oversight

Opportunity in Living, Centennial, CO's Participation in the HUD Single Family Property Disposition Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-08-25.

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

                                                 U.S. DEPARTMENT OF
                                HOUSING AND URBAN DEVELOPMENT
                                          OFFICE OF INSPECTOR GENERAL


                       
 
                                               August 25, 2015
                                                                                               MEMORANDUM NO:
                                                                                                    2015-DE-1801


Memorandum
TO             Kathleen Zadareky
               Deputy Assistant Secretary, Single Family Housing, HU


               //signed//
FROM:          Ronald J. Hosking
               Regional Inspector General for Audit, Denver Region, 8AGA

SUBJECT:       Opportunity in Living, Centennial, CO’s Participation in the HUD Single Family
               Property Disposition Program


                                             INTRODUCTION

The Office of Inspector General (OIG) conducted an audit of Opportunity in Living (OIL),
Centennial, CO’s participation in the U.S. Department of Housing and Urban Development’s
(HUD) Single Family Property Disposition program. We initiated this review based on a request
from the Denver HUD Office of Single Family Housing. A HUD review of OIL’s nonprofit
recertification application raised questions as to its suitability for recertification in the HUD
program. Specifically, the HUD review found that OIL purchased 10 homes during the
exclusive listing period and sold 2 of them to its staff and 8 to possible investors. In addition,
HUD found that some of the investors sold homes on the day they bought the property from OIL.
Our audit objective was to determine whether OIL’s purchase of HUD-owned homes during the
exclusive listing period violated HUD regulations at 24 CFR (Code of Federal Regulations) Part
291.

                                 METHODOLOGY AND SCOPE

We reviewed OIL’s affordable housing plan, reviewed five property files, and interviewed OIL’s
executive director about its real estate-owned (REO) property purchases. We reviewed the housing
plan to determine whether it contained language that would prevent OIL from purchasing REO
properties during the exclusive listing period without a discount. We analyzed the five properties
that OIL purchased through the REO sales program to determine whether OIL worked with

                                                 Office of Audit Region 8
                                     1670 Broadway, 24th Floor, Denver, CO 80202
                                       Phone (303) 672-5452, Fax (303) 672-5006
                           Visit the Office of Inspector General Web site at www.hudoig.gov.
 
                                                   


investors to avoid meeting the investor requirements. We reviewed the property files located at the
auditee’s office and local county tax assessor records.

We also retrieved REO property data from HUD’s Yardi P260 System. The P260 system tracks
HUD’s REO properties. It includes a portal for lenders to enter information, such as
preconveyance requests and scans of title documents. We identified 40 HUD single-family REO
properties purchased between September 1, 2010, and May 3, 2014. From the 40 properties, we
selected 5 based on indications from HUD program staff that they contained discrepancies.

                                        BACKGROUND

The HUD Single Family Property Disposition Program is designed to dispose of REO properties
in a manner that expands home-ownership opportunities, strengthens neighborhoods and
communities, and ensures a maximum return to mortgage insurance funds.

Under this program, nonprofit organizations are eligible to purchase REO properties. HUD
regulations at 24 CFR Part 291 contain a definition of “private nonprofit organizations,” which
includes specific eligibility requirements (24 CFR 291.5(b)), and provide various processes for
purchase. One process is the direct sales program (24 CFR 291.210), in which preapproved
government agencies and nonprofit organizations may directly acquire REO properties at a
discount. The regulations note that HUD may limit the number of direct sales to a given
purchaser and there may be restrictions on resale to ensure expanded affordable housing
opportunities. Part 291 also contains a separate competitive sale process (24 CFR 291.205),
which does not provide a discount or reference postsale restrictions. The competitive process
provides that priority will be given to government entities and nonprofit organizations over other
owner occupants. This is also referred to as the exclusive listing period. Part 291 includes
nonprofit organizations in the definition of owner occupants (see 24 CFR 291.205(a)(2)).

HUD regulations at 24 CFR 200.194 state that HUD maintains a roster of nonprofit
organizations eligible to participate in certain Federal Housing Administration (FHA) activities.
According to 24 CFR Chapter II, HUD recognizes a nonprofit as one that is on the approved
roster and complies with any requirements stated in a specific applicable provision of the single-
family regulations. Additionally, section 200.194 states that a nonprofit organization must
submit an application that specifies the FHA activities it proposes to carry out.

HUD has established guidelines for removal of a nonprofit organization from its approved FHA
roster. According HUD regulations at 24 CFR 200.195, HUD may remove an organization from
the approved roster for failure to comply with applicable single-family regulations in Chapter II,
mortgagee letters, or other written instructions or standards issued by HUD; failure to further all
objectives described in the affordable housing program narrative; or misrepresentation or
fraudulent statements.

In 1996, OIL was founded as a nonprofit organization. It is located at 6930 South University
Boulevard, Suite 100, Centennial, CO. Its mission is to provide affordable quality housing to
low- to moderate-income families and individuals by acquiring HUD homes and rehabilitating
them. OIL’s Web site indicated that it had purchased and rehabilitated more than 200 homes and
                                                 


as of 2014, had 22 homes in its inventory in the Denver metropolitan area. OIL’s 2012 HUD-
approved housing plan stated that OIL had provided more than 230 qualified low- to moderate-
income buyers with the opportunity of home ownership. OIL’s housing plan did not reference its
intent to purchase REO properties without a discount. OIL was included on HUD’s roster of
nonprofit agencies eligible to participate in certain FHA activities in 2012 and continued to
purchase homes under the Single Family Property Disposition program until 2014. In 2014,
HUD denied OIL’s recertification to participate in FHA activities. HUD cited OIL’s failure to
ensure that REO properties purchased by OIL were sold to low- to moderate-income buyers who
intended to be owner occupants, contrary to OIL’s affordable housing plan.

                                   RESULTS OF REVIEW

During the review, we determined that OIL did not violate HUD requirements at 24 CFR Part
291 when it purchased HUD-owned homes during the exclusive listing period.

OIL purchased some REO properties through the competitive process and sold them to investors
and individuals employed by or affiliated with the organization. Specifically, for the five
properties reviewed,

   1. Three were sold to investors the day OIL purchased the properties from HUD, and
   2. One was sold to an individual associated with the nonprofit.

We interviewed the executive director of OIL, who stated that the nonprofit purchased some
homes during the exclusive listing period and sold them for a profit. He stated that OIL sold
some of the homes for a profit to buy additional homes for low- to moderate-income home
buyers. He further stated that the housing plan outlined how OIL would purchase and dispose of
homes purchased with a discount, not homes purchased during the exclusive listing period
without a discount.

OIL did not violate HUD requirements at 24 CFR Part 291 when it purchased HUD REO
properties at a nondiscount during the exclusive listing period. HUD’s regulations at Part 291 do
not prescribe how a qualified nonprofit should purchase homes during the exclusive listing
period. When OIL purchased the properties through the REO competitive sale program under 24
CFR 291.205 it was not subject to the use restrictions that pertain to sales of discounted
properties as part of the direct sale program in 24 CFR 291.210.

                                        CONCLUSION

We agree with HUD that OIL acted like an investor when it purchased homes without a discount
during the exclusive listing period. However, we do not believe that OIL violated regulations at
24 CFR Part 291. We note, however, that HUD removed OIL from the nonprofit eligibility
roster on October 20, 2014, because “OIL did not ensure that properties purchased through the
HUD Homes program were sold to low- to moderate-income buyers who intended to reside in
the property as their principal residence.” While HUD based its decision on separate
requirements, we will work with the HUD Office of Single Family Housing to suggest
recommendations on how to better clarify the Part 291 rules for nonprofits that purchase homes
                                                   


without a discount during the exclusive listing period to ensure that the intent of the program is
met and other nonprofits on HUD’s approved roster do not act as investors. These
recommendations will be included in a separate report to HUD.