Choice Properties, Troy, MI

Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-08-01.

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 for Audit, Midwest
                                                 77 West Jackson Boulevard, Room 2646
                                                 Chicago, Illinois 60604-3507

                                     AUDIT RELATED MEMORANDUM

August 1, 1996

MEMORANDUM FOR: Shirley Bryant, Acting Director, Multifamily Housing Division,
             Grand Rapids Area Office

FROM: Dale L. Chouteau, District Inspector General for Audit, Midwest

SUBJECT: Choice Properties
       Amsterdam Gardens
       Multifamily Equity Skimming
       Troy, Michigan

We completed a review of the books and records of Choice Properties, Inc. related to th e
management and operation of Amsterdam Gardens. We performed the audit becau se the Project's
financial statements indicated distributions were made to the Project's Owners when the Project
was in poor physical condition from lack of proper routine maintenance.

Choice properties is operated by an identity of interest management agent. Choice Properties,
Inc. manages and operates Amsterdam Gardens, a 270 unit multifamily dwelling located i n
Michigan. The project is under the jurisdiction of the HUD Grand Rapids Office.

Amsterdam Gardens is insured under Section 223 (f) of the National Housing Act. Kama l
Shouhayib is the President of Choice Properties, Inc. He is also the General Partner for th e
project. The books and records for Amsterdam Gardens are at Choice Pro perties. The company's
office is at 755 W. Big Beaver Road, Suite 1275, Troy, Michigan.

Our review objectives were to deter mine whether the use of project funds was reasonable and in
compliance with the Regulatory Agreement and applicable HUD requirements.

We determined the identity-of-interest Management Agent, made distributions of $92,000 to the
project's owners when the project w as not in satisfactory condition. Our inspections showed the
poor physical condition resulted from lack of proper routine maintenance. The Agent did not use
reserve for replacement funds that were available to make needed repairs and used unqualified
workers to accomplish repairs that were made. The Agent ignore d HUD's directives and requests
to make proper repairs. As a result, HUD's interest in the project was not adequately protected.
We provided the owners and the HUD Grand Rapids Office with our draft findings an d
recommendations. Our recommendations required the owners to deposit the amount s
inappropriately distributed into the project's reserve for replacement account and then t o
coordinate with HUD to use reserve f or replacement funds to make proper repairs to the project.

The owners disagreed with our findings and recommendations and did not agree to take th e
actions we recommended or a suitable alternative. Therefore, using the procedures developed
under Operation Safe Home, we submitted the draft findings and the auditee's comments to the
Assistant U.S. Attorney for civil matters in Grand Rapids. The Assistant U.S. Attorne y
negotiated a settlement for Amsterdam Gardens with the principles involved. Under the terms
of the settlement, in lieu of repaying the reserve for replacement account, the U.S. Attorne y
allowed the owners to make all neces sary repairs to the project subject to HUD's approval of the
quality of the repairs. He also required the own ers to maintain a reserve for replacement balance
in an amount that HUD determined should b e on hand for the project if normal maintenance had
been performed. The auditee also was required to pay audit costs.

On July 3, 1996, the Assistant U.S. Attorney completed the settlement for Amsterdam Gardens.
Under the settlement the owners made all required repairs to the project and paid HUD $8,199
for audit costs. HUD inspected the repairs and determined that they were satisfactoril y
completed. At the time of our review, an OIG Construction Specialist estimated the project had
$426,000 in deferred maintenance items.

If you or your staff have any questions, please contact me at (312) 353-7834.

Audit Related Memorandum                      Page 2
                                                                                  Appendix A

Secretary's Representative, Midwest District
Director, Multifamily Housing Division, Grand Rapids Area Office (2)
State Coordinator, Michigan State Office (2)
Director, Accounting Division, Midwest
Field Controller, Midwest
Assistant General Counsel, Midwest
Public Affairs Officer, Midwest
Assistant Deputy Secretary for Field Management, SC (Room 7106)
Acquisitions Librarian, Library, AS (Room 8141)
Chief Financial Officer, F (Room 10166) (2)
Deputy Chief Financial Officer for Operations, FO (Room 10166) (2)
Comptroller/Audit Liaison Officer, Office of Housing, HF (Room 5132) (5)
Director Participation and Compliance Division, HSLP (Room 6274)
Director, Division of Housing Finance Analysis, TEF (Room 8212)
Assistant Director in Charge, U.S. General Accounting Office, 820 lst St. NE, Union Plaza,
Bldg. 2, Suite 150, Washington, D.C. 20002 (2)

                                            Page 3                        Audit Related Memorandum