteria and income verification steps are in place.

The only change with the income criteria is that a property owner can only look at the portion of the rent that the resident will be paying, not the entire rent. 

For example, if rental criteria says that a resident must earn three times the amount of rent every month, an owner has to consider three times the amount of what the Section 8 resident would be paying.

So if the resident is responsible for only $300 of a rental payment and the voucher takes care of the rest, a resident income that meets or exceeds a rent equivalent to $900 is sufficient.

The bottom line on Section 8 housing assistance payments

Property owners need to make sure they follow all the legal requirements when considering Section 8 applicants and avoid any possible charges of discrimination.

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