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Based on a request by the U.S. Department of Housing and Urban Development’s (HUD) multifamily housing Kansas City hub office, we started an audit of three related nursing facilities on August 2008:

• Bartlesville Health Care Center, Inc., doing business as Silver Lake Care Center;
• Mannford Health Care Center, Inc., doing business as Cimarron Pointe Care Center; and
• Owasso Nursing Center, Inc., doing business as Sequoyah Pointe Living Center.

Our initial audit objective was to determine whether the owners of Bartlesville, Mannford, and Owasso and the multifamily accelerated processing lender, Harry Mortgage, followed HUD requirements when refinancing the nursing facilities’ mortgages. While performing audit work, we developed findings that warranted involvement by the U.S. Department of Justice (DOJ).

Less than 1 year before the FHA-insured refinance, Bartlesville obtained a non-FHA-insured second mortgage to pay its owners $2.6 million. Based upon the facts, Harry Mortgage should not have recommended to HUD that FHA insure this mortgage. As a result, the FHA-insured refinance mortgage inappropriately increased the risk to FHA’s insurance fund, and the owners received approximately $2.6 million at the time when they refinanced the nursing home with FHA insurance.

Through the civil settlement, the Government will receive $5.325 million from the owners and lender. HUD will receive $2.644 million, the amount it lost on the sale of the note, and the U.S. Department of the Treasury will receive $2.680 million.