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Notestine Manor, Inc. v. Logan County Board of Revision

Supreme Court of Ohio

January 2, 2018

Notestine Manor, Inc., Appellee,
v.
Logan County Board of Revision et al., Appellants.

          Submitted October 17, 2017

         Appeal from the Board of Tax Appeals, No. 2014-2543.

          Vorys, Sater, Seymour & Pease, L.L.P., Karen H. Bauernschmidt, and Nicholas M.J. Ray, for appellee Notestine Manor, Inc.

          Rich & Gillis Law Group, L.L.C., and Kelley A. Gorry, for appellants.

          Per Curiam.

         {¶ 1} This appeal involves the tax valuation of government-subsidized low-income housing under the federal Section 202 program. Appellants, the Logan County auditor and the Logan County Board of Revision ("BOR") (collectively, "the county"), valued the property for tax year 2013 at $811, 120, but the Board of Tax Appeals ("BTA") adopted the opinion of the property owner's appraiser, who valued the property at $75, 000.

         {¶ 2} On appeal, the county contends that the BTA's decision is contrary to our decision in Columbus City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, 151 Ohio St.3d 12, 2017-Ohio-2734, 85 N.E.3d 694, because the BTA improperly relied upon an appraisal that used below-market contract rents rather than market rents. The county also calls for us to clarify or overrule Woda Ivy Glen Ltd. Partnership v. Fayette Cty. Bd. of Revision, 121 Ohio St.3d 175, 2009-Ohio-762, 902 N.E.2d 984. We disagree with the county's position and therefore affirm the BTA's decision.

         FACTUAL BACKGROUND

         {¶ 3} At issue is an 11-unit residential rental property developed as low-income housing under Section 202 of the Housing Act of 1959, codified at 12 U.S.C. 1701q. The property is titled to appellee, Notestine Manor, Inc., a nonprofit corporation with 26 U.S.C. 501(c)(3) status as a charitable institution.

         {¶ 4} Section 202 provides assistance in the form of a "capital advance" from the United States Department of Housing and Urban Development ("HUD") to build rental housing for very low-income elderly individuals. 12 U.S.C. 1701q(c)(1); Charles L. Edson, Affordable Housing-An Intimate History, Journal of Affordable Hous. & Community Dev.L. 193, 198-199 (Winter 2011). Notestine's president, Robert Bender, testified that the construction costs for the subject property were about $1.5 million, and the federal capital advance was about $1.3 million.

          {¶ 5} The Section 202 program also provides for a "project rental assistance" contract, or PRAC, which sets forth the rights and duties of the owner and HUD with respect to the project. 12 U.S.C. 1701q(c)(2); 24 C.F.R. 891.105. The rent to be paid by eligible tenants is strictly limited and is tied to the individual's income. 12 U.S.C. 1701q(c)(3). The PRAC for Notestine covers all 11 units and requires tenants to be at least 62 years old and have income under 50 percent of the area median income. Bender testified that the rent level dictated by HUD for Notestine was $407 per month, including utilities, with any overage payable to HUD. Notestine's tenants pay up to 30 percent of their adjusted gross income on rent, with HUD subsidizing any difference.

         {¶ 6} A "Capital Advance Program Use Agreement" and a "Capital Advance Program Regulatory Agreement" are recorded in the property's chain of title. The agreements detail the overriding control that HUD exercises over Notestine's use of the property. The use and/or regulatory agreements provide:

. HUD is "is possessed of an interest in the above described Project such that the Owner shall remain seized of the title to said property and refrain from transferring, conveying, assigning, leasing, mortgaging, pledging, or otherwise encumbering or permitting or suffering any transfer, conveyance, assignment, lease, mortgage, pledge or other encumbrance of said property or any part thereof without the release of said covenants by HUD."
. The term of the Capital Advance Program Use Agreement is "not less than 40 years from June 1, 2013, unless otherwise approved by HUD."
. Tenancy is limited by Section 202 to low-income elderly tenants.
. No changes in Notestine's bylaws or articles of incorporation may occur without HUD approval, nor can any person associated with Notestine have any interest in any of Notestine's contracts.
. All project income must be deposited in a reserve fund.
. Rents for Notestine Manor were fixed at $407 per month. Although Notestine could petition HUD for a rent increase based on increased expenses, HUD would never grant an increase that would show a ...

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