Tenants at the Kukui Gardens affordable rental project have sued the U.S. Department of Housing and Urban Development in an effort to halt the sale of the 857-unit complex near Chinatown.

In a complaint filed in U.S. District Court in Honolulu yesterday, the tenants asked that a federal judge issue a preliminary injunction barring HUD from approving owner Kukui Garden Corp.'s plan to prepay its $16.1 million, federally insured loan.

The prepayment would allow the owners to sell the apartments to San Francisco-based Carmel Partners Inc. for about $130 million.

"If this prepayment goes through, the rents are going to go way up, and people won't be able afford their homes," said Gavin Thornton, one of the attorneys representing tenants. "Millions of dollars will be lost that should have gone to affordable housing."

Local HUD officials could not be reached for comment and Nicole Pickens, a spokeswoman for Kukui Gardens Corp., declined comment, saying she has not seen the lawsuit.

Thornton said HUD officials in Washington, D.C., indicated to tenants that they are likely to approve the prepayment plan as early as Dec. 23. But Thornton said that federal law bars such prepayments in areas where the need for affordable housing for low-income residents is great.

"If there's anywhere that has that need, it's Hawai'i," he said.

In July, Kukui Gardens Corp. submitted a notice that it would seek to prepay the $2 million balance on its HUD mortgage, to conduct much-needed maintenance and repairs to the 36-year-old project.

Tenants said the prepayment would eliminate HUD's oversight of the affordable housing project and would allow the owners of the project to raise rents starting in 2011.

Completed in 1970, Kukui Gardens is one of the state's largest affordable rental projects that was built with financing insured by HUD.

In January, the owners announced they would sell the apartments, raising concerns from tenants, state lawmakers and community leaders that a buyer would tear down the project and build more expensive housing.

The lawsuit is the latest challenge to the sale of the 22-acre property. In August, a dissident member of Kukui Gardens Corp.'s 15-member board, Wallace Ching, sued the nonprofit company and its board, alleging they didn't provide him with details of the sale.

That came after the state Legislature passed a measure calling for the state to use its powers of eminent domain to acquire the apartment complex. The bill was signed into law by Gov. Linda Lingle on July 7.

Winona Sardinha, a 36-year resident at Kukui Gardens, believes the suit is the only way to preserve the project for low-income tenants.

Sardinha, whose family relies on her husband's pension and her part-time job at a senior housing project, said her rent would likely double from $1,087 a month to about $2,000 a month if she was forced to relocate from her four-bedroom Kukui Gardens.

"There's no such thing as retiring in Hawai'i, when rents here are so high," she said.

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.