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We audited the U.S. Department of Housing and Urban Development’s (HUD) resident home-ownership program grant for West Park Place Condominium (project) based on the results of a risk assessment of multifamily housing programs in Region 5’s jurisdiction (States of Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin) and the activities in our fiscal year 2016 annual audit plan.  Our objective was to determine whether the West Park Place Condominium Association (Condominium Association) and management agent operated the project in accordance with HUD’s requirements and HUD’s grant agreement with the West Park Place Resident Association for Preservation (Preservation Association).

The Preservation Association did not transfer ownership of the project’s units to the Condominium Association as required and still owned eight of the units as of July 2016.  The Condominium Association and management agent did not determine the fair market value of units to support (1) that owners did not pay more than the fair market value for their units, (2) that HUD’s secured interest in the units was appropriately valued, and (3) the amount of net proceeds that should have been paid to the City’s HOME investment trust fund from subsequent unit sales.  Further, the Condominium Association and management agent could not provide sufficient documentation to support that (1) the payments to HUD for initial unit sales were accurate, (2) the Condominium Association used its share of the proceeds from initial unit sales in accordance with the grant agreement, and (3) housing was affordable for all members.  As a result, the Condominium Association is at risk of having to reimburse HUD nearly $13.9 million in program funds.

We recommend that the Director of HUD’s Multifamily Midwest Region (1) require the Condominium Association to resolve the issues and implement adequate procedures and controls to address the weaknesses cited in this audit report and (2) make a preliminary determination as to whether the Condominium Association is in default of the grant agreement.