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Presentation, discussion, and possible action on an Agreed Final Order concerning Cherrywood Apartments (HOME 1001216 / HTC Exchange 1509009999 / CMTS 4617) and Southwood Apartments (HOME 1001505 / HTC 11084 / CMTS 4786)
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RECOMMENDED ACTION
recommendation
WHEREAS, Cherrywood Apartments (Cherrywood), owned by PK Cherrywood Apartments LP (Cherrywood Owner), had uncorrected compliance findings relating to the applicable land use restriction agreements and the associated statutory and rule requirements;
WHEREAS, Southwood Apartments (Southwood), owned by PK Southwood Apartments, LP (Cottonwood Owner), had uncorrected compliance findings relating to the applicable land use restriction agreements and the associated statutory and rule requirements;
WHEREAS, Cherrywood Owner and Southwood Owner are related entities, ultimately controlled by Ronald Potterpin, Terry Potterpin, Chris Potterpin, and Lindsey Klug (collectively known as Owner or Responsible Parties);
WHEREAS, TDHCA identified findings of noncompliance during its regularly scheduled 2025 National Standards for the Physical Inspection of Real Estate (NSPIRE) and file monitoring reviews at Cherrywood and Southwood, respectively, 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 January 22, 2026, and Owner agreed, subject to Board approval, to enter into an Agreed Final Order assessing a collective administrative penalty of $6,500.00; 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 $6,500.00, for noncompliance at Cherrywood Apartments (HOME 1001216 / HTC Exchange 1509009999 / CMTS 4617) and Southwood Apartments (HOME 1001505 / HTC 11084 / CMTS 4786), 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: Cherrywood Apartments received a housing tax credit exchange award and a HOME loan in 2009 and 2010, to rehabilitate 44 units in West, McLennan County, with 12 units restricted at 30% AMI, 20 units restricted at 50% AMI, and the remaining 12 units restricted at 60% AMI. There are six buildings. The HTC Exchange and HOME LURAs expire in 2040 and are past the HTC federal compliance period. The HOME federal affordability period will expire during 2027.
Southwood Apartments received a housing tax credit award and a HOME loan in 2010 and 2011, to rehabilitate 48 units in Shepherd, San Jacinto County, with six units restricted at 30% AMI, 17 units restricted at 50% AMI, and the remaining 25 units restricted at 60% AMI. There are 12 buildings. The HOME and HTC LURAs expire in 2042 and 2051, respectively. The HTC federal compliance period will expire during 2026, and the HOME federal affordability period will expire during 2028.
OWNERSHIP AND PROPERTY MANAGEMENT: Cherrywood Apartments and Southwood Apartments are owned by PK Cherrywood Apartments, LP and PK Southwood Apartments, LP, respectively. Their general partners have the same organizational structure, and are ultimately controlled by Ronald Potterpin, Terry Potterpin, Chris Potterpin, and Lindsey Klug via their controlling interests in PK Family, LLC (collectively known as the Owner or Responsible Parties). The primary CMTS contact for the owner is Ronald Potterpin. Property management is conducted in-house by PK Housing and Management Company, with Shanna Spurgeon as the primary CMTS contact.
REFERRED VIOLATIONS SUBJECT TO ADMINISTRATIVE PENALTIES:
1. National Standards for the Physical Inspection of Real Estate (NSPIRE). TDHCA conducted a physical inspection of Cherrywood Apartments on April 23, 2025, and the Compliance Division set a corrective action deadline of August 20, 2025. The property submitted a timely 24-hour certification relating to life threatening deficiencies on April 24, 2025, but failed to submit a complete response for the NSPIRE inspection. The entire NSPIRE inspection report was referred to the Enforcement Committee (the Committee) on September 29, 2025. Corrective documentation was submitted the same day, resolving all noncompliance. A list of referred noncompliance is attached to the Agreed Final Order.
2. File Monitoring. TDHCA conducted a file monitoring review of Southwood Apartments on April 17, 2025, and the Compliance Division set a corrective action deadline of July 21, 2025. The property submitted timely corrective action on multiple dates but failed to follow instructions relating to the affirmative marketing to veterans requirement under the HTC LURA, and was ultimately referred to the Committee on October 10, 2025. Final corrections were submitted on October 17, 2025, after the Committee provided technical support and further instructions regarding how to correct the veteran marketing noncompliance.
FACTORS CONSIDERED TO DETERMINE ADMINISTRATIVE PENALTY: Owner participated in an informal conference with the Committee on January 22, 2026. The Committee analyzed the required statutory factors for determining an appropriate administrative penalty as follows:
1. The seriousness, extent, and gravity of the violations, and whether a hazard is posed to the health, safety, and economic welfare of the public: The NSPIRE noncompliance for Cherrywood Apartments included life-threatening and severe issues of noncompliance, however, the NSPIRE score was 82.66 out of 100, and some of the noncompliance may have been caused by tenants, such as call-for-aid pull cords that were tied up or blocked. Additionally, life-threatening noncompliance was addressed within 24 hours, and ownership stated that all noncompliance on the inspection report was timely repaired, but that it had accidentally failed to submit its prepared evidence of correction via CMTS.
For Southwood Apartments, the veterans marketing noncompliance was deemed less serious because there is a high occupancy rate. Failure to market to veterans can have an economic impact on that population since those individuals were not necessarily aware of housing availability, but there was minimal economic impact since there were few vacancies during the period of lapsed veterans marketing from January 1, 2025, through June 25, 2025. Furthermore, affirmative marketing would not typically be required during periods when there are no vacancies if the property maintains evidence that the waiting list is full.
All noncompliance was corrected quickly after referral to the Committee, so the noncompliance is also less serious from this standpoint, and the administrative penalty referral for Cherrywood Apartments was primarily due to a paperwork submission mistake; it would not have been referred if the previously prepared corrections had been uploaded timely.
2. History of previous violations: There are ten Actively Monitored Developments in this ownership group, three of which have prior Agreed Final Orders, as outlined below. In addition to those 10 Actively Monitored Developments, there are also five new awards from 2024 and 2025, but the new awards are not yet considered actively monitored since the developments have not yet been placed in service and monitored by the Department.
Owner previously signed an Agreed Final Order for Elmwood Apartments (HTC 12045 / HOME 1001679 / CMTS 1130) and Cottonwood Apartments (HTC 12048 / HOME 1001677 / CMTS 544) in 2019, agreeing to pay a collective administrative penalty of $2,000.00 for file monitoring noncompliance, with $500.00 due at signing and the remainder to be forgivable provided that the owner complied with all requirements. Owner also signed an Agreed Final Order for Northwood Apartments (HTC 11081 / HOME 1001590 / CMTS 1303) in 2019, agreeing to pay an administrative penalty of $1,500.00 for file monitoring noncompliance. Owner complied with both Orders, and made improvements in the interim period, with no further enforcement activity until North Court Villas (HTC 01104 / CMTS 4772) was referred for an administrative penalty for Uniform Physical Condition Standards (UPCS) noncompliance in 2023. That referral was closed informally upon correction since it was resolved quickly, and it was the first referral in a number of years.
Three subsequent administrative penalty referrals during 2024, for 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) resulted in an Agreed Final Order signed in 2025, with the owner agreeing to pay a collective administrative penalty of $2,500.00 for file monitoring noncompliance, all of which had already been resolved at the time of the informal conference. Owner complied with this Order, and TDHCA staff warned the Owner that it was approaching the 50% debarment threshold at 10 TAC §2.401(e)(2)(a).
The two administrative penalty referrals currently under consideration for Cherrywood Apartments and Southwood Apartments caused the Responsible Parties to violate 10 TAC §2.401(e)(2)(a), with six out of ten properties, more than 50% of the Actively Monitored Developments in its portfolio, referred for a penalty during the past three years. Accordingly, the Committee considered debarment along with the administrative penalty referrals during the informal conference on January 22, 2026, but it unanimously voted to exercise its discretion to increase the debarment threshold as authorized at 10 TAC §2.401(e)(2)(a). Although the 50% referral threshold at 10 TAC §2.401(e)(2)(a) was breached, the Committee did not think the referred noncompliance was severe enough to justify debarment, and it noted that the newly created voluntary nonparticipation agreement is not an option for this debarment category. This was the Responsible Parties’ first breach of the 50% threshold, the referred noncompliance was not severe, and, with the exception of veterans marketing, all noncompliance was fixed on the ground prior to referral, it just was not timely documented. It is appropriate to raise the debarment threshold in this instance, but the Responsible Parties are aware that they will be considered again for debarment if there are any further administrative penalty referrals, and that the Committee is unlikely to increase the debarment threshold a second time.
3. Efforts made to correct the violations: All of the noncompliance considered in this agenda item was resolved after referral for an administrative penalty, but prior to the Committee informal conference. As noted above, Cherrywood Apartments submitted timely corrective documentation for life-threatening deficiencies within 24 hours as required, but failed to submit a complete response for the NSPIRE inspection report. The entire NSPIRE inspection report was referred to the Committee on September 29, 2025. Corrective documentation was submitted the same day, resolving all noncompliance, and reflecting corrected dates between April 23, 2025, and May 26, 2025. Lindsey Klug, a Responsible Party supervising property management, indicated during the informal conference that she had approved the corrective submission prior to the corrective action deadline in August, but that the assigned staff member had failed to upload it to CMTS. That staff member is no longer working at PK Housing. Ownership has now implemented additional procedural and supervisory changes, including Lindsey Klug’s direct supervision of corrective action and deadlines going forward. A new Compliance Director, Melissa Block, is also performing weekly CMTS checks for new TDHCA correspondence and to confirm uploaded owner responses, with Lindsey Klug confirming uploads for deadlines.
Southwood Apartments submitted partial veterans marketing corrections on multiple dates, but failed to follow TDHCA instructions. Property management requested further information after the referral for an administrative penalty, and then submitted acceptable corrections within a week of referral, after the Enforcement Committee provided technical support and further instructions regarding how to correct the veteran marketing noncompliance. This appears to be a failure to understand TDHCA instructions, rather than intentional noncompliance.
4. Any other matters that justice may require: Procedural and supervisory changes have been implemented as noted above, and ownership is aware that any further referrals would result in consideration for debarment.
5. Amount necessary to deter future violations: There is a history of noncompliance, and any further administrative penalty referrals will cause the owner to be considered for debarment. Past enforcement action has not been successful in deterring future enforcement referrals, so a larger administrative penalty is appropriate in this instance, but the Committee is hopeful that the new supervisory structure with direct control and supervision by a Responsible Party will deliver better results. The Committee therefore recommends a collective $6,500.00 administrative penalty in light of the above factors, representing the maximum potential administrative penalty for the referred noncompliance.
AGREED FINAL ORDER RECOMMENDED: Owner has agreed to sign an Agreed Final Order for a $6,500.00 administrative penalty due on or before March 9, 2026.
Consistent with direction from the Department’s Enforcement Committee, an administrative penalty in the amount of $6,500.00 is recommended. This will be a reportable item of consideration under previous participation for any new award to the principals of the Owner.