Regency Townhomes Multifamily Equity Skimming Lansing, Michigan

Published by the Department of Housing and Urban Development, Office of Inspector General on 1998-09-29.

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

                                                Phone (312) 353-7832 Fax (312)353-8866
                                                Internet http//www.hud.gov/oig/oigindex.html
                                                             AUDIT RELATED MEMORANDUM

September 29, 1998

MEMORANDUM FOR:               Robert Brown, Director, Multifamily Hub, Michigan State

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

SUBJECT:       Regency Townhomes
               Multifamily Equity Skimming
               Lansing, Michigan

We completed a review of the books and records of Regency Townhomes. We performed the
audit because HUD’s file reviews indicated the project owners made improper distributions and
the project was in poor physical condition.

Regency Townhomes is a 56 unit multifamily project owned by Jolawr Associates with two
general partners, Joseph R. Miller and Lawrence Blum. The project is located at 1035 Vincent
Court, Lansing, Michigan and was insured in 1976 under Section 221 (d)(4) of the National
Housing Act. Joseph Miller was the managing general partner. The project was managed by PM
One Limited, located at 5215 Jolly Cedar Court, Lansing, Michigan.

Our review objectives were to determine whether the project was in good physical condition and
if the use of project funds was reasonable and in compliance with the regulatory Agreement and
applicable HUD requirements.

We determined that $132,437 of project funds were improperly disbursed to or retained by the
project owners. The owners also used another $19,384 of project funds for ineligible and
unsupported costs. Further, the project was not in a good physical condition. An OIG
Appraiser/Construction specialist estimated that the project needed repairs of $321,200 to bring it
up to a satisfactory condition. As a result, HUD’s interest in the project was not adequately

We provided the owners and the HUD Grand Rapids Office with our draft findings and
recommendations. Our recommendations required the owners to deposit the amounts
inappropriately distributed, retained or spent into the project’s reserve for replacement account,
and then to coordinate with HUD to use the funds to make necessary repairs.

                                              Page 1                                    98-CH-211-1812
The owners did not respond to our findings and recommendations and did not take any corrective
actions. Therefore, using the procedures developed under Operation Safe Home, we submitted
the draft findings to the Assistant United States Attorney for civil matters in Grand Rapids. The
Assistant United States Attorney negotiated a settlement with the owners. Under the terms of the
settlement, the owners agreed to: pay off the HUD mortgage; and reimburse HUD $14,251 for
audit costs and $15,000 for attorney fees. Additionally, the owners accepted a three-year
voluntary debarment by agreeing not to acquire any ownership interest in a HUD property for a
period of three years.

On August 14, 1998, the owners paid off the HUD mortgage of $443,619 and reimbursed HUD
$14,251 for audit costs and $15,000 for attorney fees.

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

                                              Page 2                              98-CH-211-1812
                                                                                        Appendix A

Secretary's Representative, Midwest
Senior Community Builder, Michigan State HUD Office (2)
Director, Multifamily Hub, Michigan State Office (2)
Director, Field Accounting Division, Midwest
Field Comptroller, Midwest
Assistant General Counsel, Midwest
Director, Administrative Service Center, I
Assistant to the Deputy Secretary for Field Management, SDF (Room 7106)
Comptroller/Audit Liaison Officer, Office of Housing, HF (Room 5132) (5)
Acquisitions Librarian, Library, AS (Room 8141)
Director, Participation and Compliance Division, HSLP (Room 9164)
Chief Financial Officer, F (Room 10164) (2)
Deputy Chief Financial Officer for Finance, FF (Room 10164) (2)
General Counsel, C (Room 10214)
Deputy Secretary (Room 10100)
Assistant Secretary for Congressional and Intergovernmental Relations, J (Room 10120)
Deputy Assistant Secretary for Public Affairs, W (Room 10220)
Deputy Assistant Secretary for Operations, A (Room 10110)
Director, Office of Budget ARB (Room 3270)
Chief of Staff, S (Room 10000)
Counselor to the Secretary, S (Room 10234)
Senior Advisor to the Secretary for Communication and Policy, S (Room 10222)
Assistant Secretary for Housing, H (Room 9100)
Assistant to the Secretary for Labor Relations, SL (Room 7118)
Director, Housing and Community Development Issue Area, U.S. GAO,
 441 G Street N.W., Room 2474, Washington DC 20548 (2)
The Honorable John Glenn, Ranking Member, Committee on Governmental Affairs,
  United States Senate, Washington DC 20515-4305
The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs,
  United States Senate, Washington DC 20515-4305
Mr. Pete Sessions, Government Reform and Oversight Committee, Congress of
  the United States, House of Representatives, Washington DC 20510-6250
Ms. Cindy Sprunger, Subcommittee on Gen. Oversight and Invest., Room 212,
  O'Neill Office Bldg., Washington DC 20515

                                              Page 3                                98-CH-211-1812