Developers who received state government loans to provide low-income multifamily housing had tenants who exceeded the age and income limits, according to a Nov. 14 audit of the Maryland Department of Housing and Community Development.
The audit, conducted by the Office of Legislative Audits for the Maryland General Assembly, disclosed that the housing department did not effectively monitor loan recipients to ensure they were in compliance with the terms of the agreement.
For example, the department’s Multifamily Housing Program mandates that at least one resident of the home must be at least 55 years old. Household income must not exceed $45,976 for one person, $52,544 for two people, or $59,112 for three people.
Other programs, like the Maryland Mortgage Program, require applicants be at least 18 years old and have a valid Social Security number. Household income limits vary by location and family size.
In 2021, 57 developers reported they were not in compliance with the loan agreements because of their ages or incomes, the audit found. DHCD could not confirm that it followed up with developers to ensure these problems were corrected.
DCHD did not retain any documentation to support the verification of renter eligibility after an inspection of 20 projects, consisting of 2,075 rental units valued at $127.6 million.
“One recipient of a $4.2 million loan reported that one-third of its low-income housing units were occupied by individuals who exceeded the income limits specified in the loan agreement,” the audit says. “DHCD could not readily document that it followed up with the 57 non-compliant loan recipients to ensure that the deficiencies were corrected or to demand repayment of the loan proceeds and/or accelerate repayment of the loan.”
In addition, the department reportedly did not inspect the properties. Concerns with health and safety that were identified during inspections were not corrected within 24 hours as required by the agreement, auditors said.
There were also issues monitoring the venture debt loans under the Neighborhood Business Works Program. As of March 2023, DCHD issued three venture debt loans totaling $1.5 million. The audit found the department did not comply with state regulations involving two vendors regarding marketing services. It also did not monitor marketing services provided by a third vendor.
Under the terms of the loan agreements, tenants who exceed the specified income limit must vacate the property within 24 months.
Officials with DHCD could not be reached for comment.
DCHD told auditors that the reviews were hampered by high turnover of inspection staff. There were 28 vacant full-time equivalent positions (8.4%) as of June 30, 2022. The department also reported that its expenditures “increased significantly” since 2020, attributing those costs to issues during the coronavirus pandemic.
DHCD has three operating divisions — development finance, credit assurance and neighborhood revitalization — that offer programs to help families afford homes. These divisions also offer other key services, such as counseling to avoid foreclosures and resources for housing rehabilitation.
DHCD also provides loans and grants that help residents rehabilitate low-income, single-family homes. These loans and grants can also be used for buying, building or renovating multifamily units.
As of June 30, 2022, the receivable balance for state-funded loans was about $1.07 billion.
The Office of Legislative Audits recommends that DHCD obtain and review annual contributions contracts for all multifamily loan recipients and strengthen inspection procedures. DCHD must take appropriate action when noncompliance is reported by developers or discovered during inspections, officials with the legislative audits office said.
Have a news tip? Contact Todd Karpovich at [email protected].
