First Circuit Lets HUD Move Forward With $4.04 Billion Homelessness Program Overhaul While Appeal Continues

A federal appeals court has cleared the immediate legal obstacle preventing HUD from moving ahead with its FY2026 Continuum of Care funding overhaul, at least while the underlying appeal continues.

On September 16, the U.S. Court of Appeals for the First Circuit granted HUD a stay pending appeal in litigation over the department's FY2026 Continuum of Care Notice of Funding Opportunity. The NOFO makes approximately $4.04 billion available through the federal government's principal competitive homelessness-assistance program.

The ruling changes what HUD can do now, but it does not end the case. The First Circuit did not issue a final judgment declaring the entire FY2026 funding structure lawful. Instead, the court temporarily put the lower-court judgment on hold while HUD's appeal proceeds.

What the Court Actually Decided

The dispute before the First Circuit focused on HUD's plan to set aside $1.3 billion for new transitional housing and supportive service only projects.

A federal district court in Rhode Island had concluded that HUD was required to use notice-and-comment procedures before establishing that set-aside and granted summary judgment to the plaintiffs.

The First Circuit reached a different preliminary conclusion when evaluating HUD's request for a stay.

The appeals court said HUD had made a strong showing that it is likely to succeed in challenging the district court's interpretation of the statute. The question is whether the $1.3 billion set-aside qualifies as a bonus or other incentive that triggers notice-and-comment requirements.

The panel also found that HUD could suffer irreparable harm without a stay because the department faces a December 1, 2026 deadline to make Continuum of Care awards. The court said leaving the lower-court order in place could prevent HUD from implementing the NOFO in time and create funding gaps.

What Is at Stake in the FY2026 Competition

HUD announced the FY2026 Continuum of Care NOFO on June 1 with approximately $4.04 billion available.

The administration's funding structure places greater emphasis on competition for new projects, including transitional housing and supportive service only projects. The $1.3 billion set-aside challenged in court is a central part of that approach.

HUD has described its broader policy as an effort to place more emphasis on treatment, recovery, supportive services and self-sufficiency. Plaintiffs challenging the changes argue that shifting funding away from the previous emphasis on permanent housing could threaten existing housing assistance.

Those competing policy arguments remain part of the broader dispute. The September 16 appellate order was narrower. It addressed whether HUD should be allowed to proceed while its appeal is pending and whether HUD is likely to succeed on the particular statutory notice-and-comment issue identified by the district court.

The Application Calendar Is Still Unclear

For Continuums of Care and project applicants, the most immediate practical question is the application schedule.

Following the district court's August 7 decision, HUD told applicants that the FY2026 NOFO and its August 26 submission deadline were no longer in force. HUD also said it would provide additional guidance through HUD.gov and the SNAPS Competition Listserv.

The September 16 appellate ruling removes the lower-court barrier that had stopped HUD from implementing the NOFO. However, as of NSPIRE Wire's September 17 review, HUD's public competition page had not posted a new FY2026 application deadline replacing August 26.

That distinction is important. Applicants should not assume that the former deadline has automatically been reinstated or create a new deadline based solely on the court ruling. Updated instructions must come from HUD.

The Appeal Is Not Over

The litigation involves a group of states and a separate coalition that includes homelessness and affordable-housing organizations and local governments.

The First Circuit's stay allows HUD to proceed while the appeal is litigated. It does not resolve every legal challenge to the FY2026 NOFO, and further court proceedings remain possible.

For housing and homelessness organizations, that means the program is moving back toward implementation while the legal case continues in parallel.

What Housing Organizations Should Watch Next

The next operational development will be HUD's guidance to Continuums of Care and project applicants.

Collaborative Applicants, renewal-project sponsors and organizations preparing new transitional housing or supportive service only proposals should monitor the HUD competition page, e-snaps and SNAPS communications closely.

Organizations should also keep their FY2026 application materials current and be prepared for a compressed schedule. The court specifically cited HUD's December 1 award deadline, leaving substantially less time than was available when the NOFO was originally released in June.

The central point for the industry is straightforward: HUD can move forward for now, but the appeal remains active and the application calendar still needs to be reset.