The U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General audited National Home Management Solutions (National Home), HUD’s management and marketing contractor for HUD real estate-owned properties in Ohio. We selected National Home based on a citizen’s complaint received by our office. Our objective was to determine whether National Home complied with HUD’s requirements regarding the sale of HUD single-family real estate-owned properties (HUD homes). The audit was part of the activities in our fiscal year 2009 annual audit plan.

National Home did not fully comply with its HUD contract and HUD’s requirements regarding the sale of HUD homes. It did not always notify backup bidders when the winning bidders failed to provide executed sales contracts and/or accept prospective buyers’ preliminary bids to purchase HUD homes in a timely manner. National Home also did not maintain adequate documentation to support (1) its reanalysis for homes that did not sell within the first 45 days of market exposure or (2) its rationale for accepting bids that were below HUD’s minimum acceptable bid amounts and/or did not result in the highest net returns to HUD. As a result, HUD lacked assurance that National Home represented HUD’s best interest in the management and marketing of its homes and maximized the net returns to the Federal Housing Administration insurance fund. Further, we reviewed 10 HUD homes that were the subject of the complainant’s allegations regarding National Home’s awarding of the homes to buyers that did not submit the highest bids. National Home received approval from HUD to award the homes when the winning bid amounts were below HUD’s minimum acceptable bid amounts at the time the homes were listed on the market for sale or did not result in the highest net returns to HUD. However, National Home did not maintain documentation of its rationale for accepting the bids for 2 of the 10 homes as required under its HUD contract.

We recommend that the Deputy Assistant Secretary for Single Family Housing require National Home to provide documentation showing that HUD approved the acceptance of the bids and the rationale for why acceptance of such bids would be in HUD’s best interest, as required under its contract, or reimburse HUD $36,455 from non-Federal funds for the losses HUD incurred on the five properties. We also recommend that the Deputy Assistant Secretary require National Home to implement adequate procedures and controls to ensure compliance with its HUD contract, including but not limited to maintaining documentation to support its (1) rationale for approving bids below HUD’s minimum acceptable bid amounts or bids that do not result in the highest net return to HUD, (2) analyses of homes that have been on the market in excess of 45 days, and (3) notification of backup bidders in accordance with its HUD contract.