We conducted a review of Brownsville Apartments based on a referral from the U.S. Department of Housing and Urban Development’s (HUD) Departmental Enforcement Center and the Pittsburgh Office of Multifamily Housing due to concerns that project funds were used inappropriately for purposes other than the operation of the project.  This concern was due largely to the owner’s lengthy history of being uncooperative with HUD.  Our objective was to determine whether the owner of Brownsville Apartments complied with the project’s regulatory agreement.

The owner of Brownsville Apartments did not comply with the project’s regulatory agreement.  The owner did not maintain sufficient books and records, failed to submit required financial statements to HUD, and failed to notify HUD as required before permitting a new management agent to operate the project.  The owner also used project funds for ineligible expenses and could not demonstrate that all costs incurred were fair and reasonable for expenses related to the project.  This condition occurred because the project lacked controls to ensure that it complied with its regulatory agreement and applicable requirements and because of the owner’s demonstrated cavalier attitude toward his responsibilities as an owner of a HUD-funded housing project.  As a result, the owner materially violated the terms of the project’s regulatory agreement, and HUD could not determine whether mortgage payments were owed by the owner against the HUD-held mortgage and, if they were owed, how much was owed.  In addition, the project incurred ineligible expenditures totaling $138,862 and unsupported expenditures totaling $709,753.

We recommended that the Director of the Pittsburgh Office of Multifamily Housing require the owner to deposit $138,862, from non-Federal funds, into the project’s reserve for replacement account for the ineligible costs identified by the audit; provide documentation to support the $709,753 in unsupported disbursements identified by the audit or reimburse the project’s reserve for replacement account from non-Federal funds for any disbursements that it cannot support; and calculate and support the amount of funds required to be on deposit in the tenant security deposit account and deposit funds into the account, if needed, so that the balance in the account is equal to or exceeds the amount of funds required to be in the account.  We also recommended that the Director declare the project in default of its regulatory agreement and apply remedies available under the regulatory agreement up to and including foreclosure.  We recommended that the Director of HUD’s Departmental Enforcement Center pursue administrative sanctions, as appropriate, against the owner for the regulatory violations cited in this memorandum.