Public Housing:

Planned Kenilworth-Parkside Sale Raises Issues for Future Transactions

RCED-90-26: Published: Dec 1, 1989. Publicly Released: Dec 6, 1989.

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GAO reviewed the District of Columbia's pending sale of the Kenilworth-Parkside public housing property to the Kenilworth-Parkside Resident Management Corporation, focusing on: (1) its plan to initiate resident management corporation (RMC) sales of individual units to tenants; (2) capital-producing approaches RMC could pursue after attaining ownership; and (3) the potential effects of RMC financial mismanagement.

GAO found that: (1) the District of Columbia's plan did not determine the ownership share price and tenant ownership feasibility or establish a planned cooperative for financing tenants' share purchases; (2) the Department of Housing and Urban Development (HUD) was developing evaluation guidelines for resident ownership applications; (3) legislation did not restrict RMC partnerships for generating tax credits or RMC use of the property as collateral, but did preclude subdividing and selling surrounding, undeveloped land; (4) if RMC defaulted on mortgage loans, lenders could dissolve RMC and acquire property ownership, thus changing the property's low-income status; (5) funding for any property renovations and operations after RMC acquire ownership will come from existing HUD programs; and (6) legislative policies and procedures for implementing RMC ownership programs need further development.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: HUD-planned regulations for resident homeownership under section 123 of the Housing and Community Development Act have not yet been drafted. Legislation was passed which partially addressed these recommendations. The Housing and Community Development Act of 1992 made minor changes to the Resident Homeownership Program (Sec. 309). Recommendation should be closed.

    Matter: If Congress decides to extend the resident ownership legislation beyond September 30, 1990, it may wish to consider providing more specific guidance regarding whether: (1) limits on the time RMC may hold a property before commencing unit sales are needed; (2) RMC should be able to use the property for capital-producing activities; and (3) a method is needed to ensure that decisions made by HUD regarding the distribution of funds from other HUD programs to fund public housing homeownership are equitable and in keeping with the tenant ownership intent of the legislation.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: HUD has completed action on part 1 of the recommendation by making changes to applicable agency guidelines. Part 2 is included in the Kenilworth-Parkside contract for resident homeownership. Resident ownership is now under new HOPE I program. This program has incorporated in its regulations the essence of the GAO recommendation. Recommendation should be closed.

    Recommendation: At a minimum, the Secretary of Housing and Urban Development should direct the Office of Resident Initiatives to revise its guidelines to require: (1) an assessment of the feasibility of ownership by the families residing in a public housing development before the sale of the property to RMC takes place; and (2) that the public housing authority be given the first right to repurchase the property by satisfying any lien on the property in the event RMC is unable to meet its financial obligations.

    Agency Affected: Department of Housing and Urban Development

 

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