Editor’s Note: This article summarizes information contained in the U.S. Department of Housing and Urban Development’s (HUD) Contingency Plan for Possible Lapse in Appropriations 2025, issued September 29, 2025. It is intended to provide a general overview of how the FY 2026 appropriations lapse affects HUD-financed and HUD-assisted projects. For additional details, refer to HUD’s official contingency plan available at https://www.hud.gov/sites/dfiles/PA/documents/HUD-Lapse-Plan.pdf.

Overview

The federal government’s lapse in fiscal year 2026 appropriations, which began on October 1, 2025, triggered implementation of the HUD shutdown procedures. Under this plan, HUD continues only those operations classified as “excepted,” meaning activities necessary to safeguard life and property or to fulfill existing legal obligations.

The lapse affects developers, owners, and investors involved in HUD-related transactions, including Section 8 project-based vouchers (PBV), the Rental Assistance Demonstration (RAD) program, FHA-insured financing, and Low-Income Housing Tax Credit (LIHTC) projects with HUD participation. Stakeholders should assess potential exposure, preserve access to funding, and adjust closing timelines as needed.

HUD Program Operations During the Lapse

HUD’s contingency plan divides activities into those that may continue and those that are temporarily suspended:

• Obligated program funds remain accessible. Grantees with previously approved allocations under the Community Development Block Grant (CDBG), HOME Investment Program (HOME), and Housing Opportunities for Persons with AIDS (HOPWA) can continue drawing funds while HUD systems remain functional.
• Previously cleared multifamily closings may proceed. Projects that obtained Firm Commitments [1] before the lapse are permitted to close if they meet HUD’s criteria for excepted activities.
• New commitments and reviews are on hold. Requests that require HUD staff evaluation, such as transfers of ownership interests, regulatory amendments, and new application processing, will generally pause until appropriations are restored.

HUD has stated that its limited staff will focus on asset protection, tenant safety, and fulfilling previously incurred obligations until Congress enacts new funding.

Steps Developers and Owners Should Take Now

• Confirm funding status and act promptly. Determine whether your project’s HUD funding was obligated before the lapse, and if so, complete drawdowns while systems remain available.
• Revise project timelines. Expect slower response times and potential delays in closings or amendments that require HUD review.
• Maintain full regulatory compliance. Housing Assistance Payment (HAP) contracts, affordability restrictions, and property standards remain fully enforceable during the lapse.
• Strengthen documentation. Keep detailed records of communications, draw requests, and compliance actions to support later audits or follow-up reviews.
• Coordinate across partners. Communicate early with housing finance agencies, lenders, and public housing authorities to align expectations and confirm their procedures during this period.

Strategic Considerations

Owners and management agents remain responsible for all program obligations while appropriations are lapsed. Projects that are still in underwriting or awaiting firm commitments face greater risk of delay, while those with executed HUD documents are in a stronger position to move forward.

This period provides an opportunity to reassess schedules, reserves, and financing assumptions. Engaging investors and lenders early can help maintain liquidity and prepare projects for resumption once HUD operations return to normal.

Looking Ahead

• HUD cannot issue new obligations that depend on fiscal year 2026 appropriations until Congress approves funding.
• Funds obligated before the lapse can still be drawn, but continued access may depend on system availability.
• HUD reviews, amendments, and closings will likely restart in order of priority once operations resume, so developers should remain flexible.
• Compliance obligations under HAP contracts, regulatory agreements, and property standards continue in full effect.

[1] A “Firm Commitment” is HUD’s written agreement to insure a multifamily mortgage under programs such as Section 223(f) or Section 221(d)(4).