Owner of Brownsville Apartments Didn’t Comply with Regulatory Agreement

HUD auditors conducted a review of Brownsville Apartments in Brownsville, Pa., based on a referral from HUD’s 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.

The auditors determined that the owner of Brownsville Apartments didn’t comply with the project’s regulatory agreement. The owner didn’t maintain sufficient books and records, failed to submit required financial statements to HUD, and didn’t notify HUD as required before permitting a new management agent to operate the project.

The owner also used project funds for ineligible expenses and couldn’t 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 couldn’t 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.

The auditors recommended that the Director of the Pittsburgh Office of Multifamily Housing require the owner to: (1) deposit $138,862, from nonfederal funds, into the project’s reserve for replacement account for the ineligible costs identified by the audit; (2) provide documentation to support the $709,753 in unsupported disbursements identified by the audit or reimburse the project’s reserve for replacement account from nonfederal funds for any disbursements that it can’t support; and (3) 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.

The auditors 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. They further recommended that the Director of HUD’s Departmental Enforcement Center pursue administrative sanctions, as appropriate, against the owner for the regulatory violations cited in the report.

• HUD Audit Report 2013-PH-1804: Brownsville Apartments, Brownsville, PA (7/22/13)