HUD in a huff

A Detroit nonprofit agency created to provide low-income housing in the city has been cited by the federal government for a variety of alleged infractions.

In a report released last week, the Department of Housing and Urban Development accused Detroit Revitalization Inc. (DRI) of charging for rehabilitation work it didn’t perform, selling property it didn’t have title to, and funneling money into for-profit companies headed by the nonprofit’s founders.

HUD loaned DRI money to purchase and renovate homes.

The HUD report reveals that DRI was formed in 1994 by two for-profit companies –RIMCO Financial Corp. and MCA Financial Corporation – to renovate Detroit homes and sell them at affordable prices to first-time buyers. But according to the audit, DRI sold homes for excessive amounts and charged interest above market rates.

Executives at RIMCO and MCA could not be reached for comment.

MCA and its affiliated companies, including RIMCO, filed for Chapter 11 bankruptcy last month. According to the state conservator put in charge of the companies, liabilities may exceed assets by as much as $90 million.

Part of the problem with DRI was that it routinely sold properties under land contracts, unnecessarily placing buyers at risk.

"Under the land contract terms, the home buyer ... could be evicted if the monthly payment was over 45 days late," states the audit. "In addition, we believe Detroit Revitalization Inc. made and is making excessive profits by charging an 11 percent interest rate when mortgage rates are around 8 percent."

Investigators looked at 12 of DRI’s 82 HUD loans granted between January 1995 and December 1997. According to the audit, DRI made "excessive" profits of $105,000 when selling those 12 homes. The audit also alleges that DRI received more than $80,000 for rehabilitation work that was either not done or done unsatisfactorily. The company contracted to do that work was RIMCO Building Co., a subsidiary of MCA. During the audit period, many of those serving on DRI’s board of directors were executives of the for-profit corporations that established DRI.

Comments from DRI board members–who were not identified by name – were contained in the HUD report. Those board members said that the relationships between MCA, RIMCO and DRI "were fully disclosed and explained to HUD in an attempt to determine if their affiliation would impact on the use of the program. The HUD officials told us that the relationships would not present a conflict of interest," the report says.

The business relationships between DRI- and MCA-controlled companies were also reported in DRI’s federal tax returns.

"They welcomed the formation of the nonprofit and knew various executives of the for-profits were sitting on the board," says Clifton Crockatt, DRI’s president during some of the period HUD conducted its audit. However, HUD eventually voiced concerns about the apparent conflict of interest and required changes to DRI’s board.

Crockatt told the Metro Times he was asked by RIMCO executives to establish a new board in 1997. He helped recruit Barbara Hill, the current executive director of DRI. She says that many transactions between DRI and the for-profit companies were not monitored before she was hired in January 1998.

"And that is certainly disturbing to us, but there was just no one here to look after the major components," she says. "DRI is just totally different now."

Hill says DRI has not participated in the HUD loan program since she began and that the nonprofit has not bought any new homes since the end of last year.

"I wanted to get my arms around what we already purchased before we keep buying and buying," says Hill.

She also says that DRI will no longer do business with RIMCO Building Co. or MCA Mortgage Corp. She says the new board members, including City of Detroit Cultural Affairs Director Marilyn Wheaton, Graimark CEO Charles Allen, and restaurateur Joe Muer, agree with this decision.