We audited Solis Gardens Apartments’ management of its HUD-insured Section 207/223(f) multifamily property as part of our annual work plan. The owner of Solis Garden Apartments manages 62 units in accordance with HUD requirements and its regulatory agreement which includes restrictions on the use of project funds and assets. We selected Solis Gardens Apartments for an audit based on risk indicators, such as surplus cash deficiencies, missed or late mortgage payments, HUD’s risk rating, and the absence of any HUD Management and Occupancy reviews. Our audit objective was to determine whether the owner managed Solis Gardens Apartments in accordance with HUD requirements and its regulatory agreement.
The owner of Solis Garden Apartments did not manage its property in compliance with HUD requirements or its regulatory agreement. Specifically, the owner made improper routine cash distributions totaling more than $1.5 million and improperly deposited $35,979 of reserve for replacement funds into an owner-controlled account while the property was in a non-surplus cash position. The owner also accrued $25,210 in excess asset management fees and charged more than $16,764 in excess property management fees. Lastly, property accounting records were not maintained in accordance with HUD requirements. These conditions occurred due to insufficient oversight by the owner, and owner-established policies that conflicted with HUD requirements. Collectively, these deficiencies demonstrate a failure to maintain transparent and HUD-compliant financial management and accounting practices. Without corrective action, these conditions increase the risk of further regulatory violations and undermine the long-term financial viability of the property.
We recommend that the San Francisco Region Director of Multifamily Housing require the Solis Gardens Apartments’ owner to, (1) reimburse the property $1,556,322 from non-property funds for the ineligible distributions into the owner-controlled account; (2) reimburse the property account $35,979 from non-property funds for the ineligible deposits into the owner-controlled account from the reserve for replacement disbursements; (3) reverse the asset management fee accruals by $25,210 for the net over-accrual from 2023 and 2024; and (4) reimburse the property account $16,764 for excess property management fees.
