Owner, Management Agent Must Pay Over $1.2M for Breaching HAP Contract

In September 2021, after an onsite review of a 150-unit project-based Section 8 property in Waukegan, Ill., discovered deplorable conditions at the site, HUD initiated an administrative action against the owner and management agent for failing to provide decent, safe, and sanitary conditions to tenants.

In a statement HUD Inspector General Rae Oliver Davis said, “Everyone is deserving of decent, safe, and sanitary housing. Protecting the integrity of HUD programs is a top priority for HUD OIG, and we will continue to actively investigate and prosecute bad actors who fail to uphold their responsibility to provide decent, safe, and sanitary housing to HUD beneficiaries.”

Extensive Water Damage & Neglect

Many of the site’s units had unaddressed repairs and unresolved tenant complaints that included extensive water damage, mold, cracked paint, and other issues that demonstrated violations of HUD’s requirements. Water damage was evident in the common areas, including a stairwell; the laundry room ceiling; and the parking garage ceiling, all primarily containing leaks and peeling paint.

Ceilings and walls in the units showed signs of water leakage evidenced by cracking plaster, staining, peeling, and bubbling paint. Many of the tenants reported that their windows leaked when it rained. The area around the windows and the windowsills had paint bubbling, plaster cracking, and crumbling. Baseboards located under windows were disintegrated or missing altogether.

Other conditions existed that were water related. Electrical outlets didn’t work because of water damage. In one case, water leaked through the light fixture in a unit’s ceiling. Mold was found growing on ceilings and walls in all areas of the units, including bathrooms and kitchens.

Kitchens had issues beyond mold or leaking walls and ceilings. Cabinets had bubbling and peeling paint. Other damage included broken cabinets or missing hardware. In one unit the pipe underneath the kitchen sink had burst and it had been that way for months. Bathrooms also had damage unrelated to ceilings and walls. Units had toilets that were missing caulking around the base, or the caulking was moldy. Toilets were also not properly anchored to the floor. Sinks were pulling away from the wall. Other miscellaneous issues existed such as cracked tile, bathtub surface damage, and sewage backing up in the bathroom sink.

There was also additional, non-water-related damage that concerned interior doors. The doors were broken, missing hardware, or missing altogether. And one unit had bedbugs that hadn’t been addressed.

Tenants reported that issues had either not been repaired or not properly addressed. For example, maintenance personnel would paint over the cracks, stains, and mold only to have the problems return due to the underlying water issues not being addressed.

Similar issues had been confirmed through multiple inspections conducted by the City of Waukegan prior to the onsite inspection. The city had mailed the owner a notice that 15 units at the site violated the local city code. Later, upon reinspection, the city notified the owner that 108 units, including the units previously inspected, violated the city code. Forty-seven of the units inspected contained evidence of leaks, window damage, damaged walls, or drainage issues.

Ruling

An administrative law judge (ALJ) confirmed HUD’s findings and cited the owner and managing agent for 34 separate violations of their obligations under the housing assistance payment (HAP) contract. The ALJ also found that the managing agent was jointly and severally liable for the poor housing conditions. Based on facts uncovered by an investigation by HUD’s Office of Inspector General, the ALJ ruled that the owner and managing agent were effectively controlled by the same parties and rejected the argument that they didn’t share an identity of interest. 

HUD is authorized to impose civil penalties against any owner, general partner, or identity-of-interest agent of a property receiving project-based assistance under Section 8 of the United States Housing Act of 1937. A civil penalty may be imposed against such parties for the knowing and material breach of a HAP contract. And the failure to provide decent, safe, and sanitary housing in good repair is considered a violation of a HAP contract. For knowing and material breaches of the HAP contract, the ALJ ordered the owner and affiliated managing agent to pay $1,258,671 in civil money penalties.

• In the Matter of Apex Waukegan LLC, February 2023