Affordable housing risk, phase by phase

The law

Current owners can owe cleanup costs regardless of fault. The defense for buyers depends on proper due diligence before closing.

In court

Emails posing as the founder of a California property management company got its accounts payable clerk to wire $200,000. The insurer denied the claim because an employee made the transfers, and the trial court dismissed the suit. In 2022, nearly three years after the loss, the Ninth Circuit reversed and sent it back, holding the loss could fall within the policy's fraud coverage.

The law

Lets tenants, a qualified nonprofit or a government agency hold a right of first refusal to buy a tax credit property after the 15 year compliance period without costing the investor its credits. The floor price is the debt on the building plus the taxes the sale triggers, which is often well below market value, so investors sometimes contest whether the right was properly triggered.

In court

The investor limited partner sued both GPs of a partnership that owns a 320 unit scattered site affordable property in Long Beach, an LLC and a nonprofit. It said the nonprofit's right of first refusal hadn't been triggered. After a November 2024 jury trial, the court ruled it was triggered by a bona fide outside offer, set the price at $27,974,314, and found the investor and Alden Torch, which the jury found was the investor's alter ego, owed the nonprofit $95,928 for breach and interference. The GPs told the court they had spent about $1.36 million on lawyers and costs to win, and asked the investor to repay it under the partnership agreement's fee clause. The investor appealed in March 2025.

In court

A California for-profit developer was GP of a 72 unit tax credit deal in Coachella. The investor and Alden Torch sued, saying the developer prompted an offer to trigger its nonprofit co-GP's below-market right of first refusal. In 2022 the court found the developer breached its fiduciary duty, ruled the right wasn't triggered, and rejected all the GPs' counterclaims. Damages were $1. The real cost was the defense and the finding.

In court

On a 202 unit Detroit deal, the GP missed deadlines to deliver tax credits, pay down the construction loan and fund reserves. Investors removed it and bought out its interest for $100. The developer company and two principals had personally guaranteed the GP's obligations, and the court entered a $5.5 million judgment against the GP and all three guarantors. The appeals court affirmed in 2025.

In court

A developer principal guaranteed his GPs' completion, development deficit and rental achievement obligations on six Kentucky senior tax credit deals. The guaranties simply pointed to the partnership agreements, with no dollar cap and no end date. The lender foreclosed on all six buildings and one was never finished. Judgment against him personally: $8,946,643, affirmed on appeal in an unpublished decision.

In court

The developer of a St. Louis project had an operating deficit guaranty capped at $500,000, but the cap ran from a 36 month window that started at rental achievement: full occupancy of the tax credit units, 90 percent overall and 1.15 debt coverage for three straight months. The 178 unit project was at 92 percent in the months the developer claimed the milestone, and the court agreed that was not rental achievement. The investor argued the window had never opened, so the guaranty was still uncapped, and the court found the wording ambiguous and refused to decide it on summary judgment. A cap that starts at a milestone is no cap until the milestone happens.

In court

The state housing department, through the Attorney General, sued a Los Angeles developer to recover $114 million in Project Homekey grants for seven motel conversions. It alleged the developer borrowed against the properties without approval, defaulted, and never recorded the affordability restrictions. The suit also named its nonprofit partner and the cities that co-applied, and lenders put several of the sites into receivership. Filed in 2024 and still pending.

In court

Los Angeles and Glendale sued an affordable developer, its affiliated contractor and its principals over allegedly inflated construction draws, invoices and cost certifications on 19 city funded projects. The cities pleaded negligence and breach of the loan documents alongside fraud. A court put the developer entities under a receiver, and the appeals court upheld it in 2013. Alleged fraud, so not a 'this could be you' story, but it shows how a public lender sues over draw and cost paperwork.

In court

A former employee filed a whistleblower suit against a Chicago landlord over rents it certified to the Section 8 program. Its D&O carriers denied coverage under a breach of contract exclusion. The court ruled the exclusion didn't apply to the whistleblower suit.

In court

Investors in two San Diego real estate funds sued the funds under California securities law, and the sponsor and its two founders personally as control persons. They said the fees actually charged didn't match the offering materials, including a website promise of no asset management fees and an acquisition fee about $19,000 over the disclosed cap. In 2025 the court let those claims go forward, with the founders still named. The defense firm later withdrew over unpaid bills, and the case was dismissed in 2026 with each side paying its own lawyers.

In court

An investor put about $1.9 million into a Berkeley redevelopment partnership without being told the property had been marked up $900,000 or that one general partner had taken $470,000. A jury awarded about $1.4 million against all the general partners, including a co-GP the jury found had no part in it. The appeals court affirmed the damages.

In court

A 170 unit tax credit deal in Mississippi. The investor said the GP certificate delivered with its fifth equity installment was misleading, and sued the former GP, the developer and the owner personally. The development fee had been paid early instead of deferring $1.66 million, and the investor had to lend $1.67 million to close the permanent loan. In 2012 the court let the fraud claims go forward because a GP owes duties beyond the contract. The owner and his companies were later found liable for diverting partnership money and breaking the partnership agreement and his personal guaranty. The partnership won about $3 million, and the owner and two of his companies were ordered to pay $328,591 of the investor's legal fees and costs.

The law

Anyone who controls a seller of securities, and every partner in a liable firm, is jointly liable for a misstatement unless they didn't know, and had no reason to believe, the facts behind the claim. This is how a principal ends up personally named.

In court

A tax credit investor sued the administrative GP and the co-GP of two San Jose LIHTC properties over the partnership agreement's year fifteen exit terms. The two sides' appraisals were more than $20 million apart. Nobody alleged fraud, but the dispute went to the Ninth Circuit, which partly sided with the investor in 2024, and it was dismissed by agreement in 2025 after about four and a half years.

In court

Investors removed two general partners for moving partnership cash to affiliates and not curing in time. The court enforced the removal.

In court

A dispute among the partners in a Calexico tax credit project: the city housing authority and a Los Angeles for-profit developer on one side, the tax credit investor entities on the other. The partnership agreement sent it to arbitration but promised a full court review of the award, as if a judge had decided it. The arbitrator denied every claim on both sides and awarded no fees to anyone. The superior court said it couldn't review the merits; in 2023 the Court of Appeal sent it back to do exactly that, with the merits still undecided. How the LPA handles arbitration, appeals and fees sets the cost of a fight before anyone reaches the substance.

In court

A lookalike email diverted a $475,000 settlement wire. California's appeals court put the loss on the party best placed to catch the fraud, judged by red flags like a changed payee and a bad callback number. The payer still owed the full amount.

In court

In California, an owner who hires a contractor generally isn't liable to the contractor's injured workers, whose remedy is workers' comp. Later cases carve out exceptions, such as a hidden hazard the owner knew about.

In court

The Justice Department sued an Ohio affordable developer and about 48 of its project partnerships over 82 properties, 65 of them tax credit deals, built without required accessible features. The architect wasn't sued. The 2020 settlement was $475,000 plus paying to retrofit every property, an obligation that stays with them even after a sale.

In court

Disability groups sued Los Angeles over inaccessible city funded affordable housing. They also named 61 private owner partnerships, not for damages but so any repair order could reach their buildings. The city settled in 2016 by committing at least $200 million over ten years toward 4,000 accessible units. The owners stayed parties to the case for years.

In court

Owners settled accessibility claims for $750,000 plus at least $3 million of fixes, then sued their architect. The court allowed a claim for the architect's share but dismissed the attempt to shift the whole loss.

In court

The community partner in a San Jose Japantown tax credit building sued the developer GP entities. It said they sat on leaking windows, never went after the contractor who installed them, and cut the sale price about $2.5 million without its consent, for a claimed loss of $1.4 million. The partner later dropped its claims, but fee awards of about $680,000 to the defense were litigated up to the Court of Appeal, which reversed them in 2023.

In court

An investor in a 208 unit apartment project sued the partners who developed and ran it after the lender foreclosed. The court found them negligent: they started building without a permanent loan lined up, used their own undisclosed construction company, and had no plan when costs rose and leasing lagged. They were held personally liable to repay the investment with interest. Older and market rate, but the clearest example of a developer liable for its own development judgment.

In court

A coverage fight over condo defect settlements of $1.05 million and $1.5 million. The owner's policies expressly said they did not cover liability for acts or omissions as a developer. It is a plain example of why owner and general liability policies leave the developer role uninsured.

In court

A small Salt Lake City apartment developer got an email that looked like it came from its general contractor, with new wiring instructions for a $637,566 milestone payment. The money went to a fraudster's account. The developer and the contractor sued both banks, and in August 2026 the court dismissed every claim, partly because the developer had signed its bank's wire terms accepting that risk.

In court

An accounts payable clerk got an email posing as the company's general contractor and changed the bank details on file. The next four payments, $568,449, went to the fraudster. The court held only the policy's social engineering add-on could respond, with a $150,000 limit and a $25,000 deductible.

The law

Construction paid for partly with public money, including below-market loans, waived fees or land sold below value, is a public work that must pay prevailing wage. There are exceptions. One covers projects whose only public help is below-market loans, if at least 40% of units are restricted to lower income households for 20 years, unless the funding program requires prevailing wage anyway.

In court

An approved applicant at an Orange County senior affordable property was hospitalized and asked to sign her lease remotely. The outside manager refused and rented the unit to someone else. She sued the manager, the owner partnership and its nonprofit affiliate. In 2024 they settled for $62,500, and the owner side had to adopt written screening and accommodation policies and train leasing staff, even though the manager had since been replaced.

In court

A reentry nonprofit sued the owners of a 917 unit income restricted complex in Queens over an alleged blanket ban on applicants with criminal records. No individual applicant was needed. The court let the disparate impact claim go forward, and the owner entities settled in 2019 for $1,187,500. The owners paid, not only the manager.

In court

The Justice Department sued the owners of about 119 Los Angeles apartment buildings for refusing to rent to Black and non-Korean applicants and to families with children at buildings in Los Angeles, including Koreatown, and for making hostile conditions for the tenants already there. The owners tendered to their two general liability carriers and their umbrella carrier. The Court of Appeal held the general liability policies owed no defense at all: their wording covers wrongful eviction and wrongful entry, not discrimination. Only the umbrella, which listed discrimination as a covered offense, had to defend. Defense costs across the carriers passed $5.6 million, and the government's suit settled for $2.725 million according to the Justice Department.

In court

A San Rafael apartment owner was sued by a fair housing group after testers found he treated Black applicants worse than white ones. His landlord policy paid for the defense and nothing else. California law bars insuring intentional discrimination, so the owner personally owed the $24,377 in damages, $74,400 in punitive damages and about $639,000 of the other side's attorney fees. The fee award was more than six times the compensatory and punitive damages combined.

The law

California bars discrimination based on source of income, including Section 8 and VASH vouchers, and state rules apply it to subsidized affordable developments.

In court

A ransomware group claimed in November 2025 to have posted about 170 GB of data taken from BRIDGE Housing, a large California affordable developer and owner. A tenant filed a federal class action six days later, including a claim under California's privacy law, before she had received a breach notice. She dropped the case in February 2026 before any ruling.

In court

FPI, one of the largest affordable housing managers in the country, was hacked in 2020. Resident Social Security, bank and medical information for about 21,000 people was exposed. A class action under California's privacy law followed, and FPI agreed to pay cash, credit monitoring and security upgrades while denying fault. The owners weren't sued, but it is exactly the data a manager holds for them.

The law

If a covered business lacks reasonable security and unencrypted personal information is stolen, each person affected can sue for $100 to $750 per incident, or actual damages if higher. It applies only to businesses covered by California's privacy law, generally larger for-profit companies, not nonprofits.

In court

A Los Angeles landlord hired a roofing contractor. Hot tar leaked through the ceiling and burned a restaurant tenant's arm. The jury put 95 percent of the fault on the roofer and 5 percent on the landlord. The Court of Appeal made the landlord liable for the whole $85,735 anyway: a landlord's duty to keep the property safe cannot be delegated, so it answers for its contractor's negligence. A property manager is your contractor for maintenance and repairs.

In court

An on-site manager at a San Diego apartment complex promoted a New Year's Eve party, charged admission and, the complaint alleged, furnished alcohol to minors. A 15 year old was badly hurt in a drunk driving crash afterward and sued the owner, the management company and the on-site manager. Standard policies treat anyone acting as your real estate manager as an insured. The owner's insurers refused to defend him, he defaulted for $4.7 million, and the insurers ended up paying $3.5 million on a $1 million policy. The manager's people can consume your coverage.

In court

California's high court: landlords must take reasonable steps against foreseeable crime in areas they control. How far that goes depends on how foreseeable the harm was.

In court

A tenant complained at least six times to the resident managers about a neighbor who bumped into her on the stairs, blocked her way, threatened her and had shoved her mother. Each time they said they'd take care of it and did nothing. The neighbor then threw her down several flights of stairs. The Court of Appeal reversed a summary judgment for the owners and sent the case to a jury: what the managers knew, the owners knew, and a warning or eviction were tools the owners could have used.

In court

A man was shot at Jernigan Gardens, a 256 unit tax credit and Section 8 property in Orlando, and sued the owner partnership and its property manager for negligent security. The liability policy carried an assault, battery, abuse or molestation exclusion that also removed failure to provide a safe environment, failure to warn and negligent supervision. The owner and the manager conceded there was no coverage, and a magistrate judge recommended a default judgment declaring the policy did not respond. We see the same wording on habitational quotes regularly, which is why we read the exclusions before we bind.

In court

The State of California sued the owner partnership of a 74 unit tax credit and Section 8 senior property in Yuba City, its management company and two managers. A quadriplegic resident spent years asking to move off the third floor while the only elevator kept failing. The owner partnership needed its own lawyer even though site staff handled her requests. After nearly three years the defendants paid $120,000 in 2025 and agreed to new policies and training, with no admission of liability.

In court

A disabled tenant in an Oakland supportive housing building was moved out twice for lift repairs and spent 81 days without the hospital bed she asked for. Before trial the court found the operating entities liable for failing to accommodate her, and the case closed on a stipulation in 2023. The parent developer was let out only because it showed it didn't run day to day operations.

In court

A new 116 unit tax credit building in Orlando. During lease-up the manager denied key fobs to children, required adult supervision in common areas, and steered a family away from certain units. The Justice Department named the owner partnership, the general partner company, the management company and the on-site manager. It settled in 2023 for $265,000 plus four years of training and oversight.

In court

A tenant with a disability at a Newman, California apartment complex was told to remove her cat or face eviction, then given a short deadline for a doctor's letter. The third-party management company sent the remove-the-cat letter and set the documentation deadline; the on-site manager the owner paid served the notices. The court held the owner liable anyway: the management company was her agent, and she offered nothing to show why she shouldn't answer for it. The owner and the manager signed a $275,000 consent judgment, including $115,000 in attorney fees and costs to the tenant's and the fair housing group's lawyers, over an assistance animal request.

The law

The federal fair housing rule and California's both say an owner is liable for a discriminatory housing practice by its agent or employee regardless of whether the owner knew or should have known. California's version adds that harassment committed while doing job tasks, such as repairs inside a unit, can count as within the scope of the job even though harassment is not part of the job. A third-party manager is your agent for renting and running the building.

In court

A habitability exclusion removed the insurer's duty to defend the whole suit, including claims unrelated to habitability.

In court

A Kern County tenant reported leaking sewage, bad wiring, a falling ceiling and cockroaches to two successive managing agents. Nothing was fixed, and the county ordered the building vacated and demolished. The Court of Appeal let her sue the owners and their managing agents in tort, for emotional distress and punitive damages, not just for rent. The owner lived in Connecticut, and the court said the tenant's only practical recourse was to complain to the rental agent, so the agent owed her a duty of care too.

In court

A builder had to sue a subcontractor's insurer to be defended as additional insured on defect suits. The endorsement wording decided it.

The law

Claims for hidden construction defects can be brought up to 10 years after substantial completion, against developers as well as builders and designers. The limit doesn't protect an owner still in control of the building when the defect causes harm.

The law

Credits are recaptured when qualified basis drops during the compliance period, but not for a casualty loss restored within a reasonable period. Enough limit to rebuild protects the credits as well as the building.

In court

The management agreement required two board signatures on every check and a monthly financial report. The association, in Inglewood, alleged the manager did neither and that about $134,000 went out of its account to a board member. When the association sued, the manager pointed to the indemnity clause on its own form and argued the owner had agreed to hold it harmless for everything short of its sole negligence. The trial court agreed. The Court of Appeal reversed: an indemnity clause is not a release of the manager's own duties to the owner unless it says so in plain words.

In court

Two limited partners in a Lakewood low-income apartment partnership sued the GP entities and the individual manager. They said the GP side refinanced the building for $5 million and then $8.05 million without telling them, changed the GP without notice, and paid no distributions for years while the building netted about $646,000 over two and a half years. The trial court put the partnership and the building under a receiver in 2023, and the Court of Appeal upheld that in 2025. Filed in 2018, the case is still going.

In court

A Los Angeles tax credit deal near the Coliseum. The developer GPs had their affiliated property manager pay them $342,000 toward their own developer note ahead of payments owed to the city redevelopment agency, which then moved to foreclose. A co-GP advanced $195,677 to stop it, since foreclosure would have forced repayment of tax credits. The investors removed the developer GPs, a jury found they breached their fiduciary duty, and the appeals court affirmed a $305,444 judgment.

In court

A limited partner in a downtown Los Angeles building sued the GP and its two principals personally, saying they steered rent to an entity they controlled and hid it. After discovery sanctions and a default, the judgment was about $7 million, triple the roughly $956,000 loss plus $4 million of the investor's legal fees. The California Supreme Court held that diverting partnership money can be treated as theft with triple damages and fees. Not affordable housing, but it sets the stakes for any California GP.

In court

The investor limited partner sued both GPs of a partnership that owns a 320 unit scattered site affordable property in Long Beach, an LLC and a nonprofit. It said the nonprofit's right of first refusal hadn't been triggered. After a November 2024 jury trial, the court ruled it was triggered by a bona fide outside offer, set the price at $27,974,314, and found the investor and Alden Torch, which the jury found was the investor's alter ego, owed the nonprofit $95,928 for breach and interference. The GPs told the court they had spent about $1.36 million on lawyers and costs to win, and asked the investor to repay it under the partnership agreement's fee clause. The investor appealed in March 2025.

In court

A California for-profit developer was GP of a 72 unit tax credit deal in Coachella. The investor and Alden Torch sued, saying the developer prompted an offer to trigger its nonprofit co-GP's below-market right of first refusal. In 2022 the court found the developer breached its fiduciary duty, ruled the right wasn't triggered, and rejected all the GPs' counterclaims. Damages were $1. The real cost was the defense and the finding.

In court

A small California GP company on a 150 unit Riverside tax credit deal fought its investor over the year fifteen buyout. Appraisals came in at $17.4 million and $25.3 million. The investor countersued for breach of fiduciary duty and asked to remove the GP, pointing to the principal's email about driving the investor's number down. In 2024 the court sent the fiduciary claim toward trial, and the case was still open in 2025.

In court

A tenant of a Los Angeles affordable building sued the owner partnership and its administrative GP, saying rent increases broke the city's recorded affordability covenant. Rent had gone from $1,999 to $2,328 before the owner rolled it back and tried smaller increases. The court froze rents at early 2024 levels for every low-income tenant, and in August 2026 the appeals court affirmed, holding one tenant could enforce the covenant for the whole building. The damages phase is still ahead.

The law

Recapture applies when a building's qualified basis drops during the 15 year compliance period, with interest.

In court

A visitor was assaulted by program participants living in a supportive housing building. The court sent the owner's liability to a jury.

In court

One resident of a San Francisco residential hotel stabbed another. The victim sued the operators and the building owner for failing to prevent the attack. The operators' liability policy had an assault and battery exclusion, and the court held it removed every claim, including the negligence counts, so the insurer owed no defense and won the right to claw back what it had advanced. The operators then sued their insurance broker.

The law

A licensed psychotherapist has no liability for failing to predict or prevent a patient's violence unless the patient communicated a serious threat against an identifiable victim. In an unpublished 2025 decision the Court of Appeal used it to dismiss a Los Angeles area outpatient mental health provider after a recently discharged patient killed his stepfather; his talk of hurting 'loved ones' was not a threat against an identifiable person. The clinical side of your service provider has this shield. The owner, the GP and the manager do not.

In court

LockBit ransomware operators were inside HACLA's network for most of 2022 before anyone noticed, and notices went out months later. Records on hundreds of thousands of applicants and voucher holders, including Social Security and bank numbers, were exposed. Several class actions followed and were still being litigated in 2025. HACLA was hit again in 2024 and sued again.

In court

About 18,000 investors in Los Angeles based affordable housing funds sued the funds' GP, NAPICO, and four of its officers personally after the GP sold the funds' interests in 98 local partnerships to a company its insiders controlled. The court dismissed the fiduciary claim against the individuals but kept securities claims against them. A 2002 jury awarded $92 million in compensatory damages. The 2003 settlement was about $29 million in cash, $19 million in stock and $35 million in GP notes.

In court

The Attorney General sued the nonprofit owner of Cathay Manor, a 268 unit HUD senior building in Chinatown, plus its CEO and three directors personally. Elevators were out for weeks in 2021, trapping elderly residents, and the fire system wasn't up to code. The complaint says HUD imposed a $1.5 million penalty and forced a sale, that charity funds paid the penalty, and that the CEO alone hired the property manager while the board didn't oversee him. It seeks removal of the directors and dissolution. A nonprofit, but the pattern applies to any owner.

In court

In 2025 a national tax credit investor sued the former GPs and developer of a 330 unit Florida property, and the married couple who controlled them, personally. It alleges more than $18 million of construction went to their own companies, a 58 unit building was condemned for mold and structural problems, and HUD suspended the rent subsidy contract. One principal signed the certificates that released investor installments. In March 2026 the court refused to drop the couple from the case. It is pending and nothing is proven.