oversight

Final Civil Action - Owner and Management Agents Settled Allegations of Failing To Comply With the Regulatory Agreements for Multifamily Projects Willow Run I and Willow Run II

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-09-30.

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




                                                  September 30, 2016
                                                                                                    MEMORANDUM NO:
                                                                                                    2016-CF-1813



Memorandum
TO:                Dane M. Narode
                   Associate General Counsel, Office of Program Enforcement, CACC

                   //signed//
FROM:              Christeen Thomas
                   Director, Joint Civil Fraud Division, GAW

SUBJECT:           Final Civil Action: Owner and Management Agents Settled Allegations of
                   Failing To Comply With the Regulatory Agreements for Multifamily Projects
                   Willow Run I and Willow Run II

                                                 INTRODUCTION

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General
(OIG), assisted the U.S. Attorney’s Office for the District of Minnesota in a civil investigation of
Willow Run Partners L.P. and Willow Run II Partners L.P. Willow Run Partners L.P. was the
owner of Willow Run I Apartments, and Willow Run II Partners L.P. was the owner of Willow
Run II Apartments. Our investigation began as a result of a referral from HUD’s Departmental
Enforcement Center (DEC). DEC referred the matter to HUD OIG based on its review of the
projects’ financial statements and potential compliance deficiencies. Willow Run I and Willow
Run II are located in Willmar, MN.

                                                  BACKGROUND

Under the National Housing Act, 12 U.S.C. (United States Code) 1707 – 1715z-22a, the
Secretary of HUD is authorized to insure lenders against loss on mortgage defaults. With respect
to individual properties constructed to house five or more families, the purpose of this authority
is “to facilitate particularly the production of rental accommodations, at reasonable rents, of
design and size suitable for family living.” 1




1
    See 12 U.S.C. 1713(b)(2).
                                                     Joint Civil Fraud Division
                                      400 State Avenue, Suite 501, Kansas City, KS 66101
                                Visit the Office of Inspector General Web site at www.hudoig.gov.
Willow Run I was insured under section 236 of the National Housing Act. On October 11, 1973,
the owner entered into a regulatory agreement with HUD. Under the terms of that agreement,
HUD insured the mortgage, and the owner, through its general partners, executed an order to
fund the construction of a rental residential real property known as Willow Run Apartments.
HUD also agreed to subsidize the interest payments due under the terms and conditions of the
insured mortgage. In return, the owner agreed that it would not, without prior consent, make or
receive and retain any distribution of assets or any income of any kind for the project, except
from surplus cash with certain conditions.

Willow Run II was insured under section 221(d)(3) of the National Housing Act. On September
3, 2003, the owner entered into a regulatory agreement with HUD relating to a rental residential
real property known as Willow Run II Apartments. In return for HUD’s agreement to insure the
mortgage, the owner agreed that it would not, without prior consent, make or receive and retain
any distribution of assets or any income of any kind for the project, except from surplus cash
with certain conditions.
                              RESULTS OF INVESTIGATION

Based upon our review and further investigation, the United States contended that the owner and
management agents of Willow Run I and Willow Run II spent certain sums from January 1,
2005, through December 31, 2010, in violation of the regulatory agreements.

On August 10, 2016, the owner and management agents of Willow Run I and Willow Run II
entered into a settlement agreement with the Government to pay $510,000 to avoid the delay,
uncertainty, inconvenience, and expense of lengthy litigation. The settlement was neither an
admission of liability by the owner and management agents nor a concession by the United
States that its claims were not well founded.

                                   RECOMMENDATION

We recommend that HUD’s Office of General Counsel, Office of Program Enforcement,

1A.    Acknowledge that the attached settlement agreement for $510,000 represents an amount
       due HUD.

As of August 10, 2016, the settlement agreement of $510,000 was reached, and it represents an
amount due HUD. Proceeds to be realized by the owner and management agents from the
pending sale of the Willow Run I property are to be used to pay the settlement amount. Final
payment to HUD is expected by December 31, 2016. In accordance with HUD Handbook
2000.06, REV-4, the final action target date will be set at January 30, 2017 (30 days from the
final date on which payment is expected). At issuance of this memorandum, HUD OIG will
enter a management decision into HUD’s Audit Resolution and Corrective Action Tracking
System, along with any supporting payment information received to date.




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