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Report Fraud, Waste and Abuse
November 01, 2009
IED-09-005
IED-09-005.pdf

We conducted an inspection of post-Mark-to-Market (M2M) restructuring of mortgage debt of Lakeshore Village Apartments (Lakeshore Village), Cleveland, OH, to determine the validity of an informal complaint from HUD’s Multifamily Office of Asset Management (OAM).  OAM staff was concerned that, in approving the assignment and assumption of the restructured debt instruments, HUD’s Office of Affordable Housing Preservation (OAHP) was not sufficiently verifying information provided from purchasers and sellers and stated that OAHP (1) allowed the nonprofit purchaser to retain approximately $400,000 that should have been remitted to HUD, (2) failed to provide timely information to OAM during the decision-making process, and (3) ignored questions raised by OAM staff about the amount of proceeds due HUD at loan closing.

Our inspection did not substantiate any of the allegations in the informal complaint.  OAHP followed HUD guidelines appropriately in calculating the post-M2M proceeds due HUD at closing, took into consideration questions raised by OAM staff during the loan approval process, and did not ignore OAM’s concerns.  Nevertheless, OAHP and OAM could not reach full agreement on some of OAM’s concerns.  Going forward better communications between the two offices are needed to adequately resolve questions raised during the loan approval process.  Apart from our inspection objective, we observed three other matters that the Office of Housing should address concerning (1) certified source and use of funds statement, (2) voting rights on the Assumption/Subordination Loan Committee, and (3) safe harboring certification.

We recommended that the Office of Housing ensure that (1) OAM and OAHP continue their pre-loan committee meetings and provide a comprehensive record of the concerns raised and the decisions arrived at during the assignment and assumption approval process, (2) the assignment and assumption approval process not be completed until such time as a certified source and use of funds statement is received by OAHP, (3) existing HUD guidelines are amended as soon as possible to clarify OAHP’s and OAM’s responsibilities during the assignment and assumption approval process, and (4) nonprofit purchasers who intend to qualify for safe harboring status include a certification of their independence from any for-profit entity by declaring, “the information contained in these documents is true and correct under the penalty of perjury.”