21 States Sue HUD Over Homeless Funding Conditions
A multistate coalition sued HUD over unlawful conditions in its 2026 homeless funding rules.
Why it matters: Legal aid and municipal legal teams must prepare for possible changes to federal homeless funding requirements that affect compliance and service delivery. This lawsuit follows a court ruling blocking similar 2025 HUD funding conditions deemed unlawful.
- 21 attorneys general and two governors filed the lawsuit on July 7, 2026.
- The suit challenges HUD's Fiscal Year 2026 CoC NOFO that redirects over $3 billion in funding.
- A June 2026 federal judge blocked similar 2025 HUD funding conditions as violating the Administrative Procedure Act.
- HUD’s changes reduce permanent housing funding from 90% to 30%, risking housing loss for an estimated 170,000 people.
On July 7, 2026, a coalition of 21 attorneys general and two governors sued the U.S. Department of Housing and Urban Development (HUD) in the U.S. District Court for the District of Rhode Island, challenging the agency’s 2026 Continuum of Care (CoC) Notice of Funding Opportunity (NOFO). The plaintiffs allege HUD is unlawfully diverting over $3 billion in federal funds away from permanent supportive housing projects, despite a recent federal court order prohibiting similar actions.
In June 2026, a federal judge ruled HUD’s 2025 CoC NOFO violated the Administrative Procedure Act by imposing unlawful funding conditions, resulting in a preliminary injunction against its implementation. HUD’s proposed 2026 funding rule continues this approach by shifting priorities from permanent supportive housing—current allocations at 90%—to transitional housing and short-term solutions, which would lower permanent housing funding to 30%.
The CoC program is the primary federal initiative for funding affordable housing and services for individuals at risk of or experiencing homelessness. Attorney General Dan Rayfield of Oregon stated, "Housing is the foundation everything else gets built on – a job, a recovery, a family staying together. When you take that foundation away, you don't just hurt the person who loses their home, you hurt the whole community that has to pick up the pieces." Similarly, Rhode Island’s Attorney General Peter F. Neronha warned, "These unlawful conditions... will cause tens of thousands of people to lose their homes." Estimates suggest that approximately 170,000 people could be at risk of losing housing under HUD’s proposed changes.
New York Attorney General Letitia James emphasized the stakes: "These funds help keep tens of thousands of people from sleeping on the streets every night. I will not allow this administration to cut off these funds and put vital housing and support services at risk."
This legal battle will have direct implications for legal aid organizations and municipal legal departments that oversee compliance with federal homeless assistance funding. The outcome could reshape funding priorities and conditions tied to these critical programs.
By the numbers:
- $3 billion — amount of federal funding targeted in the HUD 2026 CoC NOFO lawsuit
- 21 attorneys general and two governors — number of state officials leading the lawsuit
- June 2026 — month a judge blocked HUD’s 2025 CoC NOFO as unlawful
- 170,000 people — estimated number at risk of losing housing due to HUD’s new funding conditions
Yes, but: HUD’s rationale for these funding shifts and the timing for the court’s decision on the current lawsuit remain unclear, leaving uncertainty about federal homeless funding policies.
What's next: Watch for a federal court ruling on the 2026 lawsuit in the coming months, which could affirm or block HUD’s funding conditions again.