Twenty-one states and various nonprofits sued after HUD abruptly rescinded a two-year funding notice in November 2025 and imposed new restrictions that would slash permanent housing funding from 90% to 30%, threatening to displace thousands of homeless individuals during winter months. The changes marked a dramatic departure from the long-standing "Housing First" approach that has proven 88% effective in reducing homelessness.
Circuit Judge Rikelman emphasized that HUD "has not made a strong showing that the district court overlooked some significant change in law or fact" when it denied HUD's motion to dissolve preliminary injunctions based on Congress's February 2026 appropriations law. The court found that the Transportation, Housing and Urban Development Appropriations Act (THUD) did not eliminate irreparable harm to plaintiffs or undermine their Administrative Procedure Act claims challenging HUD's "arbitrary and capricious" policy reversal.
HUD had argued that THUD's provision for automatic grant renewals through 2026 eliminated any immediate harm, but failed to appeal the original December 2025 preliminary injunction orders. The agency moved to dissolve the injunctions in February 2026, claiming the new law changed circumstances, but the district court denied the motion after finding continued irreparable harm from funding uncertainty.
The ruling preserves the status quo under HUD's original 2024-2025 funding notice while litigation continues toward summary judgment. Housing advocates warned that lifting the injunctions would force immediate program closures and personnel layoffs, with one Massachusetts organization serving 600 households stating it would "not continue running" without funding certainty.