Issue Date
April 30, 2008
Audit Report Number
2008-CH-1008
TO: Robert E. Nelson, Director of Public Housing Hub, 5FPH
FROM: Heath Wolfe, Regional Inspector General for Audit, 5AGA
SUBJECT: The Lansing Housing Commission, Lansing, Michigan Failed to Follow HUD’s
Requirements for Its Nonprofit Development Activities
HIGHLIGHTS
What We Audited and Why
We audited the Lansing Housing Commission’s (Commission) nonprofit
development activities. The review of public housing authorities’ development
activities is set forth in our fiscal year 2007 annual audit plan. We selected the
Commission because it was identified as having high-risk indicators of nonprofit
development activity. Our objective was to determine whether the Commission
diverted or pledged resources subject to its annual contributions contract
(contract), other agreement, or regulation for the benefit of non-U.S. Department
of Housing and Urban Development (HUD) developments.
What We Found
The Commission defaulted substantially on its contract when it improperly
pledged resources for the benefit of the Lansing Housing Commission Nonprofit
Development Corporation (Corporation) and the Oliver Gardens Limited
Dividend Housing Association Limited Partnership (Partnership), organizations
created by the Commission without HUD approval. In May 2006, the
Commission inappropriately and without conditions guaranteed the obligations of
the Partnership’s general partner, the Oliver Gardens Limited Liability Company,
in a guaranty agreement. Further, the Commission executed another guaranty
agreement in September 2006 that unconditionally and irrevocably guaranteed the
full and punctual payment of a loan entered into by the Corporation. As of
February 29, 2008, the Commission has placed $1.4 million in federal assets at
risk by entering into the guaranty agreements which made it responsible for all
operating deficits and potential judgments of the Corporation and Partnership.
The Commission also inappropriately used more than $745,000 in Public Housing
funds for two nonfederal developments, Oliver Gardens and The Abigail.
Lastly, the Commission managed and provided Section 8 housing assistance to
the Oliver Gardens, a 30-unit senior housing project that the Partnership owns,
and it performed unit inspections of the project’s units, thus creating a conflict of
interest.
We informed the Commission’s executive director and the Director of HUD’s
Detroit Office of Public Housing of minor deficiencies through a memorandum,
dated April 17, 2008.
What We Recommend
We recommend that the Director of HUD’s Detroit Office of Public Housing
require the Commission to amend the guaranty agreements regarding the
Corporation and the Partnership to remove the Commission’s pledging of its
federal assets, submit the amended guaranty agreements to HUD for review and
approval to ensure that they comply with its contract with HUD, reimburse the
applicable programs for the improper use of Public Housing funds and its receipt of
Section 8 administrative fees related to Oliver Gardens, contract with an
independent third-party to perform housing quality standards inspections of
Oliver Gardens as required by HUD, and implement procedures and controls to
address the findings cited in this audit report. We also recommend that the
Director refer the Commission’s substantial default of its contract to HUD
headquarters and request appropriate action be taken against the Commission.
For each recommendation without a management decision, please respond and
provide status reports in accordance with HUD Handbook 2000.06 REV-3.
Please furnish us copies of any correspondence or directives issued because of the
audit.
Auditee’s Response
We provided our discussion draft audit report to the Commission’s executive
director, its board president, and HUD’s staff during the audit. We held an exit
conference with the Commission on March 28, 2008. We asked the
Commission’s executive director to provide comments to our discussion draft
report by April 10, 2008. The executive director provided written comments,
dated, April 10, 2008. The executive director generally agreed with our findings
2
and recommendations with the exception that the Commission’s Public Housing
funds were not available for its intended purposes, and unit inspections and rent
reasonableness determinations were improper. The complete text of the written
comments, except for two attachments consisting of four pages of documentation
that were not necessary to understand the Commission’s comments, along with
our evaluation of that response, can be found in appendix B of this report. A
complete copy of the Commission’s comments plus the documentation was
provided to the Director of HUD’s Detroit Office of Public Housing.
3
TABLE OF CONTENTS
Background and Objective 5
Results of Audit
Finding 1: The Commission Substantially Defaulted on Its Contract and
Inappropriately Used Public Housing Funds for Nonfederal
Development Activities 6
Finding 2: The Commission Violated HUD’s Section 8 Requirements
Regarding the Oliver Gardens Development 10
Scope and Methodology 12
Internal Controls 13
Appendixes
A. Schedule of Questioned Costs and Funds to Be Put to Better Use 15
B. Auditee Comments and OIG’s Evaluation 16
C. Federal Requirements 23
4
BACKGROUND AND OBJECTIVE
The Commission is a public housing agency created by the City of Lansing (City), Michigan on
August 2, 1965, to provide decent, safe, and sanitary housing for low- and moderate-income
families under the Housing Act of 1937. The Commission entered into contracts with the U.S.
Department of Housing and Urban Development (HUD). Under its annual contributions contract
(contract), the Commission operates 833 units of subsidized housing in the City for its Public
Housing program. Under a separate contract with HUD, the Commission manages a Section 8
Housing Choice Voucher (Section 8) program with subsidies for 1,700 vouchers for qualifying
low- and moderate-income households. The Commission also received Shelter Plus Care grant
funds to address homelessness in the City from HUD’s Office of Community Planning and
Development. Further, the Commission operates a homeownership program under an
administrative use agreement with HUD, dated April 1, 1993. This program is funded from
monies forgiven by HUD under the Turnkey III Homeownership Program. As of December 31,
2007, the Commission has funded 10 homeownership properties since 1993.
In July 2003, the Commission formed the Lansing Housing Commission Nonprofit Development
Corporation (Corporation), a 501(c)(3) nonprofit entity, to promote the advancement of
affordable housing through loans, development, and other financial and technical assistance.
The Corporation and its nonfederal developments (Oliver Gardens and The Abigail) are
instrumentalities of the Commission. The Commission is a member of the Corporation and
oversees its affairs.
The Commission also formed the Oliver Gardens Limited Dividend Housing Association
Limited Partnership (Partnership) on June 21, 2005, to provide housing for low- and moderate-
income families. The Partnership constructed the Oliver Gardens development on land obtained
from the Commission. The Commission provides Section 8 housing assistance to and manages
the Oliver Gardens Section 8 Project-Based Voucher program for the Partnership.
On October 13, 2006, the Corporation purchased a large track of land formally known as the
School for the Blind to develop a portion of the land for low-income housing and for the
Commission’s administrative offices. In April 2007, the Corporation formed the Abigail Limited
Dividend Housing Association Limited Liability Company (Company) to own and operate low-
and moderate-income housing on the land purchased from the Corporation.
A five-member board of commissioners, appointed by the City’s mayor governs the
Commission. HUD has classified the Commission as a standard performer or a high performer
under its Public Housing Assessment System since fiscal year 1999. The Commission’s books
and records are located at 310 Seymour Avenue, Lansing, Michigan.
Our objective was to determine whether the Commission diverted or pledged resources subject to
its contract, other agreement, or regulation for the benefit of non-HUD developments.
5
RESULTS OF AUDIT
Finding 1: The Commission Substantially Defaulted on Its Contract and
Inappropriately Used Public Housing Funds for Nonfederal
Development Activities
The Commission substantially defaulted on its contract when it executed guaranty agreements
related to the Corporation’s and the Partnership’s nonfederal developments. It improperly and
without conditions guaranteed the obligations of the Partnership’s general partner, the Oliver
Gardens Limited Liability Company in May 2006. Further, the Commission unconditionally and
irrevocably guaranteed the full and punctual payment of a loan entered into by the Corporation in
September 2006. The Commission also inappropriately used Public Housing funds for the
nonfederal developments. These conditions occurred because the Commission lacked
procedures and controls to ensure that it complied with federal requirements. As a result, more
than $1.4 million of the Commission’s federal funds could be subject to seizure in the event of
default on the agreements and more than $745,000 of the Commission’s Public Housing funds were
not available for their intended purpose.
Guaranty Agreement Violates
the Commission’s Contract
On September 7, 2006, the Commission executed a guaranty agreement with the
Local Initiatives Support Corporation to induce it to enter into and disburse
$867,900 pursuant to a loan agreement in order for the Corporation to purchase
land to develop The Abigail, a nonfederal development. The Commission did not
seek prior approval from HUD before entering into the agreement.
The guaranty agreement makes the Commission unconditionally and irrevocably
responsible for all liabilities under the Corporation’s loan agreement. The
agreement states that the Commission is responsible for the loan agreement and
all other indebtedness, obligations, and liabilities of the Corporation under or in
connection with the agreement whether for principal, interest, fees, expenses, or
otherwise including without limitation any and all reasonable expenses that may
be paid or incurred by the Local Initiatives Support Corporation in collecting any
or all of the obligations or enforcing any rights under the agreement. The note
stipulates that payment of the principal balance and unpaid interest are due by
October 1, 2009.
Further, the guaranty agreement warrants to the Local Initiatives Support
Corporation that no authorization, consent, approval, license, exemption of or
filing a registration with any court of government department, commission, board,
bureau, agency, or instrumentality is or will be necessary to the valid execution,
6
delivery, or performance of the agreement. Additionally, the Commission
warrants that execution of the agreement would violate no law, rule, regulations,
writ, judgment, injunction, or decree.
The terms of the guaranty agreement amount to a pledge of the Commission’s
assets without limitation or restriction of the source of funds. As of January 2008,
the Commission was entirely dependent on HUD for its funding and lacked any
nonfederal assets or income.
Guaranty Agreement
Inappropriately Encumbered
Public Housing Funds
On May 9, 2006, the Commission executed a guaranty agreement with the
National Equity Fund Assignment Corporation to induce it to invest in the
Partnership. The agreement relates to the Partnership’s nonfederal development,
Oliver Gardens.
The Commission guaranteed the due and punctual performance by the
Partnership’s general partner, Oliver Gardens Limited Liability Company, of all
of its obligations under the terms of the Partnership and development agreements.
The guaranty agreement states that the liabilities of the Partnership’s general
partner will not exceed the total sum of payments received by the Commission
from the Partnership including but not limiting to the development fee. Under the
terms of the development agreement, the fee was $561,933. Further, the guaranty
agreement provides that the Commission will directly or indirectly through
affiliates receive certain fees and other benefits from the development of the
Oliver Gardens development. Per this statement, the Commission could possibly
be responsible for an affiliate’s funds due under the guaranty. Hence, the
guaranty makes the Commission unconditionally responsible for all obligations of
the Partnership’s general partner.
Further, the guaranty agreement provides that the Commission indemnify the
National Equity Fund Assignment Corporation. The agreement also states that
the Commission hereby agrees to indemnify and hold the Partnership and the
National Equity Fund Assignment Corporation free and harmless from and
against actual loss, cost, damage, and expenses including reasonable attorneys’
fees and costs that the Partnership or the National Equity Fund Assignment
Corporation may sustain because of the inaccuracy or breach of any of the
representations and warranties.
7
The Commission Transferred
Public Housing Funds to
Nonfederal Developments
The Commission inappropriately used $745,436 (The Abigail $499,716, Oliver
Gardens $230,7601, and the Corporation $14,960) in Public Housing funds for
nonfederal development activities as of June 30, 2007. It began inappropriately
using Public Housing funds in September 2004. As a result, the Commission’s
Public Housing funds were not available for their intended purpose, which is to
provide decent, safe, and sanitary housing for low-income families, the elderly,
and persons with disabilities for HUD-approved housing projects.
The Commission’s contract allows it to withdraw money from its Public Housing
funds only for payment of the costs and operation of the projects covered under
the contract. The nonfederal developments were not approved projects under the
contract. PIH Notice 2007-15 states that Public Housing funds may be used for
costs related to forming an affiliate or instrumentality; however, the development
must contain Public Housing units. HUD’s Notice further states funds may be
withdrawn from the Commission’s general fund only for: (1) the payment of the
costs of development and operation of projects under contract with HUD, (2) the
purchase of investment securities approved by HUD, and (3) such other purposes
as may be specifically approved by HUD. The Commission did not obtain HUD
approval for the use of the Public Housing funds related to the nonfederal
developments.
The Commission Lacked
Procedures and Controls
The Commission lacked procedures and controls to address developing,
constructing, financing, and operating nonfederal properties. Its board of
commissioners also did not employ a monitoring process to ensure that the
Commission did not use Public Housing funds for its nonfederal developments
without prior HUD approval.
The executive director said he was not aware that the guaranty agreements did not
comply with the terms of the contract nor did the Commission’s legal counsel
advise him of the noncompliance. He also said the Commission’s legal counsel
did not identify any problem with the guaranty agreements and considered them
as normal routine agreements required by the investor when there is a lack of
experience or satisfactory financial position by the borrower.
1
The $230,760 includes $163,529 in insurance proceeds the Commission received in May 2001 and June 2007
resulting from two fires in February 2000, that occurred at the Commission’s Oliver Towers. The Commission
received approval for disposition of Oliver Towers from HUD’s Special Applications Center in May 2001.
8
Unless the Commission implements procedures and controls to address
developing, constructing, financing, and operating nonfederal developments, we
estimate that it could improperly pledge or use $652,581 in federal funds over the
next year. We determined this amount by adding the $867,900 for the guaranty
agreement related to the Corporation, the $561,933 for the guaranty agreement
related to the Partnership, and the $745,436 of Public Housing funds used for the
nonfederal developments divided by 40 months (total time for the improper
pledging and use of Public Housing funds) times 12 months.
Recommendations
We recommend that the Director of HUD’s Detroit Office of Public Housing require
the Commission to
1A. Amend the guaranty agreements related to the pledging of the Commission’s
federal assets for the Corporation ($867,900) and the Partnership ($561,933)
to protect the $1,429,833 cited in this finding.
1B. Submit the amended guaranty agreements to HUD for review and approval
to ensure that they comply with its contract.
1C. Implement procedures and controls to ensure that it does not pledge and/or
use its federal assets contrary to HUD’s requirements. By implementing
procedures and controls, the Commission should help to ensure that
$652,581 in federal assets would be appropriately used to provide decent,
safe, and sanitary housing for its Public Housing households.
1D. Reimburse its Public Housing program $745,436 from nonfederal funds
for the improper use of funds cited in this finding.
We also recommend that the Director of HUD’s Detroit Office of Public Housing
1E. Refer the Commission’s substantial default of its contract to HUD
headquarters and request that appropriate action be taken against the
Commission based upon the information in this audit report.
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Finding 2: The Commission Violated HUD’s Section 8 Requirements
Regarding the Oliver Gardens Development
The Commission violated HUD’s Section 8 requirements when it performed housing quality
standard unit inspections and rent reasonableness determinations for the Oliver Gardens
development. This is a conflict of interest prohibited by HUD’s Section 8 regulations. The
improper unit inspections and rent reasonableness determinations occurred because the
Commission lacked procedures and controls to ensure that its Section 8 program met HUD’s
requirements. As a result, the Commission improperly received Section 8 administrative fees
related to the development.
The Commission Created a
Conflict of Interest
In January 2006, the Michigan State Housing Development Authority approved
the Commission as the management agent for the Oliver Gardens development.
In addition to managing the development, the Commission inspected Oliver
Garden’s Section 8 housing units and performed contract rent reasonableness
reviews.
HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.352 require a
public housing agency with its own housing or substantially controlled housing to
use the services of an independent party approved by HUD to perform unit
inspections before assistance can be provided. HUD also requires that an
independent party handle contract rent reasonableness and rent negotiations. By
failing to comply with HUD’s requirements regarding unit inspections and rent
reasonableness the Commission not only violated HUD’s requirements, but also
created a conflict-of-interest relationship.
The Commission Lacks
Procedures and Controls
The Commission lacked procedures and controls to ensure that federal
requirements were appropriately followed. As previously mentioned, the
Commission violated HUD’s Section 8 requirements when it performed housing
quality standards unit inspections and the rent reasonableness determinations
while managing Oliver Gardens. As a result, HUD lacks assurance of the
reliability of the unit inspections and that contracted rents were reasonable.
The Commission provided Section 8 assistance at Oliver Gardens without an
independent third party performing the unit inspections and rent reasonableness
determinations since it started on-site management in August 2007. From August
2007 to February 2008, the Commission paid more than $35,000 in housing
10
assistance and received more than $8,000 in administrative fees related to Oliver
Gardens.
HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.152(d) states
that HUD may reduce or offset any administrative fee to a public housing
authority, in the amount determined by HUD, if the authority fails to perform its
administrative responsibilities correctly or adequately under the Section 8
program. Given the Commission’s noncompliance with HUD’s requirements, it
should not receive the Section 8 administrative fees. Additionally, unless the
Commission improves its operations for the Section 8 program, we estimate that it
could improperly receive $14,410 ($8,406 divided by 7 months times 12) in
Section 8 administrative fees for Oliver Gardens during the next 12 months.
The executive director said that he was not aware of any conflict with HUD’s
Section 8 regulations by the Commission’s legal counsel and plans to contract out
future Section 8 housing unit inspections and rent reasonableness reviews starting
in May 2008.
Recommendations
We recommend that the Director of HUD’s Detroit Office of Public Housing require
the Commission to
2A. Reimburse its Section 8 program $8,406 from nonfederal funds for the
improper administrative fees cited in this finding.
2B. Implement procedures and controls to ensure compliance with HUD’s
regulations regarding housing quality standards unit inspections and rent
reasonableness determinations related to Oliver Gardens. By
implementing procedures and controls, the Commission should help to
ensure that $14,410 in future Section 8 administrative fees is appropriately
received.
2C. Discontinue performing the housing quality standards unit inspections,
rent reasonableness determinations for the Oliver Gardens development,
and contract with an independent third party to perform the inspections
and determinations to ensure compliance with HUD’s requirements.
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SCOPE AND METHODOLOGY
To accomplish our objective, we reviewed
Applicable laws; regulations; HUD’s program requirements at 24 CFR [Code of Federal
Regulations] Parts 85, 941, 970, 982, 983, and 990; Office of Management and Budget
Circulars A-87 and A-133; and the Internal Revenue Service’s requirements at 26 CFR
[Code of Federal Regulations] Part 1.
The Commission’s accounting records, general ledgers, bank statements, and check
vouchers and invoices for fiscal year 2007; annual audited financial statements for fiscal
years 2005 through 2007; the contract with HUD; by-laws; board meeting minutes;
applications for financial assistance to the State of Michigan, and consulting contracts
and property appraisals.
HUD’s files for the Commission.
The City’s Ordinance 108 and applicable amendments.
The Corporation’s articles of incorporation, by-laws, board meeting minutes, accounting
records, and bank statements.
The Limited Partnership’s various agreements including but not limited to the purchase,
guaranty, development, operating, management, marketing, regulatory, partnership,
building loan, closing escrow, mortgage loan, real estate mortgage, third-party
promossory note, warranty deeds, certificate of limited partnership, and housing
assistance payments contract.
The Corporation’s various agreements including but not limited to the loan, purchase,
guaranty, mortgage, security, and repayable grant for the proposed development known
as The Abigail; quit claim deed; the Abigail Limited Dividend Housing Association
Limited Liability Company’s articles of organization and operating agreement; and The
Abigail Manager Incorporated’s articles of incorporation and by-laws.
The Oliver Gardens Limited Liablity Company’s articles of organization and operating
agreement.
We also interviewed the Commission’s employees and legal counsel and HUD staff.
We performed our on-site audit work between July and December 2007 at the Commission’s
offices located at 310 Seymour Avenue, Lansing, Michigan. The audit covered the period July
1, 2005, through June 30, 2007, and was expanded as determined necessary.
We performed our audit in accordance with generally accepted government auditing standards.
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INTERNAL CONTROLS
Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved:
• Effectiveness and efficiency of operations,
• Reliability of financial reporting,
• Compliance with applicable laws and regulations, and
• Safeguarding resources.
Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined the following internal controls were relevant to our objective:
• Program operations – Policies and procedures that management has
implemented to reasonably ensure that a program meets its objectives.
• Validity and reliability of data – Policies and procedures that management
has implemented to reasonably ensure that valid and reliable data are
obtained, maintained, and fairly disclosed in reports.
• Compliance with laws and regulations – Policies and procedures that
management has implemented to reasonably ensure that resource use is
consistent with laws and regulations.
• Safeguarding resources – Policies and procedures that management has
implemented to reasonably ensure that resources are safeguarded against
waste, loss, and misuse.
We assessed the relevant controls identified above.
A significant weakness exists if management controls do not provide reasonable
assurance that the process for planning, organizing, directing, and controlling
program operations will meet the organization’s objectives.
Significant Weakness
Based on our review, we believe the following is a significant weakness:
13
• The Commission lacked procedures and controls to ensure that it complied
with its contract and/or HUD’s requirements regarding the pledging of the
Commission’s assets, use of Public Housing funds, and receipt of Section
8 administrative fees related to its affiliated entities (see findings 1 and 2).
14
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Funds to be put to
number Ineligible 1/ better use 2/
1A $1,429,833
1C 652,581
1D $745,436
2A $8,406
2B $14,410
Totals $753,842 $2,096,824
1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
that the auditor believes are not allowable by law; contract; or federal, state, or local
policies or regulations.
2/ Recommendations that funds to be put to better use are estimates of amounts that could
be used more efficiently if an Office of Inspector General (OIG) recommendation is
implemented. This includes reductions in outlays, deobligation of funds, withdrawal of
interest subsidy costs not incurred by implementing recommended improvements,
avoidance of unnecessary expenditures noted in preaward reviews, and any other savings,
which are specifically identified. In these instances, if the Commission implements our
recommendations, it will remove the pledging and/or the use of the Commission’s federal
assets and ensure that Section 8 administrative fees related to Oliver Gardens are earned
appropriately. Once the Commission successfully improves its controls over its pledging
and/or use of assets and Section 8 administrative fees, this will be a recurring benefit.
Our estimates reflect only the initial year of these benefits.
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Appendix B
AUDITEE COMMENTS AND OIG’s EVALUATION
Ref to OIG Evaluation Auditee Comments
16
Ref to OIG Evaluation Auditee Comments
Comment 1
17
Ref to OIG Evaluation Auditee Comments
18
Ref to OIG Evaluation Auditee Comments
19
Ref to OIG Evaluation Auditee Comments
20
Ref to OIG Evaluation Auditee Comments
21
OIG’s Evaluation of Auditee Comments
Comment 1 While the Commission disagreed with our conclusion that its Public Housing
funds were unavailable for their intended purpose to provide decent, safe, and
sanitary housing, it inappropriately used more than $745,000 in Public Housing
funds for nonfederal development activities. The Commission agreed to
implement procedures and controls to ensure that it does not pledge and/or use its
federal assets.
22
Appendix C
FEDERAL REQUIREMENTS
Finding 1
HUD’s PIH Notice 2007-15 defines affiliates and instrumentalities and applies to public housing
agency nonprofit activities pursuant to HUD regulations at 24 CFR [Code of Federal Regulations]
Part 941. Public housing agencies may form affiliates and instrumentalities without HUD approval.
Affiliates are treated like an unrelated third party. Instrumentalities are treated like the public
housing agency. Public housing funds may be used to form an affiliate created to develop mixed
income housing which must contain some public housing units. However, public housing funds
cannot be used to form an affiliate for a housing project using only Low-Income Housing Tax
Credit units or any application fees for tax credits for a development that does not contain public
housing units. These costs must come from non-public housing funds.
Section 401 of the contract with HUD prohibits the Commission from using funds in its general
fund for non-HUD development activities without prior HUD approval.
Section 313 of the contract with HUD states: “Unless and until all temporary notes, advance notes,
permanent notes, and all other indebtness of the local authority to the public housing authority have
been fully paid (except repayment of annual contributions), and all bonds issued in connection with
the project have been fully paid and retired or monies, sufficient for the payment and retirement
thereof in accordance with the terms of such bonds, have been deposited in trust for such purpose
with the fiscal agent, the local authority shall not transfer, convey, assign, lease, mortgage, pledge,
or otherwise encumber, or permit or suffer any transfer, conveyance, assignment, leasing mortgage,
pledge, or other encumbrance of such project, any appurtenances thereto, any rent, revenues,
income, or receipts there from or in connection therewith, or any of the benefits or contributions
granted to it by or pursuant to this contract, or any interest in any of the same.”
Section 506 of the contract with HUD defines substantial default. Events of substantial default
include the default of any of the provisions of section 313.
Finding 2
HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.352 require a public housing
agency with its own housing or substantially controlled housing to use the services of an
independent third party approved by HUD to perform unit inspections before assistance can be
provided. HUD also requires that the independent third party handle contract rent
reasonableness and rent negotiations.
HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.507 state that the Commission
may not approve a lease until it determines that the initial rent is reasonable. The Commission
must redetermine the reasonableness of the rent before an increase in the rent if there is a 5
percent decrease in the published fair market rent in effect 60 days before the contract
23
anniversary or if directed by HUD. At all times during the assisted tenancy, the rent may not
exceed the reasonable rent as most recently determined or redetermined by the Commission.
The Commission must determine whether the rent to the owner is reasonable in comparison to
rent for other unassisted units.
HUD’s regulations at 24 CFR [Code of Federal Regulations] 983.303 states that the Commission
must redetermine the reasonableness of the rent whenever there is a decrease of five percent or
more in the published fair market rents in effect 60 days before the contract anniversary date;
whenever the Commission approves a change in the allocation of responsibilities for utilities
between the owner and the tenant; whenever the housing assistance payments contract is
amended to substitute a different unit in the same building; and whenever there is a change that
may substantially affect the reasonable rent.
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The Lansing Housing Commission, Lansing, Michigan Failed to Follow HUD's Requirements for Its Nonprofit Development Activities
Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-09-30.
Below is a raw (and likely hideous) rendition of the original report. (PDF)