Finding Text
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.