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Presentation, discussion, and possible action regarding the adoption of an Agreed Final Order concerning Elmwood Apartments (HTC 12045 / HOME 1001679 / CMTS 1130), Cottonwood Apartments (HTC 12048 / HOME 1001677 / CMTS 544), and Oakwood Apartments (HTC 11082 / HOME 1001591 / CMTS 1304)
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RECOMMENDED ACTION
recommendation
WHEREAS, Elmwood Apartments (Elmwood), owned by PK Elmwood Apartments, LP (Elmwood Owner), had uncorrected compliance findings relating to the applicable land use restriction agreements and the associated statutory and rule requirements;
WHEREAS, Cottonwood Apartments (Cottonwood), owned by PK Cottonwood Apartments, LP (Cottonwood Owner), had uncorrected compliance findings relating to the applicable land use restriction agreements and the associated statutory and rule requirements;
WHEREAS, Oakwood Apartments (Oakwood), owned by PK Oakwood Apartments, LP (Oakwood Owner), had uncorrected compliance findings relating to the applicable land use restriction agreements and the associated statutory and rule requirements;
WHEREAS, Elmwood Owner, Cottonwood Owner, and Oakwood Owner are related entities, ultimately controlled by Ronald Potterpin (collectively known as Owner);
WHEREAS, three out of ten properties under this ownership group, including Elmwood and Cottonwood, were subject to prior Agreed Final Orders;
WHEREAS, the terms of those Agreed Final Orders from 2019 were met, and administrative penalties were partially forgiven, with a collective $2,000.00 administrative penalty paid;
WHEREAS, TDHCA identified new findings of noncompliance during its regularly scheduled 2024 file monitoring reviews at Cottonwood, Elmwood, and Oakwood, and referred the development owners for administrative penalties when the noncompliance was not timely corrected;
WHEREAS, complete corrections were received after referral to the Enforcement Committee, but the penalty referral history did not support informal closure;
WHEREAS, an Enforcement Committee informal conference was held on December 10, 2024, and Owner agreed, subject to Board approval, to enter into an Agreed Final Order assessing a collective administrative penalty of $2,500.00; 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 $2,500.00, for noncompliance at Elmwood Apartments (HTC 12045 / HOME 1001679 / CMTS 1130), Cottonwood Apartments (HTC 12048 / HOME 1001677 / CMTS 544), and Oakwood Apartments (HTC 11082 / HOME 1001591 / CMTS 1304), 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: PK Elmwood Apartments, LP, PK Cottonwood, LP, and PK Oakwood Apartments, LP are the respective owning entities for the following developments:
• Elmwood Apartments, a 24-unit apartment complex located in Buffalo, Leon County (Elmwood);
• Cottonwood Apartments, a 24-unit apartment complex located in Taft, San Patricio County (Cottonwood); and
• Oakwood Apartments, a 36-unit apartment complex located in Madisonville, Madison County (Oakwood).
The three ownership entities are controlled by Ronald Potterpin. The primary CMTS contact for the owner is Lindsey Klug. Property management is conducted in-house by PK Housing and Management Company, with Shanna Spurgeon as the primary CMTS contact.
Each development is encumbered by both a HOME LURA and an HTC LURA, with TDHCA funds used for rehabilitation. The HTC LURAs are all within the 15-year federal Compliance Period through December 31, 2027, and the Extended Use Periods run through 2042 for Elmwood and Cottonwood, and through 2052 for Oakwood. The HOME LURAs expire in 2043 for Elmwood and Cottonwood, and in 2052 for Oakwood.
ENFORCEMENT HISTORY: There are ten developments in this ownership group, three of which have prior Agreed Final Orders:
1. Agreed Final Order signed in 2019 for Elmwood and Cottonwood together, agreeing to pay an administrative penalty of $2,000.00 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.
2. Agreed Final Order signed in 2019 for Northwood Apartments (HTC 11081 / HOME 1001590 / CMTS # 1303), agreeing to pay an administrative penalty of $1,500.00 relating to file monitoring noncompliance. Owner complied with this Order.
Owner made improvements in the interim period, and was not referred again until North Court Villas (HTC 01104 / CMTS 4772) was referred for an administrative penalty for Uniform Physical Condition Standards noncompliance in 2023. That referral was closed informally upon correction since it was the first referral in a number of years. The three subsequent administrative penalty referrals during 2024 for Elmwood, Cottonwood, and Oakwood have now brought the owner perilously close the 50% debarment referral threshold at 10 TAC §2.401(e)(2)(A), and the Compliance Division asked the Enforcement Committee to hold an informal conference even if full corrections were made.
NONCOMPLIANCE SUBJECT TO AN ADMINISTRATIVE PENALTY: TDHCA identified the following findings of noncompliance during file monitoring reviews conducted at Elmwood, Cottonwood, and Oakwood during 2024. All were fully resolved before the Enforcement Committee’s informal conference.
1. Failure to market to veterans as required by the LURAs for Elmwood, Cottonwood, and Oakwood.
2. Failure to provide evidence of the appropriate number of points worth of tenant supportive services for Elmwood, Cottonwood, and Oakwood. The LURAs require ten points of services for Elmwood and Cottonwood, and eight points of services for Oakwood, which may be selected from a lengthy list of potential services at Appendix A of each LURA. At the time of monitoring, Elmwood failed to provide evidence of any services, Cottonwood failed to provide evidence of five out of ten required points, and Oakwood failed to provide evidence of six out of eight required points.
3. Failure to allow an onsite file monitoring review on April 12, 2024 at Cottonwood. On March 21, 2024, the Department provided notice of the onsite review, but the leasing office was closed at the appointed time. The onsite review was therefore cancelled, and a notice of noncompliance was issued, setting a July 25, 2024, corrective action deadline to submit requested files electronically.
4. Failure to update the utility allowance for Cottonwood after USDA issued a new 2024 utility allowance. Utility allowances must be updated annually, and gross rents must be adjusted accordingly to ensure that TDHCA rent limits are not exceeded.
5. Failure to recertify or provide annual eligibility certification for unit 201D at Oakwood. The property recertified the household and had an annual eligibility certification signed on June 1, 2023, however, the rules require the forms to be completed no earlier than 120 days before the move-in date anniversary of November 28, 2023. The earliest acceptable date to sign would have been July 31, 2023.
ADMINISTRATIVE PENALTY FACTORS: Owner participated in an informal conference with the Enforcement Committee on December 10, 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: Most of the violations are not severe, but are important, demonstrating basic file monitoring and administrative problems. Failure to allow monitoring at Cottonwood is extremely serious. However, during the informal conference, the owner representatives explained that the property manager was prepared for the review, but had a medical emergency that day and was unexpectedly hospitalized. Backup staff were at another inspection and were unable to cover the TDHCA review, and supervisory staff that were too far away attempted to call TDHCA but were unable to make contact until the next day. The Enforcement Committee noted that although it had no way to confirm these claims since this relates to private health information, the explanation did change the committee’s views on the matter, mitigating the seriousness of this violation, particularly since it noted that this was not a systemic issue occurring at multiple developments in the portfolio.
2. Hazard posed to the health or safety of the public: None. All findings were for file monitoring.
3. Hazard posed to the public’s economic welfare: Overall, the hazard to the public’s economic welfare was minimal since the utility allowance did not cause gross rent overcharges at Cottonwood, mitigating the seriousness of that violation. Failure to market to veterans can have an impact on that population since they are not aware of the housing availability. The Oakwood violation relating to unit 201D did not cause any economic harm to the household. Social services are promised during application in order to receive points, and while many services on the Appendix A list of each HTC LURA serve a social, intellectual, or practical purpose, others do provide an economically valuable service. As an example, Cottonwood corrected the social services noncompliance by providing evidence of services supporting economic welfare, such as financial planning classes, income tax preparation services, and notary public services. This value is offset by participation, however, since social services are sometimes not utilized by residents.
4. Efforts made to correct the violations: The owner responded within the TDHCA Compliance Division’s corrective action period for Cottonwood and Oakwood, but did not respond for Elmwood. All of the noncompliance considered in this item was resolved after referral for an administrative penalty, but prior to the Enforcement Committee’s informal conference. Social services were a serious violation as noted above, however, the owner has hired a social services coordinator to work with all of their sites to maintain social services as required.
5. Any other matters that justice may require: Improvements were implemented between 2019 and 2023, with no referrals during that period, but there was a decline in 2023 and 2024. The owner has fired the person who was overseeing compliance matters that led to the penalty referrals that are under consideration today. There is now a new supervisory group including a regional manager, assistant area director, and the new social services coordinator. The owner has also implemented a tracker with multiple people reviewing in the chain of command to verify that work is being completed timely, correctly, and completely.
6. Amount necessary to deter future violations: There is a history of noncompliance, and one more administrative penalty referral will cause the owner to be referred for debarment consideration. The Enforcement Committee thought that substantive improvements have been implemented, and that the potential future debarment was sufficient incentive to make further improvements to avoid further administrative penalty referrals. The Enforcement Committee therefore recommends a collective $2,500.00 administrative penalty in light of the above factors.
AGREED FINAL ORDER RECOMMENDED: Owner has agreed to sign an Agreed Final Order for a $2,500.00 administrative penalty due on or before February 17, 2025.
Consistent with direction from the Department’s Enforcement Committee, an administrative penalty in the amount of $2,500.00 is recommended. This will be a reportable item of consideration under previous participation for any new award to the principals of the Owner.