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Multifamily Housing: Impact of Loan Sales on Tenants and Properties Varies by Property

RCED-00-31 Published: Jan 20, 2000. Publicly Released: Jan 20, 2000.
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Highlights

Pursuant to a congressional request, GAO provided information on the impact of loan sales on tenants and properties, focusing on: (1) the impact on tenants as project-based assistance contracts expire; and (2) the steps that the Department of Housing and Urban Development (HUD) has taken to ensure that mortgage purchasers honor the tenant protections.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Housing and Urban Development To ensure that all affected parties receive information on the tenant protections and that procedures are in place for enforcing the protections, the Secretary of Housing and Urban Development should notify housing authorities and assisted tenants associated with partially assisted loan sale properties of the tenant protections and of their right to seek judicial enforcement of these protections.
Closed – Implemented
The Office of Asset Management within the Office of Multifamily Housing has prepared a list of the projects that are affected by the tenant protection provisions of the multifamily loan sale. This list has been provided to the Office of Public and Indian Housing, which has sent a notice (letter dated May 20, 2001) to the local Housing Authorities, informing them of the tenant protections.
Department of Housing and Urban Development To ensure that all affected parties receive information on the tenant protections and that procedures are in place for enforcing the protections, the Secretary of Housing and Urban Development should follow up with housing authorities to determine whether they are able to enforce the tenant protections or whether further steps are needed to enforce the protections.
Closed – Implemented
Letter notifying public housing authorities of the tenant protections was mailed on May 20, 2001.
Department of Housing and Urban Development To ensure that all affected parties receive information on the tenant protections and that procedures are in place for enforcing the protections, the Secretary of Housing and Urban Development should ensure that HUD Multifamily Housing field staff are aware of the tenant protections.
Closed – Implemented
On April 5, 2001, Frederick Tombar, Acting Deputy Assistant Secretary for Multifamily Housing Programs sent a memo to field office staff and section 8 contract administrators, informing them of the tenant protections in the HUD Loan Sales, and requiring them to notify the owners of individual projects in their service area, requesting them to post a notice of tenant protections in each project by no later than April 30, 2001.
Department of Housing and Urban Development To ensure that all affected parties receive information on the tenant protections and that procedures are in place for enforcing the protections, the Secretary of Housing and Urban Development should ensure that the tenant protections are being recorded in deed covenants.
Closed – Implemented
The Office of Asset Management has contracted for a new equity monitor. On April 6, 2001, the equity monitor sent an email message to James Mitchell in the HUD Office of Asset Management, informing them that they have been reviewing the deed covenants to ensure that the tenant protections have been properly recorded.
Department of Housing and Urban Development To ensure that all affected parties receive information on the tenant protections and that procedures are in place for enforcing the protections, the Secretary of Housing and Urban Development should provide information on the tenant protections to the owners of all partially assisted loan sale properties and ensure that the owners understand the prohibition against unreasonably refusing to rent to voucher and certificate holders for the appropriate time period.
Closed – Implemented
On April 5, 2001, Frederick Tombar, Acting Deputy Assistant Secretary for Multifamily Housing Programs sent a memo to field office staff and section 8 contract administrators, informing them of the tenant protections in the HUD Loan Sales and requiring them to notify the owners of individual projects in their service area, requesting them to post a notice of tenant protections in each project by no later than April 30, 2001.
Department of Housing and Urban Development To ensure that all affected parties receive information on the tenant protections and that procedures are in place for enforcing the protections, the Secretary of Housing and Urban Development should determine whether the three properties that, according to housing authorities, refused to accept vouchers and certificates, and the one property that accepted vouchers only from current tenants, violated the prohibition against discrimination and if so, take appropriate enforcement action.
Closed – Implemented
In April 2001, the Office of Asset Management sent a request to HUD's Enforcement Center requesting them to investigate the four properties in question to determine whether they had violated the tenant protection provisions in the HUD Loan Sales. In August 2001, an Enforcement Center official provided an update on the investigation. According to the official, the first two property loans were paid off before the loan sale was executed and therefore, the tenant protections were never applicable. In the case of the third property, Meadowbrook, although the owner had informed GAO that it did not plan to accept vouchers from tenants other than existing residents, the Enforcement Center could not find any tenants who actually had been refused because they were voucher holders. In the case of the fourth project, Sunflower East, the Enforcement Center confirmed that the owner was not aware of the tenant protections in the Loan Sale agreement and he has stated in writing that the tenant protections would be observed in the future.
Department of Housing and Urban Development To ensure that the federal funds provided for property improvements are being used in accordance with the terms of the partially assisted loan sale agreement, the Secretary of Housing and Urban Development should retain a new equity monitor to review the actions of the general partner and special servicer, including the servicer's use of property improvement funds. The monitor should focus on actions taken since April 1998, when the previous equity monitor's contract expired.
Closed – Implemented
The Office of Asset Management has contracted for a new equity monitor. The principal task of the equity monitor is to ensure that the trust is operated, and the assets managed in accordance with the terms of the transaction documents so that FHA receives the maximum recovery.
Department of Housing and Urban Development To ensure that the Missouri Housing Development Commission (MHDC) has used its best efforts to encourage existing owners to rehabilitate their properties, the Secretary of Housing and Urban Development should ask MHDC in writing to provide a progress report to HUD. Besides providing the information specified in the loan sale agreement, this report should indicate how much funding has been spent on improvements that extend each property's expected useful life, what other funding has been used to finance these improvements, and what role, if any, MHDC may have had in encouraging these improvements. This information may provide useful lessons to HUD for the design of any future subsidized multifamily loan sales.
Closed – Implemented
The Office of Asset Management requested in writing that the Missouri Housing Development Commission provide information on the funding of property improvements at loan sale properties, and changes that have occurred at loan sale properties.

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Topics

DiscriminationFederal aid for housingHousing programsHousing repairsLaw enforcementLow income housingMortgage loansRent subsidiesSales contractsMortgages