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Federal appeals court rules against investors in Boston low-income housing case

A resident of an affordable housing unit on Massachusetts Avenue walks up the stairs to enter her apartment, one of the buildings managed by the Tenants’ Development Corp. (Jesse Costa/WBUR)
A resident of an affordable housing unit on Massachusetts Avenue walks up the stairs to enter her apartment, one of the buildings managed by the Tenants’ Development Corp. (Jesse Costa/WBUR)

The U.S. Court of Appeals in Boston on Wednesday ruled that a Denver investment firm failed to prove its fight with a South End housing nonprofit belongs in federal court.

“Refined to bare essence, this is a dispute over a contract,” the three-judge panel said in their decision. And that dispute is slated to continue in state court.

The long-brewing battle between Alden Torch Financial and the nonprofit, Tenants' Development Corp. of Boston, is being watched by housing advocates across the nation. Alden Torch is trying to prevent TDC from acquiring 36 brownstones the nonprofit has maintained for decades for residents with low and moderate incomes in an expensive neighborhood. It’s a strategy the investment firm has used successfully in other parts of the country.

At the heart of the matter is the federal government’s chief program for funding affordable housing. Under the program, investors get incentives, called Low-Income Housing Tax Credits, in exchange for financing new housing or renovations. At the end of a 15-year partnership, the nonprofit housing group is meant to have the right to buy the properties at a below-market price, according to federal lawmakers and state housing officials.

But some investors, including Alden Torch, are challenging that right. These are costly battles over contract language — and multi-million-dollar real estate that Congress intended to keep affordable for the long term.

“We're thrilled about the federal appeals court decision. And we're going to continue to fight in the state Superior Court,” said Anita Huggins, a senior property manager at TDC. “It is very costly to fight this case, but we're determined to preserve the rights of these residents.”

Alden Torch did not respond to requests for comment Thursday. Its attorney, Louis E. “Le” Dolan Jr., declined to comment.

Dolan argued before the federal appellate court in July that TDC had breached its contract with Alden Torch, by moving forward to acquire the properties without the investor’s approval.

“We are absolutely saying that they violated their contractual and fiduciary duties. We are also saying that they violated their statutory duties,” Dolan told the judges.

The appeals court, in its ruling, cited a “laundry list” of claims brought by Alden Torch against TDC, including breach of contract and fraud. But the appellate decision said Alden Torch didn’t flesh out those arguments earlier and couldn’t raise them for the first time on appeal.

There are legal fights similar to the one in Boston playing out between investors and nonprofits across the country — particularly in cities where real estate values have climbed. At least two cases are currently in federal appeals courts, in New York City and Detroit, where the investor is SunAmerica, a unit of Wall Street’s American International Group Inc. Dolan is also the investor’s attorney on those cases.

David Davenport, a lawyer who represents TDC and a number of other housing groups, said this appellate decision in Boston may influence other appeals courts hearing tax credit disputes.

“It has the potential to have a tremendous, persuasive effect,” Davenport said. Though it’s not a precedent-setting decision, he said, “When they see what the First Circuit has done, there is the possibility that they can rely upon it.”

Members of Congress have proposed measures to shore up the language of the tax credit law and head off these lawsuits. They are part of the larger bills lawmakers are negotiating in Washington, so their fate is unclear.

In the meantime, Davenport said, "These fights are going to continue, whether they're in federal court or state court."

Related:

Beth Healy Twitter Senior Investigative Reporter
Beth Healy is a senior investigative reporter for WBUR.

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