Assistance Listing (Federal award identification number and year): LIHPRHA Capital Grant, Assistance Listing No. 14.122, 122-44641 and 1996; Mortgage Insurance Rental and Cooperative Housing for Moderate Income Families and Elderly, Market Interest Rate, Assistance Listing No. 14.135, 122-35766 and 2024 Auditor non-compliance code: A – Unauthorized withdrawal from replacement reserve Finding resolution status: In process Universe population size: The universe population size is not applicable to the finding. Sample size information: The sample size information is not applicable to the finding. Statistically valid sample: N/A Name of Federal agency: U.S. Department of Housing and Urban Development Pass-through entity: N/A Questioned costs: $122,312 Statement of condition 2025-001: During the year ended June 30, 2025, the Corporation made a reserve for replacement withdrawal without receiving written consent from HUD in the amount of $122,312. Criteria: Pursuant to the HUD Regulatory Agreement and LIHPRHA Capital Grant, reserve for replacements withdrawals may be made only after receiving written consent from HUD. Pursuant to HUD regulations, expenditures covered by withdrawal from the reserve for replacements fund are to be used for the purpose authorized by HUD. Effect: The Corporation is not in compliance with the HUD Regulatory Agreement and LIHPRHA Capital Grant; and the reserve for replacements is underfunded by $122,312. Cause: Management was unable to provide the signed written consent from HUD for the withdrawal from the reserve for replacement. Recommendation: Management should request the written consent from HUD for the withdrawal retroactively or transfer $122,312 from the operating account to the reserve for replacements account. Management's response: Management disagrees. Prior to the December 13, 2024 closing date of the $17.9 million FHA insured loan, Hollywood West Apartments had no HUD loan. All debts were paid off except for the up to $500,000 predevelopment loan. At the December 13, 2024 closing the $17.9 million FHA insured mortgage, Lument Real Estate Capital, LLC set up an $84,000 reserve for replacement (r/r) account for Hollywood West Apartments. HUD then was back in control of the r/r account. There remained another non-functioning r/r account for $122,000 that was no longer the current r/r account for Hollywood West Apartments. Those $122,311 funds, which were no longer the Hollywood West Apartments r/r monies, were transferred on February 4, 2025 to the project’s operating account.
Assistance Listing (Federal award identification number and year): LIHPRHA Capital Grant, Assistance Listing No. 14.122, 122-44641 and 1996; Mortgage Insurance Rental and Cooperative Housing for Moderate Income Families and Elderly, Market Interest Rate, Assistance Listing No. 14.135, 122-35766 and 2024 Auditor non-compliance code: J – Unauthorized management fees Finding resolution status: In process Universe population size: The universe population size is not applicable to the finding. Sample size information: The sample size information is not applicable to the finding. Statistically valid sample: N/A Name of Federal agency: U.S. Department of Housing and Urban Development Pass-through entity: N/A Questioned costs: $7,988 Statement of condition 2025-002: Management fees of $7,988 were prepaid at June 30, 2025. Criteria: In accordance with the HUD approved Management Agent Certification (HUD-9839-B), the management agent earns a fee based on an established rate of 8.77% of residential and miscellaneous income collected or $81 per unit per month, whichever is less, effective July 1, 2024 through July 31, 2024 and an established rate of 10% of residential and miscellaneous income collected or $69 per unit per month, whichever is less, effective August 1, 2025. Effect: The Corporation is not in compliance with the HUD approved Management Agent Certification. As a result, the Property's cash position at June 30, 2025 has been reduced by $7,988. This amount has been added to the computation of surplus cash, distributions, and residual receipts to not understate the Property's residual receipt deposit. Cause: The management did not consider the lesser of the per unit per month fee or the percentage fee when calculating the management fee due for the year ended June 30, 2025. Recommendation: The management agent should charge management fees as approved by HUD and should reimburse management fees of $7,988 to the Property. Management's response: Management disagrees. Upon checking with my attorney, he felt that there was a misreading of the 9839b. That document contains only one limitation: that the management fee is capped at 10% of actual gross rent that is defined on the form. The line item that contains the PUPM calculation merely determines the PUPM assuming a collection factor of 95% of gross income. The fee is not the lesser of 10% of gross or $69 PUPM. HDSI took over management in the winter of 2020. It took about 3 years to get the FHA loan and predevelopment work in place to for an initial endorsement, about the fall of 2024. I began work on trying to get the funds to repair the non-safe, decent or sanitary buildings in early 2021. This was after HDSI began repairing a few vacant units. The vacant units cost $15,000 per unit. The buildings did not have seismic security. They were being held up in some cases by deteriorated wood that did not touch the foundation. The window frames and some behind the wall boards were termite destroyed. The list of repairs goes on. From a management perspective, each of the 12 units that remained vacant would have cost an average of $15,000 to repair or $144,000. The units were scattered amongst the 5 properties. Each of the buildings had to be vacated during repairs which meant having residents relocated for an average of 5 weeks or 35 days. Each hotel night is approximately $180 per night or $6,300 for 35 days per unit. There is daily cost for food of about an average $75 per apartment or $2,625. Next there is the unit furniture packing, moving, storage and replacement of about $200 a unit. That totals an estimated $24,125 from the unit repair through relocation during construction x 12 or $289,500. This was a cost that the project could not afford prior to the FHA insured loan. The rent per unit was between $720 and $848 depending on an efficiency or a one bedroom. Taking an average $800 per month, the rental unit for 12 months brought in $9,600. The cost to repair, relocate, feed and replace is $24,125. That is a cash loss per unit of $14,525 x 12 or $150,300 over the 12 month period assuming full occupancy. The costs of a unit to repair, relocate, feed and replace were included in the $17.9 million FHA insured loan. A vacant unit would have only a project cost of an average $15,000 for the above example. That is a large cash saving for rehabilitating Hollywood West Apartments. Almost all vacant units were rented within a month after project completion of repairs. Additionally, management disagrees with the management fee applicable for the period July 1, 2024 through July 31, 2024. The statement indicates that the July 2024 management fee was $81 per unit per month (PUPM). However, at no time did management bill or collect a management fee of $81 PUPM for that period. According to the Management Certification Agreement on file, the fee was $59 PUPM. Effective August 1, 2024, the approved management fee increased to $69 PUPM. Management only started collecting $80 PUPM in April 1, 2026.
Assistance Listing (Federal award identification number and year): LIHPRHA Capital Grant, Assistance Listing No. 14.122, 122-44641 and 1996; Mortgage Insurance Rental and Cooperative Housing for Moderate Income Families and Elderly, Market Interest Rate, Assistance Listing No. 14.135, 122-35766 and 2024 Auditor non-compliance code: Z - Other Finding resolution status: In process Universe population size: The universe population size is not applicable to the finding. Sample size information: The sample size information is not applicable to the finding. Statistically valid sample: N/A Name of Federal agency: U.S. Department of Housing and Urban Development Pass-through entity: N/A Questioned costs: N/A Statement of condition 2025-003: The Corporation did not submit audited financial statements to the Federal Audit Clearinghouse after the receipt of the auditor's reports timely for the year ended June 30, 2024. Criteria: Pursuant to 2 CFR 200.512(a), the Corporation is required to electronically submit audited financial statements to the Federal Audit Clearinghouse within the earlier of 30 calendar days after receipt of the auditor's report or nine months after the end of the audit period. Effect: The Corporation is not in compliance with the federal reporting requirements. Cause: There were delays in obtaining all of the information required to complete the audit. Recommendation: The Corporation should submit audited financial statement to the Federal Audit Clearinghouse within the time frames required. Management's response: Management concurs with the finding and recommendation. The audited financial statements were submitted on April 10, 2026.
Assistance Listing (Federal award identification number and year): LIHPRHA Capital Grant, Assistance Listing No. 14.122, 122-44641 and 1996; Mortgage Insurance Rental and Cooperative Housing for Moderate Income Families and Elderly, Market Interest Rate, Assistance Listing No. 14.135, 122-35766 and 2024 Auditor non-compliance code: Z - Other Finding resolution status: In process Universe population size: The universe population size is not applicable to the finding. Sample size information: The sample size information is not applicable to the finding. Statistically valid sample: N/A Name of Federal agency: U.S. Department of Housing and Urban Development Pass-through entity: N/A Questioned costs: N/A Statement of condition 2025-004: The Corporation did not furnish HUD with a complete annual financial report within ninety (90) days following the year ended June 30, 2025. Criteria: Pursuant to the HUD Regulatory Agreement and LIHPRHA Capital Grant, within 90 days, or such a period established in writing by HUD, following the fiscal year end, the Corporation is required to furnish to HUD a complete annual financial report based upon the examination of the books and records of the Corporation prepared in accordance with GAAP and with the requirements of HUD, and audited in accordance with Generally Accepted Auditing Standards and Government Auditing Standards. Effect: The Corporation is not in compliance with the HUD Regulatory Agreement and LIHPRHA Capital Grant. Cause: There were delays in obtaining all of the information required to complete the audit. Recommendation: The Corporation should ensure the annual financial report is filed within 90 days of year end. Management's response: Management concurs with the finding and recommendation. The audited financial statements have been submitted to HUD. No further action is required.
Assistance Listing (Federal award identification number and year): LIHPRHA Capital Grant, Assistance Listing No. 14.122, 122-44641 and 1996; Mortgage Insurance Rental and Cooperative Housing for Moderate Income Families and Elderly, Market Interest Rate, Assistance Listing No. 14.135, 122-35766 and 2024 Auditor non-compliance code: Z - Other Finding resolution status: In process Universe population size: The universe population size is not applicable to the finding. Sample size information: The sample size information is not applicable to the finding. Statistically valid sample: N/A Name of Federal agency: U.S. Department of Housing and Urban Development Pass-through entity: N/A Questioned costs: N/A Statement of condition 2025-005: The Corporation's accounting books and records as submitted for audit included certain accounts which were not presented in accordance with accounting standards generally accepted in the United States of America ("GAAP"). As a result, audit adjustments provided by management were required to present the June 30, 2025 financial statements in accordance with GAAP. Criteria: Pursuant to the HUD Regulatory Agreement and LIHPRHA Capital Grant, the books and records of the Company are required to be kept in accordance with the requirements of HUD, which includes adequate design and monitoring of controls to safeguard the Corporation's assets. Chapter 2 of the Financial Operations and Accounting Procedures of Insured Multi-Family Projects Handbook (Handbook 4370.2 Rev.1) provides the accounting and financial operations requirements of a HUD insured multi-family property including: maintenance of books and records, completeness and accuracy of books and records, and an auditable paper trail. Effect: The Corporation is not in compliance with the terms of the HUD Regulatory Agreement and LIHPRHA Capital Grant. Audit adjustments provided by management were required to present the June 30, 2025 financial statements in accordance with GAAP. Cause: Certain reconciliations were not completed or reviewed timely which resulted in unrecorded journal entries. Recommendation: Management should review the internal controls to ensure that the accounting software allows for timely recording of information and that a timely review of the reconciliations is completed by another accountant not responsible for the month end close. Management's response: Management concurs with the finding and the auditor's recommendation. The accounting software provider is being changed and a new system to indicate review and approval of the month end closing process will be implemented.