Federal Judge Dismisses Investor Lawsuit Against Housing Agency

A federal judge in Seattle on Tuesday dismissed a lawsuit brought by an investment firm against the Washington state housing commission, in a case that’s been widely watched by housing officials in Massachusetts and around the country.

The case involved Alden Torch Financial of Denver, which manages investments in low-income housing tax credits and has allegedly tried to extract money or control from housing groups, including in Boston and Seattle.

State housing agencies are the only oversight arms for Low Income Housing Tax Credits, the federal government’s multi-billion-dollar program to get funding from banks and private financiers into affordable housing. Historically, funders would invest in these properties, receiving 15 years of tax benefits in return — and then allow the nonprofit housing group to assume ownership of the property for a small sum.

But things have changed in recent years. Firms like Alden Torch have bought up aging tax credits from other investors, with an eye to eventually forcing the sale of properties at market value or demanding more cash from the nonprofit at the end of the deal.

After several property disputes arose, the Washington State Housing Finance Commission in 2019 published a report criticizing the practices of these investors. It also issued a rule to increase scrutiny over these firms. Alden Torch then sued the agency and its commissioners.

In its complaint, Alden Torch argued that, under the rule as written, the commission could block a sale to any buyer unable to certify they had not “engaged in litigation concerning a sponsor’s ownership interest.” Alden Torch argued that the rule was unfair and could penalize a potential buyer that had “merely defended itself from frivolous” claims.

The commission revised its rule twice in response to Alden Torch’s objections. The rule now says the commission will consider prior judicial findings against a party to evaluate its “fitness as a potential project partner” within the federal tax credit program. But the commission said it would not penalize a firm from the get-go for exercising its right to resolve disputes through litigation.

U.S. District Court Judge Barbara Jacobs Rothstein dismissed Alden Torch’s case, saying the court had to “take the Commission at its word, unless and until it acts in the way Plaintiffs fear.”

The judge also wrote, “While the Commission plainly has a cynical view of [Alden Torch’s] practices, it is beyond the power of this Court to accurately and assuredly declare it ‘inevitable’ that the Commission will apply the rule to Plaintiffs as they expect...”

A WBUR investigation in April detailed the actions of Alden Torch and other investors, including a unit of American International Group Inc., to get money or control of properties from housing groups. In Boston, Alden Torch is fighting Tenants’ Development Corp. in court, to try to stop the nonprofit from taking ownership of 36 brownstones where it houses hundreds of residents.

David Davenport, a lawyer representing TDC in that matter, called the judge’s decision relative to the Washington commission a “great, precedent-setting outcome.”

The lawsuit has had a chilling effect on housing officials in Massachusetts and other states, who have been loath to comment on the TDC case, fearing they could provoke a lawsuit from Alden Torch.

Alden Torch and its lawyers did not respond to requests for comment.