Our review disclosed that the Family Living project has suffered serious financial problems, including a default on the HUD-insured mortgage, and had ceased being a profitable entity. These problems were caused by questionable cash distributions (withdrawals) from the project bank accounts by the Owner. We consider these distributions, totaling $455,439, to be "equity skimming" and to be in violation of applicable Federal statutes and HUD regulations. By means of these distributions, the Owner diverted project funds from June 2000 to February 2002 to other businesses he owned and for personal expenses.

Due to the poor financial condition of the project, and to ensure the safety and continued care of the residents of the project, the State of Maine took control of Family Living in February 2002. In November 2002, pursuant to a decision by HUD to foreclose on the property, the tenants were moved from the facility and the project discontinued operations. As of April 2003, the Owner owed $3,662,822 in mortgage principal, interest, and miscellaneous charges to HUD. We have included as part of this report an audit finding that provides pertinent details on our review and contains recommendations requiring action by your office.