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AG Nessel Sues Over Illegal HUD Policy That Could Force Thousands Back into Homelessness

LANSING – Today, Michigan Attorney General Dana Nessel and a coalition of 20 other states filed a lawsuit (PDF) against the U.S. Department of Housing and Urban Development (HUD) for illegally upending support for tens of thousands of Americans experiencing homelessness or housing insecurity. The lawsuit alleges that the abrupt changes will limit access to long-term housing and other services.

The coalition contends that HUD is drastically changing its Continuum of Care (COC) grant program in violation of congressional intent by dramatically reducing the amount of grant funds that can be spent on permanent housing and project renewals and putting new unlawful conditions on access to the funding. These new conditions include requiring that providers only recognize two genders, mandating that residents participate in services as a precondition to obtain housing, and punishing providers in localities that do not enforce strict anti-homeless laws — all barriers that conflict with HUD’s previous guidance and federal law.

Previous changes to COC program grant conditions have been incremental to avoid disrupting providers’ ability to provide housing and to budget for their programs well in advance. HUD’s new wholesale changes will create administrative chaos and likely result in thousands losing housing.

“The Continuum of Care grant program is the backbone of efforts to combat homelessness across Michigan and throughout the country,” Nessel said. “Restricting funding and imposing illegal conditions on these grants violates HUD’s mission to create strong, sustainable, inclusive communities for all. If permitted to take effect, these changes will displace thousands of Michigan families. I am committed to ensuring residents are protected from these unlawful conditions meant to force Michiganders out of their homes and into the streets just as winter approaches.”

For decades, HUD has helped local and regional coalitions plan and coordinate housing and services for people experiencing homelessness through COC grants, which were created by Congress. Providers pair these grants with other funding sources and rely on the predictability and continuity of the grants to support the unhoused.

HUD has a longstanding policy of encouraging what is known as a “Housing First” model that provides stable housing to individuals without preconditions for access, like sobriety or a minimum personal income. These policies are proven to improve housing stability and public health while reducing the costs of homelessness to individuals and their communities.

Last year, Michigan received more than $100 million through the COC grant program. The illegal terms listed in the 2025 notice of funding opportunity (NOFO) will adversely impact Michigan residents – putting an estimated 7,000 total households, including approximately 2,000 families with children, at risk of losing their housing. The Michigan Coalition Against Homelessness (MCAH), a coalition of more than 92 homeless service providers, warns that the new unlawful conditions will have a detrimental effect on the state’s ability to combat homelessness.

“Over our 35 years of operation and expertise, MCAH has never encountered a threat as devastating and extreme to persons in poverty as the 2025 COC NOFO. Not only will this application fracture the homeless service delivery infrastructure, which has taken decades to build, but lives will be lost,” said Sarah Rennie, Senior Director of Advocacy for the Michigan Coalition Against Homelessness. “This COC NOFO completely misunderstands the root causes of homelessness. Homeless rates in Michigan continue to rise, not because of a failure in the current homeless service delivery system, but because Michigan faces an affordable housing crisis. Recent estimates show the state is short by over 290,000 affordable housing units. Additionally, real wages remain stagnant while inflation rises, putting many hard-working families on the brink of financial disaster. The NOFO’s radical shift in services, funding cuts, and the lack of time for agencies to plan will turn Michigan’s housing crisis into a housing catastrophe.”

Previously, HUD has directed approximately 90% of COC funding to support permanent housing, but the agency’s new rule – which Congress never authorized – would cut that percentage by two-thirds for grants starting in 2026. Similarly, HUD has long allowed grantees to protect around 90% of funding year to year – essentially guaranteeing renewal of projects to ensure that individuals and families living in those projects maintain stable housing. But HUD has slashed this figure, too, to only 30%. These new policies virtually guarantee that tens of thousands of formerly homeless people in permanent housing nationwide will eventually be evicted through no fault of their own when the funds aren’t renewed.

Additionally, HUD will withhold funds from applicants that acknowledge the existence of trans and gender-diverse people, de-prioritize services to people with mental health issues or substance-use disorder, and discriminate against localities approaching homelessness different than the Trump Administration would prefer.

The complaint alleges HUD violated its own regulations by not engaging in rulemaking before issuing the changes and violated the law by not receiving congressional authorization for these new conditions, many of which are directly contrary to congressionally passed statutes and HUD’s own regulations. The coalition also argues that HUD’s actions are arbitrary and capricious several times over, as HUD has made no effort whatsoever to explain the abandonment of their own longstanding policies or consider the obvious consequences of tens of thousands of vulnerable people being suddenly evicted. As recently as last year, the agency explicitly encouraged grantees to implement Housing First policies and to focus on the particular needs of LGBTQ+ individuals.

The complaint was filed today in the federal District of Rhode Island. Joining Attorney General Nessel in filing this lawsuit are the attorneys general of Arizona, California, Colorado, Connecticut, Delaware, the District of Columbia, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Rhode Island, Vermont, Washington, Wisconsin, and the governors of Kentucky and Pennsylvania.

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