oversight

Terrace Lakes Apts., Aurora, IL

Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-10-10.

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 No. 97-CH-211-1802

October 10, 1996

MEMORANDUM FOR: Beverly Bishop, Director, Office of Housing,
                   Illinois State Office
            Edward Hinsberger, Director of Multifamily Housing,
                   Illinois State Office


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

SUBJECT:      Terrace Lakes Apartments
              Multifamily Equity Skimming Review
              Aurora, Illinois

We completed an audit of the books and records of Terrace Lakes Apartments, a multifamily
housing project. We conducted that audit at the request of the Office of Housing, Illinois State
Office. The audit objectives were to determine whether Fox Valley Development Partnership,
the Project owner used Project funds in accordance with the Regulatory Agreement and other
HUD requirements.

Terrace Lakes Apartments was a 416 unit project whose mortgage was coinsured by HUD under
Section 221(d)(4) of the National Housing Act. During the audit period, the Project was owned
by Fox Valley Development Partnership, an Illinois Limited Partnership. The Managing General
Partner was Dwight Avrum. American Home Reality, an identity-of-interest firm was the
management agent for the Project. The Managing General Partner for American Home Realty
was Dwight Avrum. The Project's books and records were maintained by American Home Realty
and located at 723 Aurora Avenue, Aurora, Illinois.

The audit covered the period of January 1, 1992 through December 31, 1995. We extended the
audit period as necessary. We performed the audit between July 1995 and May 1996.

On August 1, 1993 the Project's loan went into default under the provisions of the mortgage loan
agreement because of nonpayment of monthly installments by the Partnership. As of May 31,
1996, the Project had a delinquent mortgage balance of $2,179,792. The Project had received
good ratings on its physical condition during HUD's physical inspection reviews.
Audit Related Memorandum

We concluded that Fox Valley Development Partnership did not comply with the Regulatory
Agreement or with other HUD requirements. Fox Valley Development Partnership
inappropriately disbursed $483,575 of Project funds for ineligible expenses and therefore, did not
adequately protect and use resources economically and efficiently. The ineligible disbursements
included: (1) $197,712 in excessive profits to an identity of interest maintenance contractor; (2)
$129,475 for refinancing and mortgage workout related expenses; (3) $94,292 for excessive
management fees; (4) $44,096 for insurance premiums; and (5) $18,000 to an identity of interest
project. The disbursements occurred when the Project was in a non-surplus cash position, the
mortgage was in default, or both. As a result, Fox Valley Development overstated Project
expenses, fewer funds were available for normal operations or debt service, and HUD's security
interest in the Project was weakened.

We presented our draft findings to Fox Valley Development Partnership during the audit. We
held an exit conference on May 9, 1996. Fox Valley provided written responses to our findings
and recommendations. On September 1, 1996 Fox Valley Development Partnership, sold the
property and repaid the HUD coinsured mortgage. HUD officially discharged Fox Valley
Development's obligations to HUD on October 8, 1996. Consequently, we consider this matter
resolved.

Should your staff have any questions, please have them contact me at (312) 353-7832.




97-CH-211-1802                                Page 2
                                                                              Appendix A

Distribution
Secretary's Representative, Midwest
Director of Public Housing, Illinois State Office (2)
Assistant General Counsel, Midwest
Field Comptroller, Midwest (2)
Public Affairs Officer, Midwest
Director, Accounting Division, Midwest
Assistant to the Secretary for Field Management, SC (Room 7106)
Chief Financial Officer, F (Room 10166) (2)
Chief Financial Officer for Operations, FO (Room 10166) (2)
Acquisitions Librarian, Library, AS (Room 8141)
Comptroller/Audit Liaison Officer, HF (Room 5132)(3)
Assistant Director in Charge, U.S. General Accounting Office, 820 1st St. NE, Union Plaza,
Bldg. 2, Suite 150, Washington, D.C. 20002




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