The best laid schemes…
A housing cooperative that was once the national model for affordable homes may have to repay nearly $23 million to the Department of Housing and Urban Development, thanks to faulty bookkeeping, a government watchdog reported Friday.
The Chicago-based Carmen-Marine Cooperative bought and renovated a dilapidated apartment building with a $23 million HUD award and sold shares to tenants for membership, but the group was missing documents that showed it complied with the grant’s requirements, according to a HUD inspector general report.
“The cooperative is at risk of having to reimburse HUD nearly $22.7 million in program funds as allowed by the grant agreement,” the report said. “These weaknesses occurred because the cooperative and management agent lacked adequate procedures and controls to ensure that the project was operated in accordance with HUD’s requirements and the grant agreement.”
The apartment building overlooking Lake Michigan “was hailed as a model for affordable housing,” the Chicago Tribune reported in 2006.
The co-op was supposed to pay HUD 50% of any of the initial membership sales. But there wasn’t “sufficient documentation to support that the cooperative made payments to HUD,” the report said.
Carmen-Marine blamed a former management agent who “did not maintain adequate records of initial sales and the Cooperative did not always maintain records for initial members after they sold their memberships to subsequent members,” the co-op’s board president told the IG.
Also, Carmen-Marine “did not have access to general ledgers, bank statements, canceled checks, or rent rolls before September 2006,” the report said. It also didn’t have documents that showed how much tenants paid for their co-op memberships, such as closing statements and copies of checks.
Carmen-Marine “did not ensure that membership fees did not exceed 35% of the members’ monthly adjusted gross income other than upon membership sales,” the report said. Consequently, the co-op couldn’t subsidize low-income members as required by the HUD grant.
Additionally, “the cooperative did not submit reports to HUD to demonstrate continued compliance with the program,” the report said. The reports were to include information such as vacancies and non-member tenants.
There were also issues with the waiting list to join the membership.
One co-op one member, for example, was allowed to skip the waiting list and moved within the building to a larger one-bedroom unit, but paid the membership rate of the previous, smaller unit.
In fact, that was the exact scheme played by Valentin Dragos, the Chicago Tribune reported in 2006, though the IG did not report names. The article also noted other examples where favorites were allowed to forgo the waiting list.
The IG recommended that HUD’s Multifamily Midwest Region director “make a preliminary determination as to whether the Cooperative is in default of the grant agreement,” the report said.
Carmen-Marine officials told HUD they operated in compliance with the grant, but agreed “that certain record keeping and reporting procedures can be improved,” the report said.
Carmen-Marine “has used all reasonable and diligent efforts to comply in all material respects with all requirements applicable to its resident homeownership program since inception,” the co-op wrote in its response to the IG. “Changes in management, legal advisors, on-site personnel and board members have contributed to errors that CMC is ready, willing and able to correct.”
This report, by Ethan Barton, was cross-posted by arrangement with the Daily Caller News Foundation.