Many assisted living companies seek financing insured by the Department of Housing and Urban Development (HUD). However, doing so comes with requirements that providers must be vigilant about meeting, as demonstrated by a recent audit report of one California assisted living community from the HUD Office of Inspector General.
The 101-unit Cypress Meadows community—with a mortgage insured under the Federal Housing Administration (FHA) Section 232 program—was badly mismanaged over the course of many years, according to the audit report released June 13. Cypress Meadows disputes many findings of the audit, but the auditors defend their work in a back-and-forth appended to the main report.
Among the audit findings: the community failed to collect $620,937 in rent and fell delinquent on its FHA-backed mortgage to the tune of $2.8 million.
“This condition occurred because the owner and operator disregarded the project’s regulatory and operating lease agreements and HUD requirements and did not have controls over the operation of the project,” the report states.
The owner’s mother, father, and mother-in-law moved into the community and lived rent-free, reducing the bed capacity without HUD’s permission, according to the document. In all, the owner failed to collect $512,400 in rent from these residents.
In addition, the facility allegedly failed to collect $108,537 in rent from 18 other residents.
In an 11-page letter from its attorney, the community took issue with numerous aspects of the audit report, including that the report included findings from outside the stated 2014-2016 time period it was supposed to cover. The 18 residents that the owner did not collect rent from had been displaced from a nearby facility due to a fire, and that other facility’s owner had verbally agreed to reimburse Cypress Meadows once the insurance settlement was reached.
The OIG replied to the attorney’s letter with its own lengthy list of rebuttals. For instance, the agency claims that of the 18 residents who were not charged rent, only two were there due to the fire, and that the auditors did not calculate uncollected rent until the time period after those individuals signed a lease.
The audit report includes a number of recommendations, including that HUD explore pursuing civil and administrative remedies, as well as civil monetary penalties, and that Cypress Meadows be required to repay uncollected rents and a variety of other expenses.
The community hopes to resolve the matter with HUD during the audit reconciliation process, which has begun, Cypress Meadow’s attorney Mark P. Levy, of the firm Levy, Levy and Levy, told Senior Housing News.
The facility currently is in the process of being sold to a third party, which would allow the loan and all past due amounts to be paid in full, according to the law firm’s letter in response to the audit report. If the sale does not occur, Cypress Meadows plans to explore other options for paying off the loan, including refinancing.
Written by Tim Mullaney