Landlords often participate in Section 8 or other subsidized rent programs.  They figure that jumping through the extra red tape and government regulations, is worth getting their funds guaranteed on the first of the month.  We generally don’t take a position on whether clients should participate in Section 8 or not, or any other subsidized rent programs.  However, based upon a recent ruling, participation in these programs just became more difficult. In two recent cases, an appellate court made a ruling that can drastically affect subsidized rent.

Arizona law says that if a landlord accepts a partial payment of rent, the landlord cannot evict the tenant that month unless a partial payment agreement is signed. In recent cases, two other law firms prosecuted evictions after Section 8 had paid the subsidized rent. While the landlords won at trial in the justice court, on appeal in the Maricopa County Superior Court, the judge found that because the landlord had accepted the Section 8 payment, it constituted a partial payment. The appellate court therefore held that the landlord couldn’t evict the tenant because the landlord had already accepted the subsidized portion of the rent. In one of the cases, the court even refused to allow an immediate eviction for criminal conduct, because the landlord had accepted the subsidized rent.

If this ruling is not reversed, it could have devastating impact on landlords in court and upon the entire Section 8 program. Generally, the subsidized portion of rent is deposited directly into a landlords account, before the landlord knows whether or not a tenant will pay rent for that month. Therefore, if this ruling is upheld, in most cases a landlord will not be able to evict a Section 8 tenant, because they will have already received the subsidized rent. If this were to happen, the landlord would then have to wait until the next month, and reject the subsidized payment as a partial payment. Further, even in the next month, it is unclear how the landlord would reject the subsidized payment as it is directly deposited with other tenant’s payments.

We suspect that if this remains the law, many landlords will start dropping out of the Section 8 programs entirely. They will not want to lose evictions against non-compliant tenants, merely because the housing provider paid the subsidized rent.  This is obviously a very serious concern for landlords who participate in subsidized rental programs. We are looking at ways to address these rulings, either through the courts or the legislature.  We will keep you updated as this issue unfolds.