U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT OFFICE OF INSPECTOR GENERAL September 30, 2015 MEMORANDUM NO: 2015-DE-1802 Memorandum TO: Craig T. Clemmensen Director, Departmental Enforcement Center, CACB //signed// FROM: Ronald J. Hosking Regional Inspector General for Audit, Denver Region, 8AGA SUBJECT: Final Civil Action: Owner of HUD-insured Multifamily Property Settled Allegations of Authorizing and Paying Out Project Funds for Unallowable Expenses INTRODUCTION We performed a review of subpoenaed bank records based on our audit of The Retreat at Church Ranch (Office of Inspector General audit report number 2013-DE-1003). The audit disclosed indications that the owner used project funds for ineligible and questionable costs. BACKGROUND The former managing member of a Colorado limited liability company, Signature – The Retreat, LLC, is the owner of The Retreat at Church Ranch, a 47-unit assisted-living facility located in Westminster, CO. The owner refinanced the project’s mortgage with a U.S. Department of Housing and Urban Development (HUD)-insured mortgage under the National Housing Act. On September 26, 2007, the owner and HUD signed a regulatory agreement, in which the owner agreed to operate the project in accordance with HUD requirements. This agreement prohibits Signature from paying out any funds except for reasonable operating expenses or necessary repairs or from surplus cash without prior written approval from HUD. Under 12 U.S.C. (United States Code) 1735f-15, HUD is authorized to impose civil money penalties against the owners of multifamily projects insured by HUD, as well as any members of a limited liability company that owns such projects. 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. RESULTS OF REVIEW Our review disclosed that the owner allegedly made payments for personal expenses from the project’s bank account. On December 11, 2013, we requested that HUD pursue proceedings against the owner. On March 31, 2015, HUD filed a complaint with its Office of Hearings and Appeals, seeking more than $12.9 million in civil money penalties against the owner. The complaint alleges that, starting in 2010, the owner authorized and paid out project funds for expenses that were not reasonable operating expenses, necessary repairs, or from surplus cash and without HUD’s prior written approval. The owner denies HUD’s allegations. However, to avoid the uncertainty of litigation and to arrive at a settlement that was satisfactory to both parties, the parties negotiated in good faith and reached a settlement in which the owner will pay HUD $500,000. RECOMMENDATION We recommend that HUD’s Office of General Counsel, Office of Program Enforcement, 1A. Ensure that HUD records the $500,000 settlement due in its accounting records, including the $11,000 paid at the time of settlement, to recognize funds due as a return of an ineligible cost.
Final Civil Action: Owner of HUD-insured Multifamily Property Settled Allegations of Authorizing and Paying Out Project Funds for Unallowable Expenses
Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-10-01.
Below is a raw (and likely hideous) rendition of the original report. (PDF)