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Presentation, discussion, and possible action regarding the adoption of an Agreed Final Order concerning Eban Village I (HTC # 95047/ CMTS # 1354) and Eban Village II (HTC # 99022 / CMTS 2087)
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RECOMMENDED ACTION
recommendation
WHEREAS, Eban Village I and Eban Village II, owned by HHF Eban Village 2021, LLC (Owner), have uncorrected compliance findings relating to the applicable land use restriction agreements and the associated statutory and rule requirements;
WHEREAS, this ownership group that is controlled by Hope Housing Foundation has a history of violations, and signed three prior Agreed Final Orders;
WHEREAS, the terms of two Agreed Final Orders signed in 2017 were met and the administrative penalties were partially forgiven, with a collective $1,000.00 paid;
WHEREAS, the terms of an Agreed Final Order signed in 2018 were violated, and the full $10,000.00 administrative penalty due under that Order was paid;
WHEREAS, TDHCA identified new findings of noncompliance during its regularly scheduled 2023 NSPIRE inspection, and referred the Owner for an administrative penalty when the noncompliance was not timely corrected;
WHEREAS, TDHCA identified new findings of noncompliance during its regularly scheduled 2024 file monitoring review, and referred the Owner for an administrative penalty when the noncompliance was not timely corrected;
WHEREAS, partial corrections were received after referral to the Enforcement Committee;
WHEREAS, current unresolved findings of noncompliance include failure to implement an updated utility allowance, failure to provide special needs housing, and two household income violations;
WHEREAS, an Enforcement Committee informal conference was held on August 29, 2024, and Owner agreed, subject to Board approval, to enter into an Agreed Final Order assessing an administrative penalty of $23,125.00, with fifty percent of the assessed penalty due upon signature, and the remainder subject to subject to probation and forgiveness if Owner submits full corrections by November 12, 2024; and
WHEREAS, staff has based its recommendations for an Agreed Final Order on the Department’s rules for administrative penalties and an assessment of each and all of the statutory factors to be considered in assessing such penalties, applied specifically to the facts and circumstances present in this case.
NOW, therefore, it is hereby
RESOLVED, that an Agreed Final Order assessing an administrative penalty of $23,125.00, subject to partial forgiveness as outlined above, for noncompliance at Eban Village I (HTC # 95047 / CMTS # 1354) and Eban Village II (HTC # 99022 / CMTS 2087), substantially in the form presented at this meeting, and authorizing any non-substantive technical corrections, is hereby adopted as the order of this Board.
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BACKGROUND
Property and Financing Information: HHF Eban Village 2021, LLC (Owner) is the current owner of Eban Village I (Eban I) and Eban Village II (Eban II), a two-phase apartment complex composed of 110 units and 220 units, respectively, located in Dallas (collectively, the “Properties”).
Eban I is subject to a Land Use Restriction Agreement (LURA) signed by a prior owner in 1997 in consideration for a housing tax credit allocation to acquire, rehabilitate and operate Eban I. Eban II is subject to a LURA signed by a prior owner in 2002 in consideration for a housing tax credit allocation to build and operate Eban II. HHF Eban Village I & II, LLC, controlled by Hope Housing Foundation (HHF), purchased the Properties in 2013 with TDHCA approval, and signed Agreements to Comply. On January 10, 2022, ownership was transferred to HHF Eban Village 2021, LLC as part of a refinancing transaction. They did not provide notice of that transfer to TDHCA as required by 10 TAC §10.406, however, the two entities are affiliates under the control of HHF, with no new principals. In accordance with Section 2 of the Eban I LURA and the Eban II LURA (collectively, the “LURAs”), the LURAs are restrictive covenants/deed restrictions encumbering both phases, and are binding on all successors and assigns for the full terms of the LURAs.
Alvin Johnson is the president of HHF and the primary CMTS owner contact. The Texas Secretary of State lists the following members of HHF’s board of directors: Shedrick Howard, Darrell Foster, Doneric Norwood, Susan Richardson, and Pamela Thomas, but the owner represents that the current board of directors includes: Ariel Bushel, Derrick Bridget, Doneric Norwood, Susan Richardson, Darrel Foster, and Pamela Thomas. Rampart Management is the prior property management company, but Owner hired Integrity Rise Management LLC after receiving the administrative penalty referrals that are the subject of this board item.
Enforcement History: HHF currently controls four actively monitored properties, all of which have a history of administrative penalty referrals. HHF has three prior Agreed Final Orders:
1. Agreed Final Order signed in 2017 for Eban I, agreeing to an administrative penalty of $500.00 for uncorrectable noncompliance relating to failure to provide supportive services.
2. Agreed Final Order signed in 2017 for Ridge at Trinity (HTC 04608 / Bond 04608B / CMTS 4198), agreeing to an administrative penalty of $5,000.00 relating to file monitoring noncompliance, with $500.00 due at signing and the remainder to be forgivable provided that the owner complied with all requirements. Owner complied with this Order.
3. Agreed Final Order signed in 2018 for Ridge at Trinity (HTC 04608 / Bond 04608B / CMTS 4198), agreeing to an administrative penalty of $10,000.00 relating to file monitoring noncompliance, with $2,500.00 due at signing and the remainder to be forgivable provided that the owner complied with all requirements. Owner violated this Order. The owner paid the full administrative penalty timely upon demand, but corrected the final violation over a year after the order was signed.
More recently, Eban I and Eban II were referred for an administrative penalty in 2021 and 2022, respectively, for failure to timely resolve noncompliance identified during Uniform Physical Condition Standards (UPCS) inspections. However, the Enforcement Committee approved corrective plans for both Properties due to a variety of factors, including backordered parts due to pandemic supply chain problems and an ongoing full property rehabilitation that was financed by non-TDHCA bonds in 2022. The noncompliance was resolved informally per those plans.
Noncompliance Subject to an Administrative Penalty: TDHCA identified findings of noncompliance during a National Standards for the Physical Inspection of Real Estate (NSPIRE) inspection of Eban I on October 19, 2023. TDHCA also identified file findings of noncompliance during an onsite file monitoring review of Eban II on January 26, 2024. Both were referred to the Enforcement Committee for an administrative penalty on June 10, 2024.
1. Findings that were resolved after referral:
a. NSPIRE noncompliance at Eban I. See Attachment 1 for a copy of the report.
2. Findings that remain unresolved:
a. Failure to implement updated utility allowance by January 1, 2024;
b. Failure to provide evidence that special needs housing is being provided. Appendix A of the LURA requires at least 10% of the units (22 total units) to be set aside for persons with physical or mental disabilities. At the time of the onsite review, no households were designated as special needs, although this is likely a reporting error;
c. Program Unit not leased to Low-Income household/Household income above income limit upon initial occupancy affecting unit 0399. On August 30, 2023, the unit was occupied by a household with an annual income of $77,480, exceeding the 4-person limit of $65,040.00; and
d. Program Unit not leased to Low-Income household/Household income above income limit upon initial occupancy affecting unit 1113. A household that was not screened to ensure qualification for the program occupied the unit on March 5, 2021. The file did not include an application or verifications.
Administrative Penalty Factors: Owner participated in an informal conference with the Enforcement Committee on August 29, 2024. The Enforcement Committee analyzed the required statutory factors for determining an appropriate administrative penalty as follows:
1. The seriousness, extent, and gravity of the violations: The NSPIRE report for Eban I was short, but included serious noncompliance, such as faulty ground-fault circuit interrupters (GFCI). The unusually large number of identified faulty GFCIs is in part due to the Department change from the Uniform Physical Condition Standards (UPCS) inspection protocol to the NSPIRE inspection protocol, but it is a concerning and serious safety finding, particularly in the bathrooms. There were also multiple fire extinguisher issues of noncompliance. The file monitoring referral for Eban II was mixed in terms of severity. Failure to implement an updated utility allowance on January 1, 2024, is severe because it could potentially cause gross rent overcharges. The special needs noncompliance is less severe because Eban II likely does have at least 22 households that meet the special needs definition, so this is likely a disclosure and reporting problem. The two household income issues of noncompliance are severe since a household that exceeded the income limit at initial occupancy occupies one of the units, and the other cited household was not screened for qualification.
2. Hazard posed to the health or safety of the public: Noted above regarding GFCIs and fire extinguishers.
3. Hazard posed to the public’s economic welfare: There are potential economic impacts for failure to provide complete documentation proving eligibility at initial occupancy. Not screening tenants and/or accepting households that are above the income-limit means that qualified households in the area cannot benefit from this housing. There are also potential economic impacts from not implementing an updated utility allowance, however, that impact will be unknown until Owner implements the updated utility allowance so that TDHCA can analyze gross rents. If TDHCA identifies gross rent noncompliance, it will set a separate 90-day corrective action deadline to refund overcharged rents outside of this Agreed Final Order.
4. Efforts made to correct the violations: Owner did not respond regarding the NSPIRE inspection for Eban I, and submitted one incomplete tenant file two weeks after the file monitoring deadline for Eban II. While the referred NSPIRE noncompliance was resolved after intervention by the Enforcement Committee, the referred file monitoring noncompliance remains unresolved. Owner submitted partial file monitoring corrections for the Enforcement Committee on July 30, 2024, but the submission was incomplete, demonstrating confusion regarding how to compile a complete tenant file, failure to supervise property management, and failure to read TDHCA instructions. During the informal conference, the Owner stated that they had addressed the penalty referral by replacing the property management company. They took no personal responsibility and claimed they were not aware of any of the noncompliance, admitting that they do not review TDHCA correspondence in CMTS, and that they have no oversight over property management activities, despite the extensive enforcement history noted above. Owner’s plans for improvement were minimal. They said that the property management company was changed, and that HHF has a new asset manager who will “work with property management closely”. There does not appear to be any substantive plan to ensure adequate ownership oversight over future compliance matters, and additional future administrative penalty referrals are likely.
5. Any other matters that justice may require: The Owner discussed the 2021 ice storm that caused significant damage including burst sprinkler systems, which is a legitimate issue as it did take a long time for many owners to recover from that damage, but this should not have been a factor in either of these referral timelines in 2024. The Properties received non-TDHCA bonds to fix and rehabilitate, which the Enforcement Committee took into consideration. The Owner repeatedly stated that physical condition was their primary focus rather than TDHCA monitoring requirements. The Owner claimed that property management staff was not updating them regarding TDHCA issues of noncompliance, however, Owner did nothing to investigate when it received automated email notices regarding TDHCA correspondence issued via CMTS. The Owner has access to CMTS and compliance is its responsibility, something that it continues to ignore despite past penalty assessments. Past enforcement actions have not deterred noncompliance, nor have they caused Owner to take responsibility. Owner instead continues to blame property management for the referrals.
6. Amount necessary to deter future violations: There is a long history of noncompliance, and Enforcement Committee members unanimously agreed that the previous $10,000.00 administrative penalty for a related property was not a sufficient deterrent for this Owner. A high administrative penalty is appropriate and consistent with the progressive discipline concept of increasing the administrative penalty for repeated Agreed Final Orders. However, a significant portion of the administrative penalty should be forgivable in order to incentivize correction, particularly for the utility allowance so that TDHCA can establish whether there are gross rent violations. $23,125.00 is the maximum collective potential administrative penalty amount for the Properties unless the special needs event of noncompliance is counted individually as 22 events of noncompliance (one per required special needs unit) rather than one event of noncompliance. While 22 events of noncompliance technically could be used for the calculation, the Enforcement Committee voted to consider it one event of noncompliance since the finding is likely due to a reporting error. There are no mitigating factors to support any further decrease from the maximum allowable amount. The Enforcement Committee therefore recommends a $23,125.00 administrative penalty, with 50% of the total to be forgivable in light of these factors.
Agreed Final Order Recommended: Owner has agreed to sign an Agreed Final Order with the following terms:
1. A $23,125.00 administrative penalty, subject to partial forgiveness as indicated below;
2. Owner must submit a 50% portion of the administrative penalty on or before November 12, 2024;
3. Owner must correct the file monitoring violations as indicated in the Agreed Final Order, and submit full documentation of the corrections to TDHCA on or before November 12, 2024;
4. If Owner complies with all requirements and addresses all violations as required, the remaining 50% of the administrative penalty will be forgiven; and
5. If Owner violates any provision of the Agreed Final Order, the full remaining administrative penalty will immediately come due and payable.
Consistent with direction from the Department’s Enforcement Committee, a probated and, upon successful completion of probation, partially forgivable administrative penalty in the amount of $23,125.00 is recommended. This will be a reportable item of consideration under previous participation for any new award to the principals of the Owner.