oversight

Ashley Crossings Apartment Homes -HUD Project No. 067-35331 Largo, Florida

Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-09-26.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

               AUDIT REPORT




    ASHLEY CROSSINGS APARTMENT HOMES

             HUD PROJECT NO. 067-35331

                       2002-AT-1004

                    SEPTEMBER 26, 2002



                OFFICE OF AUDIT, REGION 4




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                                                              Issue Date
                                                                      September 26, 2002
                                                              Audit Case Number
                                                                      2002-AT-1004




TO:           Donzella B. Hamm, Director, Atlanta Enforcement Center, VS4



FROM:         Nancy H. Cooper
              Regional Inspector General For Audit, Region 4, 4AGA


SUBJECT:      Ashley Crossings Apartment Homes
              HUD Project No. 067-35331
              Largo, Florida

We audited the operations of Ashley Crossings Apartment Homes. The HUD Jacksonville
Multifamily HUB office requested the audit because (1) the owner defaulted before final
endorsement by the Department of Housing and Urban Development (HUD), (2) numerous liens
were placed against the property, (3) the owner was not utilizing a HUD-approved management
agent, and (4) there were concerns about information reported on the Monthly Accounting
Reports. Our report contains three findings related to mismanagement of project operating funds,
misuse of tenant security deposit funds, and the lack of full disclosure/diversion of mortgagor
entity assets on the part of the project owner.

We have accepted your proposed management decisions for each report recommendation. Please
advise us when all final actions have been completed. Also, please furnish us copies of any
correspondence or directives issued because of the audit.

If you have any questions, please contact James D. McKay, Assistant Regional Inspector General
for Audit, at (404) 331-3369.




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Management Memorandum




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Executive Summary
We conducted the audit of Ashley Crossings Apartment Homes in response to a request by HUD,
Jacksonville Multifamily HUB. HUD requested the audit because: (1) the owner defaulted
before final endorsement, (2) numerous liens were placed against the property, (3) the owner was
not utilizing a HUD-approved management agent, and (4) there were concerns about information
reported on the Monthly Accounting Reports. We reviewed project operations, construction
activities, and procedures relating to the application, Firm Commitment, and Initial Closing on
the project. Specifically, the audit objectives were to determine (1) what transpired up to and
during the initial closing, (2) if the owner used project operating and trust funds in compliance
with the Regulatory Agreement and HUD requirements specifically related to the distributions of
earnings, and (3) whether improper construction activities occurred during the project’s
rehabilitation period. We found no irregularities related to the construction activities.

The owner improperly disbursed $312,439 in project operating and trust funds, while defaulting
under the Regulatory Agreement and while providing HUD with inaccurate and incomplete
information on monthly accounting reports. The ineligible disbursements consisted of $200,330
for unauthorized distributions, including $25,000 disbursed after the mortgage default, and
$112,109 for ineligible management agent expenditures. The misuse of funds contributed to the
mortgage default and HUD’s recommendation to foreclose on the mortgage.

The owner improperly used $12,039 of tenant security deposits. As a result, project liabilities to
tenants were not funded in a trust account as prescribed by HUD regulations. The owner also
deposited tenant security deposits into the operating account initially and paid security deposit
refunds from the operating account recently.

The owner failed to fully disclose all facts concerning the Ashley Crossings Project and
mortgagor entity, and diverted mortgagor entity assets that could have been used for the project.
HUD processed the loan application and approved the loan without full knowledge of all the
relevant facts surrounding the acquisition of the property. Had HUD been aware of all the facts,
the loan may not have been approved. As a result, the $12,989,900 HUD insured loan went into
default, was assigned to HUD, and was recommended for foreclosure. Subsequent to the
foreclosure recommendation, HUD decided to dispose of the mortgage in a note sale. The FHA
Insurance Fund stands to suffer a substantial loss when the mortgage note is sold as a result of
the assignment.



                                     We attributed the conditions to the owner’s failure to
 HUD Management                      follow HUD requirements.
 Decisions
                                     We discussed the violations with the owner during the audit
                                     and we scheduled an exit conference for August 28, 2002.
                                     However, the owner requested a postponement and
                                     declined to reschedule an exit conference during
                                     subsequent contacts with him. Furthermore, the owner did
                                     not provide written comments even after we gave him

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Executive Summary

                        additional time to respond prior to preparing the final
                        report.

                        We also discussed the draft findings with the Jacksonville
                        Multifamily HUB office and the Atlanta Enforcement
                        Center. In response to the draft findings, the Atlanta
                        Enforcement Center agreed to be responsible for
                        implementing the draft report recommendations. The
                        Atlanta Enforcement Center agreed to require repayment of
                        ineligible distributions and ineligible management agent
                        expenditures. The Center also agreed to pursue debarment
                        action against the mortgagor entity and its individual
                        principals.




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Table of Contents
Management Memorandum                                                        i



Executive Summary                                                          iii



Introduction                                                                1



Findings

1.       Mismanagement of Project Funds                                     3


2.       Misuse of Tenant Security Deposits                                 9

3.       Owner Did Not Fully Disclose Facts to HUD and Diverted
         Mortgagor Entity Assets                                          11



Management Controls                                                       19



Follow-Up On Prior Audits                                                 21



Appendices
     A. Schedule of Ineligible Costs                                      23

     B. Summary of Finding 1 Ineligible Expenditures                      25

     C. Detailed Schedule of Finding 1 Ineligible Expenditures            27




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    D. Listing of Discrepancies and Concerns Identified in Monthly
       Accounting Reports                                            33

    E. Distribution Outside of HUD                                   35




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Introduction
Ashley Crossings Apartment Homes, located in Largo, Florida, is a 278-unit profit motivated
project owned by Ashley Crossings Apartment Homes of Florida, LP (Mortgagor). HUD
authorized and financed the project under Section 221(d)(4) Substantial Rehabilitation. The
partners in the mortgagor entity are Mason-Phillips Properties of Florida IV, Inc. (Managing
General Partner) and Tampa Club, Inc. (General Partner). Charles E. Hartman and Vanessa L.
Hartman were listed as President and Vice President of Mason-Phillips Properties, respectively.
The Hartmans are father and daughter, who subsequently switched roles in the company. Stuart
Chalfin was President of Tampa Club. Charles Hartman (herein referred to as “owner” or
“mortgagor”) had primary responsibility for the project and maintenance of its books and
records.

On June 17, 1999, HUD issued a Commitment for Insurance of Advances (Firm Commitment).
The mortgagee, Continental Wingate Associates, Inc., requested that HUD reissue the Firm
Commitment due to a change in the interest rate. HUD reissued the Firm Commitment on July
21, 1999. The maximum FHA Insured Loan amount was $12,989,900. The Initial Endorsement
and Initial Closing occurred on August 25, 1999. However, the Regulatory Agreement and the
Mortgage were signed and dated on August 24, 1999.

Construction began in September 1999. During the construction period the owner failed to pay
the contractor, real estate taxes, and water and sewer charges. The Douglas Company, general
contractor, stopped work on May 23, 2000, because the owner had not paid for work completed
to that point. Three months later, the owner and contractor reached an agreement and work
recommenced on August 24, 2000. On December 14, 2000, HUD certified that the contractor’s
work was 100 percent complete. However, the project was only 96 percent complete as a result
of the City of Largo citing local building code deficiencies. The work necessary to correct those
deficiencies was the owner’s responsibility and was outside the contractor’s scope of work. The
project could not be finally inspected until the owner completed his portion of the work, so that
the Certificate of Compliance could be issued.

The owner did not make the mortgage payments due on January 1, and February 1, 2001, and
allowed the mortgage to go into default. HUD provided the owner an opportunity to correct all
violations of the mortgage and Regulatory Agreement. The owner objected to all violations cited
by HUD. The project never reached Final Endorsement, as the owner never submitted a Cost
Certification. The mortgagee assigned the loan to HUD on May 10, 2001. The Jacksonville
Multifamily HUB recommended debarment of Ashley Crossings ownership entities, and on May
17, 2001, recommended foreclosure.

While our audit was in progress, HUD decided to dispose of the property via a Note Sale. The
process was still underway when we completed our audit work.




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Introduction




                        The audit objectives were to determine (1) what transpired
 Audit Objectives       up to and during the initial closing, (2) if the owner used
                        project operating and trust funds in compliance with the
                        Regulatory Agreement and HUD requirements specifically
                        related to the distributions of earnings, and (3) whether
                        improper construction activities occurred during the
                        project’s rehabilitation period.

                        To accomplish the objective, we reviewed project records
                        at HUD’s office in Jacksonville, Florida; the office of the
                        owner/manager of Ashley Crossings Apartment Homes in
                        Ponte Vedra Beach, Florida; and the project’s leasing office
                        in Largo, Florida. We also interviewed officials at HUD’s
                        Jacksonville and Atlanta offices, the owner/manager, the
                        on-site property manager, the owner’s accountant, and
                        mortgagee officials. We tested project accounting records
                        and interviewed the owner and his accountant to gain an
                        understanding of the management controls relevant to the
                        audit.

                        The main focus of the audit covered the period May 1997
 Audit Scope and        through March 2002, although the initial application was
 Methodology            submitted to HUD in late 1996. Between 1999 and
                        February 2002 the project generated revenue of $588,209
                        and disbursed $586,845 from its operating account. We
                        reviewed 100 percent of the income and disbursement
                        transactions for the operating account during that period.
                        We also reviewed all disbursements from the Tenant
                        Security Deposit Account totaling $12,837. We conducted
                        the audit from February through June 2002 in accordance
                        with generally accepted government auditing standards.




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                                                                                        Finding 1


              Mismanagement of Project Funds
Ashley Crossing’s managing owner improperly disbursed $312,439 in project operating and trust
funds, while defaulting under the Regulatory Agreement and while providing HUD with
inaccurate and incomplete information on monthly accounting reports. The ineligible
disbursements consisted of $200,330 for unauthorized distributions, including $25,000 disbursed
after the mortgage default, and $112,109 for ineligible management agent expenditures. The
misuse of funds contributed to the mortgage default and HUD’s recommendation to foreclose on
the mortgage. We attribute these conditions to the owner’s failure to abide by HUD
requirements.



                                    According to the Regulatory Agreement, Section 9(f), at
 HUD requires monthly               HUD’s request, the owner shall furnish monthly occupancy
 accounting reports.                reports and shall give specific answers to questions upon
                                    which information is desired from time to time relative to
                                    income, assets, liabilities, contracts, operations, conditions
                                    of the property, and the status of the insured mortgage.
                                    HUD Handbook 4370.1, Reviewing Annual and Monthly
                                    Financial Reports, provides that monthly accounting reports
                                    are useful tools for evaluating a project's performance and
                                    monitoring compliance. The reports are generally required
                                    when there are indications that the project is experiencing
                                    financial or management difficulties or the owner/agent is
                                    suspected of noncompliance. Possible actions that may be
                                    needed after reviewing monthly accounting reports that
                                    depict errors, incomplete forms, noncompliance, and
                                    questionable disbursements include written communication
                                    with the owner or enforcement action, if appropriate. HUD
                                    required the owner to use the form “Monthly Report for
                                    Establishing Net Income” to prepare monthly accounting
                                    reports. The form provided for detailed reporting of project
                                    cash balances, disbursements, and accounts payable.

                                    The owner repeatedly submitted incomplete, inaccurate,
   Owner provided inaccurate        and improperly prepared monthly accounting reports. The
   and incomplete monthly           owner began submitting monthly accounting reports in
   accounting reports to HUD        September 2000. According to the mortgagee and HUD,
                                    the reports (1) lacked supporting documentation,
                                    (2) omitted disbursements and payables, and (3) included
                                    computation errors and questionable disbursements. The
                                    mortgagee and HUD posed questions and expressed
                                    concerns in writing to the owner regarding monthly reports

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Finding 1


                        from October 2000 through December 2001. The owner’s
                        monthly reports for January and February 2002 were
                        delinquent. In responses to the mortgagee and HUD, the
                        owner’s executive assistant admitted ignorance of how to
                        prepare parts of the monthly reports, but did not respond to
                        all issues. For example, there were no responses to
                        requests for return of funds paid to an unacceptable
                        management agent or explanations of $4,500 and $1,800
                        disbursements for miscellaneous administrative expenses.
                        We also questioned the owner concerning information on
                        the monthly accounting reports. The owner claimed that
                        the inconsistencies in the monthly accounting reports were
                        due to incompetent employees, poor record keeping, and
                        poor reporting. The owner is ultimately responsible for
                        information submitted to HUD, therefore we attribute the
                        condition to the owner’s failure to abide by HUD
                        requirements.      Appendix D provides more detailed
                        descriptions of the discrepancies and concerns identified in
                        Ashley Crossing’s monthly reports by the mortgagee and
                        HUD.

                        By continuously providing incomplete, inaccurate, and
                        improperly prepared monthly accounting reports, the owner
                        deprived HUD of accurate financial information needed to
                        effectively monitor project revenues, disbursements, and
                        obligations.

                        Between August 1999 and February 2002, the owner made
                        520 disbursements totaling $586,845 from the project
                        operating account. The owner also made two withdrawals
                        totaling $12,039 from the tenant security deposit account.
                        We reviewed all disbursements and both withdrawals. The
                        disbursements consisted of 134 payments totaling $200,330
                        for ineligible distributions to the owner, his partners,
                        investors, or his related company, and 51 payments totaling
                        $112,109 for ineligible management agent expenditures.
                        The total ineligible expenditures of $312,439 amounted to
                        over 52 percent of project expenditures.




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                                                                                   Finding 1


                                The Regulatory Agreement, Section 13(g), defines a
HUD limits distributions
                                distribution as any withdrawal or taking of project cash or
only from surplus cash.
                                any assets of the project including the segregation of cash
                                for subsequent withdrawal, excluding payments for
                                reasonable expenses incidental to the operations and
                                maintenance of the project. Section 6(b), states that,
                                without HUD’s prior written permission, owners shall not
                                make or receive and retain any distribution of assets or any
                                income of any kind of the project except surplus cash.
                                Owners shall not without the prior written approval of the
                                Secretary: assign, transfer, dispose of, or encumber any
                                personal property of the project, including rents, or pay out
                                any funds except from surplus cash, except for reasonable
                                operating expenses and necessary repairs. The Regulatory
                                Agreement further states that, (1) owners shall not make
                                distributions from borrowed funds, prior to completion of
                                the project, or when there is any default under the
                                Regulatory Agreement or under the note or mortgage
                                (Section 6(e)) and (2) any owner receiving such funds in
                                violation of the Regulatory Agreement shall hold such
                                funds in trust (Section 9(g)). HUD Handbook 4370.2,
                                Financial Operations and Accounting Procedures,
                                paragraph 2-10F, states that distributions may be made only
                                if owners have been in compliance with all provisions of
                                the Regulatory Agreement, including the requirement for
                                the project to be in good repair and condition.

                                The owner disbursed $200,330 from project operating and
  Ineligible distributions to
                                trust funds for unauthorized distributions, including
  owners.
                                $148,300 that directly benefited the owner in payments to
                                himself and his management company. The $148,300
                                included $2,000 improperly disbursed from the tenant
                                security deposit trust account. The owner also disbursed
                                the remaining $52,030 of unauthorized distributions to the
                                general and limited partners and investors. We consider the
                                disbursements to be unauthorized distributions because the
                                disbursements were made when the project was in violation
                                of the Regulatory Agreement and when the physical
                                condition needed to be brought up to code. The City of
                                Largo had cited the project for local building code
                                deficiencies.




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Finding 1


                            The owner failed to abide by HUD requirements and
                            improperly used project operating and trust funds to make
                            the unauthorized distributions. The project generated
                            sufficient cash to make some mortgage payments. The
                            unauthorized distributions from the operating account could
                            have funded two $86,685 mortgage payments. The owner’s
                            misuse of project funds and failure to make mortgage
                            payments contributed to the mortgage default, subsequent
                            mortgage assignment to HUD, and HUD's foreclosure
                            recommendation. Appendix C, Part I provides a detailed
                            listing of the ineligible distributions summarized below:

                                              Payee                           Amount

                             Charles Hartman                                 $       500
                             Mason-Phillips Management Company                   147,800
                             Tampa Club Partners, Inc.                             8,250
                             Universal Corporation of Pinellas                     8,000
                             County
                             Investors                                            35,780

                             Total Ineligible Distributions                  $ 200,330

                            The above distributions violated the project Regulatory
                            Agreement and are subject to the double damages remedy
                            for unauthorized use of multifamily housing project assets
                            and income (12 USC 1715z-4a). Furthermore, the owner
                            paid $25,000 to himself or his management company after
                            mortgage default, which is subject to remedy under the
                            equity skimming statute (12 USC 1715z-19).

                            The Regulatory Agreement, Section 6(c) states that owners
    Ineligible management   shall not without the prior written approval of the Secretary,
    agent expenditures      convey, assign, or transfer any right to manage or receive
                            the rents and profits from the mortgaged property. Section
                            6(e)(3), also states that any distribution of any funds of the
                            project, which the party receiving such funds is not entitled
                            to retain, shall be held in trust separate and apart from any
                            other funds.

                            Ashley Crossings owner disbursed $112,109 in project
                            operating funds to property management agents not
                            approved by HUD. Those property management agents
                            were Mountain Heritage and its affiliates - Ward’s Painting
                            and Lisa Kessler, which the owner allowed to collect rents.

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                                                                           Finding 1


                       HUD did not approve Mountain Heritage as property
                       management agent and had advised the project owner on
                       several occasions that Mountain Heritage was not an
                       acceptable property management agent.            The owner
                       disregarded HUD’s instructions and continued to use
                       Mountain Heritage and its affiliated companies as on site
                       property managers.      Therefore, all disbursements to
                       Mountain Heritage, Ward's Painting, and Lisa Kessler are
                       ineligible. Appendix C, Part II provides a detailed listing of
                       the ineligible management agent expenditures summarized
                       below:

                                         Description                     Amount

                        Payroll, Maintenance, and Repairs                $ 71,673
                        Supplies and Services                              25,473
                        Employee Benefits and Profit                       14,942
                        Overpayment of Payroll Expense                         21

                        Total Ineligible Management Agent
                        Expenditures                                     $ 112,109

                       The owner’s lack of effort to make any mortgage payments
                       and mismanagement of project funds were significant
                       causes of the mortgage default. Accordingly, HUD’s
                       Jacksonville office recommended debarment action against
                       the project owners based on several violations of the
                       Regulatory Agreement and the mortgage, including failure
                       to make mortgage payments, unauthorized payments to the
                       owner, and unauthorized payments to a non-approved
                       management company.



Auditee Comments       The owner did not respond to the finding.



HUD Management         The Atlanta Enforcement Center agreed to take the following
Decision               actions:

                       1A.     Require the owner to reimburse the project
                               operating and trust accounts in the amount of
                               $200,330 for ineligible distributions and $112,109
                               for ineligible management agent expenditures.

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Finding 1



                        1B.     Pursue appropriate sanctions available under the
                                Regulatory Agreement, Equity Skimming Statute,
                                and the Double Damage Statutes against the
                                mortgagor entity and its individual principals.

                        1C.     Debar the mortgagor entity and its individual
                                principals from future participation in HUD
                                Programs based upon a history of unsatisfactory
                                performance of regulatory requirements.




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                                                                                         Finding 2




            Misuse of Tenant Security Deposits
The owner improperly used $12,039 of tenant security deposits. As a result, project liabilities to
tenants were not funded in a trust account as prescribed by HUD regulations. The owner also
deposited tenant security deposits into the operating account initially and paid security deposit
refunds from the operating account recently. We attribute these violations to the owner’s failure
to abide by HUD requirements.

The Regulatory Agreement, Section 6(g), states that any funds collected as security deposits shall
be kept separate and apart from all other funds in a trust account. The amount of the trust
account shall at all times equal or exceed the aggregate of all outstanding obligations under said
account.

The owner deposited the first $600 of security deposit collections into the project operating
account. The collection appeared to have been subsequently deposited to the tenant security
deposit account when it was opened. Recently, the owner paid $247 from the operating account
to tenants for security deposit refunds because he had not ordered checks for the security deposit
account.

Initially, we determined that, as of February 28, 2002, the cash balance in the tenant security
deposit trust account was $10,546 which was $1,202 less than the $11,748 liability for security
deposits that we calculated. We used information from the Rent Roll system, monthly
accounting reports, and bank statements to calculate the liability. We attributed most of the
shortage to an improper $2,000 withdrawal from the account in March 2001, which was used to
pay marketing expenses for the owner’s management company. The owner stated that the
amount was withdrawn in error and the account was later reimbursed. We found no evidence
that the $2,000 was ever fully reimbursed.

We obtained a bank statement for the month following the cutoff date of the above analysis and
found that the account was cleared out and had a zero balance as of March 29, 2002. The
statement showed a $300 deposit on March 5, 2002, a service charge deduction of $8.72, and a
withdrawal of $10,837 described as a writ received from Dart Electronics, Inc. on March 12,
2002. The owner stated that the funds were attached in response to a lawsuit against him. He
further stated that the money was not taken, but placed in suspense pending settlement of the
lawsuit. The owner claimed that he had already settled the suit with the plaintiff and the funds
would soon be released. However, at the time of our conversation, the funds had not yet been
returned to the account. Therefore, considering Rent Roll and monthly accounting data, the
account was under funded by $12,039 ($11,748 plus $300 minus $8.72) as of March 29, 2002.
The balance in the trust account should equal or exceed the aggregate of all outstanding
obligations reflected by the security deposit liability account. As of March 29, 2002, the trust
account for security deposits contained a zero ($0) balance.




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Finding 2


In summary, the owner stated that he spent the security deposit account funds in March 2001 in
error and in March 2002 the funds were garnished due to a lawsuit. We had no evidence that the
account was replenished at either time. Therefore, we conclude that the owner mismanaged the
tenant security deposit funds.



Auditee Comments                    The owner did not respond to the finding.


                                    The Atlanta Enforcement Center agreed to:
HUD management
decision                            2A.      Require the owner to reimburse the tenant security
                                             deposit trust account in the amount of $12,039 for
                                             improper disbursements, unless he can provide
                                             evidence the tenant security deposit account was
                                             replenished.




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                                                                                             Finding 3


   Owner Did Not Fully Disclose Facts to HUD
     and Diverted Mortgagor Entity Assets
The owner failed to fully disclose all facts concerning the Ashley Crossings Project and mortgagor
entity, and diverted mortgagor entity assets that could have been used for the project. HUD
processed the loan application and approved the loan without full knowledge of all the relevant
facts surrounding the acquisition of the property. Had HUD been aware of all the facts, the loan
may not have been approved. As a result, the $12,989,900 HUD insured loan went into default,
was assigned to HUD, and was recommended for foreclosure. Subsequent to the foreclosure
recommendation, HUD decided to dispose of the mortgage in a note sale. The FHA Insurance
Fund stands to suffer a substantial loss when the mortgage note is sold as a result of the
assignment.

HUD Handbook 4065.1, paragraph 1-2, states that it is HUD's policy that participants in its
housing programs be responsible individuals and organizations who will honor their legal,
financial, fair housing, and contractual obligations. It further states that "responsibility" is a term
used by HUD to mean business integrity, honesty and capacity to perform. HUD has a process
for review of past/present performance of those principals applying for participation in the
Department's Multifamily Housing programs, which is known as a Previous Participation Review
and Clearance Procedures or Form HUD 2530 Previous Participation Certification approval. The
handbook also defines who is considered to be principals of a project. HUD Handbook 4370.2,
paragraph 2.3, states that both the Regulatory Agreement and the certificate executed by the
mortgagor, at the time the mortgage is insured, contain provisions that accounts of mortgaged
property operations be kept in accordance with the requirements of the Secretary and in such
form as to permit a speedy and effective audit. HUD Handbook 4470.1, paragraph 3.1, states
that the sponsor, mortgagor (if formed), principals of the mortgagor, and general contractor must
furnish current financial statements with supporting schedules as part of the application for
commitment processing.

HUD’s debarment regulations at Title 24 CFR 24.305 (d) provides that debarment may be
imposed for any cause of so serious or compelling a nature that it affects the present
responsibility of a person.



                                       Throughout the loan application, underwriting, and Firm
 Owner failed to fully                 Commitment processes, the owner failed to make full
 disclose facts to HUD                 disclosure of all facts. Changes occurred between the time
                                       of Firm Commitment and Initial Closing that should have
                                       been brought to the attention of HUD. Because the owner
                                       failed to disclose all relevant information, HUD was
                                       deprived of information that could have affected its
                                       decision to issue the Firm Commitment and proceed with

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Finding 3


                        the Initial Closing on the loan. The owner’s pattern of less
                        than full disclosure continues up to the present time with
                        his failure to provide all requested documentation to the
                        Jacksonville Multi-Family staff and to the OIG auditors
                        conducting this audit.

                        Charles E. Hartman considered as "owner" and controlling
                        participant

                        The key individual controlling the Ashley Crossings project
                        was Charles E. Hartman. Per the initial loan applications,
                        Mr. Hartman was to have been a principal of Ashley
                        Crossings and was to have been the President of the
                        Managing General Partner entity (Mason-Phillips
                        Properties of Florida, IV, Inc.). However, due to an
                        existing Internal Revenue Service tax lien and lack of
                        financial capacity, Mr. Hartman was not used as a principal.
                        Several other individuals, who had financial capacity and
                        creditworthiness, were subsequently used as sponsors to
                        satisfy HUD loan underwriting requirements.             Mr.
                        Hartman's daughter, Vanessa L. Hartman, was subsequently
                        named President of the Managing General Partner entity.
                        Charles Hartman was named as Vice-President. Our audit
                        disclosed that Charles Hartman signed Vanessa Hartman's
                        name to several key documents (including the Application
                        for Multifamily Housing Project, HUD Form 92013)
                        provided to HUD without proper Power of Attorney to do
                        so. Technically, that constitutes forgery on the part of
                        Charles Hartman.

                        Charles Hartman has stated that Vanessa Hartman was not
                        involved at all in the day-to-day operations of Ashley
                        Crossings. Thus, it was Charles Hartman who was
                        responsible for the representations made to HUD and he is
                        responsible for what happened concerning Ashley
                        Crossings. Therefore, we consider Charles Hartman to be
                        the "owner" of Ashley Crossings, although he was
                        technically not a "principal" as defined by HUD guidance.
                        As the owner and controlling participant in Ashley
                        Crossings concerning the housing program, HUD would
                        expect him to demonstrate the same level of
                        "responsibility" as any principal. It is clear he did not
                        exercise this responsibility and did not honor his legal,
                        financial, and contractual obligations. This resulted in the
                        default and assignment of the HUD Insured loan.

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                                                                         Finding 3


                    Misrepresentations concerning the Mortgagor Entity and its
                    Financial Structure

                    The mortgagor entity was presented to HUD, per the
                    application, as a newly formed entity without any financial
                    or credit history. This turns out to be only partially true. It
                    is true that the mortgagor (Ashley Crossings Apartment
                    Homes of Florida, Limited Partnership) had only been
                    formed four months prior to the filing of an amended loan
                    application on July 30, 1998. However, the owner had
                    obtained loans during 1997 and early 1998 from individuals
                    and solicited funds from investors in Ashley Crossings.
                    These loans and investments were obtained for the specific
                    purpose of the Ashley Crossings project. Part of these
                    investments was considered by the owner to be "Notes
                    Payable" rather than owner equity. The owner had already
                    begun to pay the investors monthly "interest" on their
                    investments or notes payable. Thus the owner had
                    effectively established liabilities for the mortgagor entity
                    that were not disclosed to HUD. Although we found no
                    proof that any of these loans or "notes payable" were
                    directly attached to the project property, they did represent
                    financial obligations of the mortgagor entity that should
                    have been disclosed to HUD.

                    Identity of Interest Relationship between Mortgagor Entity
                    and the Seller

                    Per the loan application, the relationship between the Buyer
                    (mortgagor entity) and the Seller (Universal Corporation)
                    was stated to be a "business" relationship. That might have
                    been the case at the time the application was initially filed
                    with HUD. However, sometime prior to the Initial Closing
                    the Seller became a "limited partner" in the mortgagor
                    entity and had agreed to put up $1.87 million of its equity
                    in the property in order for the transaction to close. While
                    the Seller’s 10 percent limited partner interest in the
                    mortgagor entity did not technically trigger the requirement
                    for Form 2530 filing (due to not meeting the definition of a
                    principal with at least 25 percent interest), the contribution
                    of $1.87 million in equity was a substantial change in the
                    financial underwriting of the project. It was materially
                    different than that presented during the application and
                    Firm Commitment process. This resulted in a situation
                    where, instead of the Sponsors (who had shown "financial

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Finding 3


                        capacity" to support the cash requirements of the project)
                        having to put up the cash, the Seller used a substantial part
                        of its equity in the property to satisfy the cash requirement.
                        This may not technically meet the "substantial deviation"
                        test, but it certainly was a material change that should have
                        been clearly brought to the attention of HUD prior to Initial
                        Closing. We consider this to be a failure to disclose an
                        identify of interest relationship between the Buyer and the
                        Seller since this placed the Seller in a position of having
                        more financial interest (equity) in Ashley Crossings than
                        any other limited or general partner.

                        Amendments to the Partnership Agreement Not Timely
                        Provided to HUD

                        Part of the documentation presented to HUD during the
                        Initial Closing process was an Amended Partnership
                        Agreement reflecting that the Seller of the property had
                        become a limited partner in the partnership as discussed
                        above. This documentation should have been presented to
                        HUD at least 15 days prior to the Initial Closing as part of
                        the pre-closing documentation package. The Amended
                        Partnership Agreement was dated the same day as the
                        Initial Closing. Merely providing a copy of an Amended
                        Partnership Agreement as part of a large package of
                        documents during the Initial Closing process was not
                        adequate and clear disclosure of this material change. This
                        is just another example of how the owner failed to provide
                        HUD with information, or failed to provide it in a timely
                        manner that would have allowed adequate time for HUD
                        staff to review it and assess its impact on their decision to
                        approve and process the loan.

                        Owner’s Failure to Maintain Adequate Accounting System
                        and Provide Annual Financial Statements

                        The owner has not maintained an adequate accounting
                        system and has not filed the Final Cost Certifications and
                        subsequent Annual Financial Statements as required by the
                        Regulatory Agreement and other HUD handbooks. During
                        the audit, we found the accounting system used by Ashley
                        Crossings to be little more than a data entry system. The
                        owner did not maintain adequate records of project
                        transactions or investor contributions.      For example,
                        expenses were not posted to the proper accounts and many

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                                                                              Finding 3


                           items such as bank service charges, deposits, and returned
                           checks were not recorded in the cash register or posted to
                           the general ledger.

                           Additionally, we found that the owner had solicited
                           investments of $2.54 million for use in the project. Only
                           $870,000 went into an escrow account. The owner claimed
                           that all funds from investors were used to cover expenses of
                           the project.      However, he did not document those
                           expenditures in Ashley Crossings accounting system. Even
                           the owner and his accountant advised us that the project
                           accounting system was not adequately maintained, and
                           therefore, recorded data may not be accurate. This lack of
                           an adequate accounting system and the lack of financial
                           statements created additional work for us.          Missing
                           supporting documentation was also a problem during the
                           audit. The lack of documentation and adequate records was
                           given by one of the other General Partners (who was
                           responsible for preparing financial statements and tax
                           returns) as the reason for his inability to accomplish his
                           designated responsibilities.

                           During 1997 through 2000, the owner solicited numerous
 Owner diverted
                           loans and investments from investors (Note Holders,
 mortgagor entity assets
                           Limited Partners, and General Partners) for the specific
                           purpose of providing funds for Ashley Crossings. There
                           were two private offerings made on behalf of Ashley
                           Crossings whereby the owner attempted to raise a total of
                           $6.37 million. In total, the owner raised $2.54 million from
                           lenders and investors that was to be used for Ashley
                           Crossings. Only about $870,000 was deposited in an
                           escrow account. Prior to the Initial Closing on August 25,
                           1999, almost all of these funds had been transferred from
                           the escrow account to one of Mr. Hartman’s other business
                           accounts (Mason-Phillips Management Company, Inc.).
                           We were not provided with documentation to show where
                           the remaining $1.67 million was deposited.

                           While the owner claims to have used these funds for
                           purposes connected to Ashley Crossings, he failed to
                           provide adequate documentation to support his claim. He
                           only provided copies of a Mason-Phillips Management
                           Company, Inc. general ledger account (Accounts
                           Receivable from Ashley Crossings) for the payments he
                           claims were made on behalf of Ashley Crossings, and

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                        copies of cancelled checks. The general ledger account and
                        cancelled checks are not adequate supporting
                        documentation. They only show that payments were made,
                        not that they were payments for legitimate expenses of
                        Ashley Crossings. Even this unsupported information does
                        not account for the full $2.54 million collected on behalf of
                        Ashley Crossings.

                        The $2.54 million in funds collected by the owner on behalf
                        of Ashley Crossings would have been sufficient to cover all
                        known expenses connected with the development of the
                        project that were not covered by the HUD insured loan of
                        $12,989,900 from Continental Wingate Associates. The
                        owner could have used these funds to make mortgage
                        interest and loan payments and prevented the loan from
                        going into default status and subsequent assignment. It is
                        apparent that a substantial amount of these funds were
                        diverted by the owner and not used or made available for
                        the Ashley Crossings Project. Given the amount of funds
                        that were raised on behalf of Ashley Crossings and should
                        have been available for the project, it is difficult to
                        understand why this project failed and how the loan went
                        into default and was assigned back to HUD. For example,
                        at the end of the construction period (when rehabilitation
                        had been completed by the General Contractor), there was
                        only an estimated $75,000 worth of additional work that
                        needed to be completed to satisfy local building codes and
                        obtain Certificates of Occupancy for all buildings in the
                        project complex. With Certificates of Occupancy the
                        project could have moved forward to full lease-up status
                        and generated sufficient rental revenues to sustain the
                        mortgage payments and operating expenses.

                        We believe the violations of the Regulatory Agreement
                        discussed in Findings 1 and 2, along with the default and
                        assignment of the Ashley Crossings HUD insured loan are
                        sufficient grounds to take debarment actions against
                        Charles E. Hartman. The facts presented in this finding add
                        additional support for immediate action to prevent Mr.
                        Hartman, or any entity under his control, from participating
                        in any future HUD housing programs.



Auditee Comments        The owner did not respond to the finding.

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                                                                          Finding 3




HUD management         The Atlanta Enforcement Center agreed to
decision
                       3A.      Take immediate action to debar the mortgagor entity
                                and its individual principals from future
                                participation in HUD Programs based upon a lack
                                of present responsibility.




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Management Controls
In planning and performing our audit, we considered management control systems of Ashley
Crossings Apartment Homes to determine our auditing procedure and not to provide assurance on
management controls. Management control includes the plan of organization, methods and
procedures adopted by management to ensure that its goals are met. Management controls include
the processes for planning, organizing, directing, and controlling program operations. They include
the systems for measuring, reporting, and monitoring program performance.



                                      We determined the following management controls were
 Relevant Management
                                      relevant to our audit objectives:
 Controls
                                         •    Controls over the validity and reliability of data
                                         •    Controls over compliance with laws and regulations
                                         •    Controls over the safeguarding of resources

                                      We assessed the relevant controls identified above.

                                      A significant weakness exists if management control does
                                      not give reasonable assurance that the entity’s goals and
                                      objectives are met; that resource use is consistent with laws,
                                      regulations, and policies; that resources are safeguarded
                                      against waste, loss, and misuse; and that reliable data are
                                      obtained, maintained, and fairly disclosed in reports.

                                      We tested project accounting records and interviewed the
                                      owner and his accountant to gain an understanding of the
                                      management controls relevant to the audit. Significant
                                      weaknesses in the assessed controls existed with respect to
                                      the owner controlling, managing, and reporting on the
                                      project without regard for HUD program requirements and
                                      prudent financial management. We placed no reliance on the
                                      controls and instead reviewed all project income and
                                      disbursements and tenant security account withdrawals. The
                                      control weaknesses were the primary causal factors for
                                      Findings 1, 2, and 3.




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Follow-Up On Prior Audits
This was the first Office of Inspector General audit of Ashley Crossings Apartment Homes
mortgagor operations.

An independent audit of Ashley Crossings Apartment Homes has not been conducted since its
inception.




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                                                                                                 Appendix A


Schedule of Ineligible Costs


                             HUD
                           Management
                            Decision
                            Number                              Ineligible1/

                                 1A                             $ 312,439
                                 2A                                12,039

                                Total                           $ 324,478




1/
     Ineligible – Costs that are questioned because of an alleged violation of a provision of a law, regulation,
     contract, grant, cooperative agreement, or other document governing the expenditure.

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                                                  Appendix B

Summary of Finding 1 Ineligible Expenditures

                                  Payee                Amount

 Charles Hartman                                  $        500
 Mason-Phillips Management Company                     147,800
 Tampa Club Partners, Inc.                               8,250
 Universal Corporation of Pinellas County                8,000
 Investors                                              35,780
 Management Agents                                     112,109

 Total Ineligible Expenditures                    $ 312,439




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                                                                                                       Appendix C

Detailed Schedule of Finding 1 Ineligible
Expenditures
                                                      Part I

                                           Ineligible Distributions

                                                                                            Paid
               Check                                                        Ineligible     While in
     Date       No.                       Payee                             Amount 1/      Default2/

08/31/99      1003 Mason-Phillips Management Co.                        $     42,000.00
09/16/99      1080 Mason-Phillips Management Co.                               5,000.00
09/29/99      1099 Mason-Phillips Management Co.                              10,000.00
10/08/99      1161 Mason-Phillips Management Co.                               1,000.00
11/02/99      1173 Mason-Phillips Management Co.                               1,000.00
01/24/00      2011 Mason-Phillips Management Co.                               5,000.00
02/24/00      2021 Mason-Phillips Management Co.                               7,000.00
05/17/00      2039 Mason-Phillips Management Co.                              30,000.00
05/23/00      2041 Mason-Phillips Management Co.                              16,000.00
12/01/00      2069 Mason-Phillips Management Co.                               4,500.00
01/01/01      2070 Mason-Phillips Management Co.                               1,800.00
02/01/01      2498 Mason-Phillips Management Co.                               6,500.00       6,500.00
03/12/01      2492 Mason-Phillips Management Co.                               4,000.00       4,000.00
03/30/01      2493 Mason-Phillips Management Co.                               1,500.00       1,500.00
04/24/01      2391 Mason-Phillips Management Co.                               7,500.00       7,500.00
08/16/01      2469 Mason-Phillips Management Co.                               1,500.00       1,500.00
10/03/01      2098 Mason-Phillips Management Co.                               1,500.00       1,500.00
02/23/01      2081 Charles Hartman                                               500.00         500.00
03/05/01       -3/   Mason-Phillips Management Co.                             2,000.00       2,000.00
Subtotal - Mason-Phillips Management Co. and Charles
           Hartman                                                  $        148,300.00   $   25,000.00

08/31/99      1004 Universal Corp.                                  $          8,000.00
Subtotal - Universal Corp.                                          $          8,000.00

10/04/99      1107 Tampa Club Partners                              $          4,125.00
10/06/99      1157 Tampa Club Partners                              $          4,125.00
Subtotal – Tampa Club Partners                                      $          8,250.00




1/
      Ineligible – Costs that are questioned because of an alleged violation of a provision of a law, regulation,
      contract, grant, cooperative agreement, or other document governing the expenditure.
2/
      These distributions were made while the mortgage was in default beginning February 1, 2002.
3/
      Security Deposit Account

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Appendix C



                                                                                      Paid
             Check                                                    Ineligible    While in
   Date       No.                       Payee                         Amount 1/     Default 2/

09/13/99       1009   William Or Sharron Bair                     $        500.00
09/13/99       1010   Alan L Barton Retirement Acct., Inc.                 220.00
09/13/99       1011   Christina F. Behrens Retirement Acct., Inc.          125.00
09/13/99       1012   Ted Berndt Retirement Acct., Inc.                    250.00
09/13/99       1013   Frederick & Lois Biederman                           250.00
09/13/99       1014   May Financial Corp for L. Jack Borsum                500.00
09/13/99       1015   Marjorie Borsum Trust                                250.00
09/13/99       1016   S. Eileen Brezler                                    500.00
09/13/99       1017   Henry Brumbach                                       250.00
09/13/99       1018   Colin Burgess                                        750.00
09/13/99       1019   Harold E. Burt Retirement Accts.                     150.00
09/13/99       1020   Thomas F Cullop Retirement Accts                     500.00
09/13/99       1021   Dweyer Family Trust                                1,025.84
09/13/99       1022   Anne L. Evans Retirement Accts                       250.00
09/13/99       1023   Bessie C. Fennell (Nations Bank by Mail)             263.75
09/13/99       1024   Patricia Fleming                                     375.00
09/13/99       1025   Martha C. Haner                                      300.00
09/13/99       1026   Sharon E Harrell (Retirement Accts)                  500.00
09/13/99       1027   Herman and Jane Hasselbring                        1,000.00
09/13/99       1028   James F Hawkins                                      250.00
09/13/99       1029   Sharon A Herring, (Retirement Accts)                 500.00
09/13/99       1030   Stanley or Rebekah Hime                              250.00
09/13/99       1031   William A Iles Trust                                 388.75
09/13/99       1032   John Jacobsen                                        250.00
09/13/99       1033   Harry and Marjorie Judy                              150.00
09/13/99       1034   H. Jack & Janet L. Judy Trust                        300.00
09/13/99       1035   Kolseth Revocable Trust                              200.00
09/13/99       1036   Catherine Kraus                                      250.00
09/13/99       1037   Mary Kraus                                           185.00
09/13/99       1038   Willadean Lamotte (Retirement Accts)                 500.00
09/13/99       1039   Barbara Leohwing                                     500.00
09/13/99       1040   Leatrice Makrouer                                    255.50
09/13/99       1041   Peter J. Merkle (Retirement Accts)                   500.00
09/13/99       1042   Charles V. Mullen, Sr                                200.00
09/13/99       1043   Charles C. Mullen, Jr                                150.00
09/13/99       1044   James Phoa                                            55.00
09/13/99       1045   Phyllis Phoa                                         150.00
09/13/99       1046   Katie Pike or Anita Kirkwood                         150.00
09/13/99       1047   Lynn Queenan (Retirement Accts)                      130.00
09/13/99       1048   Ralph and Marjorie Schockey                          120.00
09/13/99       1049   Ruth B. Setser Rev. Trust                            300.00




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                                                                                        Appendix C



                                                                                 Paid
           Check                                                 Ineligible    While in
   Date     No.                      Payee                       Amount 1/     Default 2/

09/13/99   1050    Frances R. Shepherd                                277.50
09/13/99   1051    John D Shirley (Retirement Accts,                  372.84
09/13/99   1052    Elliot S. Silverman                                250.00
09/13/99   1053    Jan Silverman                                      250.00
09/13/99   1054    William or Jean Sponseller                         300.00
09/13/99   1055    David Watson                                       250.00
09/13/99   1056    Maxine Weinberger                                  250.00
09/16/99   1079    Laura Travis                                        16.00
10/06/99   1109    William Or Sharron Bair                            500.00
10/06/99   1110    Alan L Barton Retirement Acct., Inc.               220.00
10/06/99   1111    Christina F. Behrens Retirement Acct., Inc.        125.00
10/06/99   1112    Ted Berndt Retirement Acct., Inc.                  250.00
10/06/99   1113    Frederick & Lois Biederman                         250.00
10/06/99   1114    May Financial Corp for L. Jack Borsum              500.00
10/06/99   1115    Marjorie Borsum Trust                              250.00
10/06/99   1116    Henry Brumbach                                     250.00
10/06/99   1117    Colin Burgess                                      750.00
10/06/99   1118    Harold E. Burt Retirement Accts.                   150.00
10/06/99   1119    Paula Carver                                       250.00
10/06/99   1120    Thomas F Cullop Retirement Accts                   500.00
10/06/99   1121    Dweyer Family Trust                              1,025.84
10/06/99   1122    Anne L. Evans Retirement Accts                     250.00
10/06/99   1123    Bessie C. Fennell (Nations Bank by Mail)           263.75
10/06/99   1124    Patricia Fleming                                   375.00
10/06/99   1125    Martha C. Haner                                    300.00
10/06/99   1126    Sharon E Harrell (Retirement Accts)                500.00
10/06/99   1127    Herman and Jane Hasselbring                      1,000.00
10/06/99   1128    James F Hawkins                                    250.00
10/06/99   1129    Sharon A Herring, (Retirement Accts)               500.00
10/06/99   1130    Stanley or Rebekah Hime                            250.00
10/06/99   1131    William A Iles Trust                               388.75
10/06/99   1132    John Jacobsen                                      250.00
10/06/99   1133    Harry and Marjorie Judy                            150.00
10/06/99   1134    H Jack & Janet L. Judy Trust                       300.00
10/06/99   1135    Kolseth Revocable Trust                            200.00
10/06/99   1136    Catherine Kraus                                    250.00
10/06/99   1137    Mary Kraus                                         185.00
10/06/99   1138    Willadean Lamotte (Retirement Accts)               500.00
10/06/99   1139    Barbara Leohwing                                   500.00




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                                                                               Paid
             Check                                           Ineligible      While in
   Date       No.                      Payee                 Amount 1/       Default 2/

10/06/99       1140 Leatrice Makrouer                               255.50
10/06/99       1141 Susan Martin                                    250.00
10/06/99       1142 Peter J. Merkle (Retirement Accts)              500.00
10/06/99       1143 Charles V. Mullen, Sr                           200.00
10/06/99       1144 Charles C. Mullen, Jr                           150.00
10/06/99       1145 Phyllis Phoa                                     55.00
10/06/99       1146 Phyllis Phoa                                    150.00
10/06/99       1147 Katie Pike or Anita Kirkwood                    150.00
10/06/99       1148 Kathlee Platte (Retirement Accts)               100.00
10/06/99       1149 Lynn Queenan (Retirement Accts)                 130.00
10/06/99       1150 Ralph and Marjorie Schockey                     120.00
10/06/99       1151 Ruth B. Setser Rev. Trust                       550.00
10/06/99       1152 Frances R. Shepherd                             277.50
10/06/99       1153 John D Shirley (Retirement Accts,               372.84
10/06/99       1154 Elliot S. Silverman                             250.00
10/06/99       1155 Jan Silverman                                   250.00
10/06/99       1156 William or Jean Sponseller                      300.00
10/06/99       1158 Laura Travis                                    250.00
10/06/99       1159 David Watson                                    250.00
10/06/99       1160 Maxine Weinberger                               250.00
11/18/99       1236 Leatrice Makrouer                               255.50
12/07/99       1270 Harold E. Burt Retirement Accts.                500.00
12/10/99       1303 Leatrice Makrouer                               255.50
12/20/99       1001 Howard Weinberger                               565.00
02/02/00       2014 Leatrice Makrouer                               511.00
03/06/00       2023 Leatrice Makrouer                               255.50
04/04/00       2028 Leatrice Makrouer                               255.50
05/08/00       2034 Leatrice Makrouer                               255.50
06/12/00       2042 Leatrice Makrouer                               255.50
07/13/00       2049 Leatrice Makrouer                               255.50
08/01/00       2054 Leatrice Makrouer                               255.50
09/01/00       2060 Leatrice Makrouer                               255.50
Subtotal - Investors                                     $       35,779.86
Total Ineligible Distributions (Part I)                  $      200,329.86    $ 25,000.00




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                                                Part II

                           Ineligible Management Agent Expenditures

                                                                                Paid
             Check                                           Ineligible       While in
    Date       No.                   Payee                   Amount 1/        Default 2/
07/07/00      2046 Mountain Heritage                      $          485.58
07/11/00      2048 Mountain Heritage                             10,275.55
01/24/01      2065 Mountain Heritage                               1,644.20
01/24/01      2066 Mountain Heritage                                 371.20
02/06/01      2073 Mountain Heritage                                 950.00
02/12/01      2076 Mountain Heritage                                 950.00
02/26/01      2082 Mountain Heritage                               1,739.31
03/02/01      2085 Mountain Heritage                               1,257.39
03/09/01      2087 Mountain Heritage                               1,580.16
03/16/01      2091 Mountain Heritage                               1,268.67
03/23/01      2092 Mountain Heritage                               1,282.75
03/30/01      2093 Mountain Heritage                               2,153.00
04/25/01      2393 Mountain Heritage                               1,298.94
04/25/01      2394 Mountain Heritage                               1,384.75
04/25/01      2395 Mountain Heritage                               1,113.89
11/01/01      2118 Mountain Heritage                               4,120.58
Subtotal - Mountain Heritage                               $     31,875.97

10/05/01       2099 Lisa Kessler                          $       3,449.11
10/09/01       2101 Lisa Kessler                                  1,039.68
11/16/01       2128 Lisa Kessler                                  1,349.56
12/04/01       2133 Lisa Kessler                                  5,548.86
01/02/02       2151 Lisa Kessler                                  6,932.87
01/18/02       2160 Lisa Kessler                                  5,971.07
02/08/02       2171 Lisa Kessler                                  2,022.97
02/08/02       2172 Lisa Kessler                                  2,210.00
02/26/02       2182 Lisa Kessler                                  7,204.28
Subtotal - Lisa Kessler                                   $      35,728.40

05/15/01      2398    Ward's Painting                     $       1,094.89
05/15/01      2399    Ward's Painting                             1,311.30
05/15/01      2400    Ward's Painting                             1,418.92
05/15/01      2402    Ward's Painting                             1,985.00
05/24/01      2407    Ward's Painting                             1,131.57
05/31/01      2411    Ward's Painting                               930.00
06/06/01      2416    Ward's Painting                             1,037.73
06/12/01      2419    Ward's Painting                             1,586.98
06/12/01      2420    Ward's Painting                             3,257.00
06/12/01      2421    Ward's Painting                             3,185.00
06/20/01      2425    Ward's Painting                             4,178.00


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                                                                                  Paid
              Check                                          Ineligible         While in
    Date       No.                    Payee                  Amount 1/          Default 2/
06/20/01      2426 Ward's Painting                                 1,638.15
06/26/01      2429 Ward's Painting                                 2,266.60
07/16/01      2444 Ward's Painting                                 1,201.85
07/16/01      2445 Ward's Painting                                 1,608.10
07/19/01      2447 Ward's Painting                                 1,368.40
07/23/01      2451 Ward's Painting                                 1,601.60
07/30/01      2452 Ward's Painting                                 1,572.19
08/09/01      2460 Ward's Painting                                 1,754.50
08/20/01      2470 Ward's Painting                                 1,732.25
08/24/01      2473 Ward's Painting                                 1,368.22
08/28/01      2475 Ward's Painting                                 2,239.79
09/07/01      2479 Ward's Painting                                 1,329.00
09/07/01      2480 Ward's Painting                                 1,204.91
09/17/01      2488 Ward's Painting                                 1,237.08
09/28/01      2491 Ward's Painting                                 1,265.46
Subtotal - Ward's Painting                                 $     44,504.49


Total Ineligible Management Agent Expenditures (Part II)   $     112,108.86



TOTAL INELIGIBLE EXPENDITURES                              $     312,438.72 $      25,000.00




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                                                                                  Appendix D

Listing of Discrepancies and Concerns
Identified in Monthly Accounting Reports
Identified by the Mortgagee:

October 2000
       • Beginning cash and ending cash of $88.52, even though the report indicated a
           disbursement of $40.00.
       • The required bank statement was not included.
       • Schedule C did not include payables that should be present.

November 2000

       •   Schedule of Disbursements did not include payment of payables from October.
       •   The required bank statement was not included.

December 2000

       •   Questioned the nature and purpose of a $4,500.00 disbursement for misc. admin.

January 2001

       •   Questioned the preparation of concrete slabs for a compactor as a routine operating
           expense.
       •   Several invoices and disbursements indicated the presence of accounts payable prior
           to January 2001, but were not noted in previous monthly accounting reports.
       •   Required an explanation as to why the model apartment unit received cable television
           service.
       •   Required the explanation and itemizing of the miscellaneous administrative expense
           of $1,800.00 to Mason-Phillips.

Identified by HUD:

March 2001

       •   Required explanations for several disbursements on Schedule B. Payees included
           Tampa Bay Fire ($2,737.60), Mountain Heritage ($8,078.28), Bay Area Apt. Guide
           ($1,000.00), and Mason-Phillips ($4,000.00).

April 2001
        • Required explanations for several disbursements on Schedule B. Payees included
           Mountain Heritage ($5,950.58), Mason-Phillips ($9,000.00), and Bay Area Apt.
           Guide ($1,000.00).


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Appendix D


May 2001

       •    Schedule B, Schedule of Disbursements was not provided.

June 2001

       •    The project occupancy information was incomplete.
       •    The dollar amount on the Schedule of Disbursements was incorrect.

September 2001

       •    Required explanations for several disbursements. Payees included Ward’s Painting
            ($5,036.45), Ultraedge Landscaping ($4,000.00), and Patty O’Callahan ($3,000.00).
       •    Schedule A was not completed properly.

October 2001

       •    Questioned the reasonableness of Ultraedge, Tree Trimming costs of $2,000.00 and
            $1,630.00.
       •    Required explanations for several disbursements. Payees included Lisa Kessler
            ($3,449.11) and Patty O’Callahan (Unauthorized $8,385.21)
       •    Questioned reasonableness of Apartment Finders, Advertising cost of $3,300.00.

November 2001

       •    Questioned the reasonableness of Earl’s Pool Cleaning maintenance cost of
            $2,179.80 and Ultraedge landscaping cost of $3,000.00.
       •    Required explanation and breakdown of $4,120.58 payroll cost

December 2001

       •    Required explanation of Lisa Kessler payroll cost of $5,548.86 and Apartment
            Finders advertising cost of $3,300.00.
       •    Questioned reasonableness of carpet cleaner cost of $2,073.50.




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                                                            Appendix E

Distribution Outside of HUD
Owner, Ashley Crossings Apartments

Sharon Pinkerton, Senior Advisor
Subcommittee on Criminal Justice

Stanley Czerwinski, Associate Director
Resources, Community, and Economic Development Division
U.S. General Accounting Office

Steve Redburn, Chief Housing Branch
Office of Management and Budget

The Honorable Joseph Lieberman
Chairman
Committee on Government Affairs

The Honorable Fred Thompson
Ranking Member
Committee on Governmental Affairs,

The Honorable Dan Burton
Chairman
Committee on Government Reform,

The Honorable Henry A. Waxman
Ranking Member
Committee on Government Reform

Andy Cochran
House Committee on Financial Services

Clinton C. Jones, Senior Counsel
Committee on Financial Services




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