IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
V&M MANAGEMENT, INC., a Massachusetts Corporation, ALPHONSE MOURAD, President of V&M MANAGEMENT, INC., Individually and in his Official Capacity Plaintiffs
HENRY CISNEROS, Secretary of the Department of Housing and Urban Development, in his Official Capacity, THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, An Agency of the United States:
CASIMIR KOLASKI, Regional Director, Department of Housing and Urban Development, Region I, In His Official Capacity;
(COMPLAINT FOR INJUNCTIVE
AND DECLARATORY RELIEF AND DAMAGES
SUMMARY OF THE ALLEGATIONS
V&M Management purchased a low income housing development ir the City of Boston in 1982. Since that time, plaintiffs allege, defendant HUD and its agents and employees have set forth on a continuous pattern and course of conduct to deprive plaintiffs oj the benefits of their contract with HUD and their entitlement anc rights under federal statutes and regulations. Among the means employed have been:
a. false and misleading statements concerning the tax status of the development;
c. refusing to provide adequate replacement reserves;
d. arbitrarily denying rent increases;
e. arbitrarily refusing to pay back taxes;
f. arbitrarily denying refinancing applications; and g. wilfully obstructing plaintiff's business operations. As a result of these activities, plaintiffs have been required to undertake legal action, and to defend themselves in litigation in the state and federal courts, have incurred millions of dollars in debts, and have been unable to refinance project operations. Plaintiffs further allege that these activities on the part of the Defendants were wilfully and deliberately discriminatory, and in part were motivated by malic and bad faith. Plaintiff Alphonse Mourad has suffered tortious injury as a result of the acts of the defendants.
Plaintiffs' damages exceed $10,000,000. A. JURISDICTION
1. On December 3, 1993, Plaintiffs sent a claim letter to the Director of the Region I Office of Defendant Department of Housing and Urban Development [HUD] pursuant to the provisions o the Federal Tort Claims Act, 28 U.S.C.§1346(b) and 2671, et seq. (See attached Exhibit "A").
2. On July 14, 1994, Defendant HUD rejected plaintiffs' claim. (See attached Exhibit "B").
provisions of 28 U.S.C. and 42 U.S.C.§1401.
4. All the activities hereinafter complained of were carried out under color of federal law. B. PARTIES
5. PLAINTIFF V&M MANAGEMENT, INC., [V&M, "Plaintiff"] is c duly chartered Massachusetts corporation having its principal place of business in Boston, Massachusetts; Plaintiff is the owner of a 276 unit low-income apartment complex known as Westminster/Willard or the Mandela Apartments located in Roxbury, Massachusetts; the apartments of the complex are wholly subsidized under the Section 8 housing program administered by HUD; plaintiff V&M is the successor-in-interest to Inge-Vasquez Development Co..
6. PLAINTIFF ALPHONSE MOURAD [Mourad] is the president an< sole shareholder of V&M Management, and brings this action individually and in his official capacity.
7. DEFENDANT HENRY CISNEROS is the Secretary of the Department of Housing and Urban Development, and is sued in his official capacity.
8. DEFENDANT DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT [HUD] is the federal agency empowered by federal law to administer the provisions of federal housing law; unless otherwise designated, all agents and employees of the Department will be designated collectively as "HUD".
Massachusetts, and as such, has the ultimate regional decisionmaking authority concerning the implementation of HUD programs; he is sued here in his official capacity.
C. FACTUAL ALLEGATIONS CONCERNING INTERFERENCE WITH MANAGEMENT RIGHTS
10. In September, 1965, pursuant to the provisions of M.G.L. c. 121A, the Boston Redevelopment Authority [BRA] adopted and approved an urban renewal plan for the portion of Boston known as the South End and Lower Roxbury.
11. In August, 1970, various parcels were sold by the BRA to Westminster Place, Inc., and Willard Place Inc., corporations created pursuant to Massachusetts General Laws under c. 121A, foi construction and operation of low income housing.
12. The housing projects were underwritten with a HUD insured loan.
13. At this time, the project buildings were valued at $4,880,700, and the budget included $29,100 as an annual replacement reserve.
14. Massachusetts General Laws Chapter 121A relieves certain low-income housing project developers from municipal rea;
estate taxes. In lieu of real estate taxes, such projects are subject to an excise under c. 121A. The excise provisions of c. 121A were creating difficulties in payment of the excise for the owners of Westminster and Willard and both formal and informal methods of reducing the excise were being utilized by the viability of the complex, and in March, 1978, HUD foreclosed and toolc possession.
16. HUD operated these projects as a mortgagee-in-possession until December, 1981.
17. In October, 1980, Marvin Siflinger, an administrative official with HUD, informed appropriate HUD divisions that twelve enumerated formerly subsidized projects would be sold with Section 8 subsidies, including Westminster and Willard and that, in order to facilitate the sale, rentals would be permitted to exceed comparable fair market rents.
18. During the summer of 1981, HUD advertised for bids for Westminster/Willard and received bids from four interested parties.
19. The lowest bid was from Inge-Vasquez Development, Inc. at $1.2 million, and the highest was from State Management, at $2.2 million.
20. Inge-Vasquez Development consisted of Craig Inge, (an African-American, who was managing other HUD-subsidized properties) Felix Vasquez, (an Hispanic-American with experience in non-profit community development organizations) and Alphonse Mourad (a naturalized citizen of Lebanese parentage who owned property which could be borrowed against to obtain a loan for the down payment on the complex).
...the BRA, nor were they familiar in any way with the legal requirements of doing business within a C.121A redevelopment area.
22. During the course of discussion concerning placing a bid on the property and purchasing the complex, Inge, Vasquez, and Mourad were told many times by Defendant's HUD employees Marvin Siflinger, Kenneth Salk, and others, that under HUD regulations, they could become the owners and the managers of th< complex and that they would be entitled to draw a management fee as a salary, and that the management fee could be used to pay of:
any loans taken out to fund the down payment.
23. Under the terms of its regulatory agreement with HUD, Inge-Vasquez was not prohibited from entering into a management contract and drawing a management salary.
24. In direct and reasonable reliance on the representatio] of HUD officials, and in particular Messrs. Sif linger and Salk, that Inge-Vasquez could be the management company, Alphonse Mourad borrowed approximately $200,000 secured against his other property, and applied this amount toward the down payment should the bid be awarded to Inge-Vasquez.
25. Because Inge-Vasquez was a minority owned company, and Inge had previous HUD management and housing experience, its low bid was accepted by HUD...property he owned.
27. Upon execution of the purchase and sale agreement, Mr. Inge began to assume management responsibilities at the complex.
28. Messrs. Salk and Siflinger continued to encourage Inge Vasquez to proceed with the purchase process. At the same time, defendants knew that Craig Inge was under an audit in connection with his management of other HUD subsidized properties.
29. Mister Salk informed Mourad that the audit could be resolved, and that if Mourad "stayed with Inge" they would soon be able to manage the property.
30. Based upon the representation of Mr. Salk, Mourad spen $30,000 on accounting fees and $10,000 on legal fees on behalf o Inge.
31. Within a few months, however, Mr. Salk was advising Mourad and Vasquez to get rid of Inge, or they would not be certified by HUD to manage.
32. On October 1, 1981, HUD informed Craig Inge that he would not be permitted to assume management duties and that, unless Inge-Vasquez selected a management firm recommended by HUD, Inge-Vasquez would not be permitted to assume ownership.
33. Vasquez and Mourad were told that they would be certified to manage within thirty days after Inge left the partnership.
35. Abrams Management Company, owned by Edwin Abrams, was strongly recommended to Inge-Vasquez by Messrs. Salk and Sif linger; as a preferred interim management company.
36. Mr. Abrams had been a close personal friend of Mr. Sif linger for many years, and was managing other HUD properties.
37. Because of the pressure placed upon Inge-Vasquez to hire Abrams, and the fear of losing ownership of the property, Inge-Vasquez felt compelled to select Abrams as the management agent.
38. By December 31, 1981, all documentation was completed, and the property was conveyed to Inge-Vasquez.
39. At the time of conveyance Mr. Siflinger knew that the project had never been fully completed, and that HUD had never finally endorsed the projects.
40. Messrs. Salk and Siflinger knew that the project was subject to Massachusetts General Laws c. 121A, and that by the terms of this statute, no transfer of property could take place without the approval of the Boston Redevelopment Authority, whic could only be given after the project has passed all health and safety code requirements, the new owners had been found to be financially stable, and a public hearing had been conducted.
41. At the time of the sale, the condition of the premises had so deteriorated under HUD's management that the property could not pass a housing and safety inspection which would have
inspection, and wilfully and deliberately failed to inform the BRA of the sale, and Inge-Vasquez of the transfer requirements, in order to avoid having to undergo an inspection and having to make and pay for the substantial repairs that might be required.
43. Because of the failure or refusal of HUD to comply witi the transfer provisions of C.121A, there was no City or BRA inspection prior to the closing.
44. There were $179,000 worth of immediate repairs and improvements which had not been completed at the time of the sale; however, HUD committed only $149,000 to escrow against necessary repairs, leaving an immediate shortage of $30,000 whici would have to be made up from the Inge-Vasquez replacement reserve or operating funds.
45. Under the terms of the HUD regulatory agreement, the budgeted replacement reserve was to be $41,400.
46. HUD knew or should have known that this replacement reserve was wholly and completely inadequate.
47. At the insistence of HUD, and against the express demand of Inge-Vasquez to assume management control, Inge-Vasque;
was compelled to enter into a management contract with Abrams.
48. The management contract between Inge-Vasquez and Abram;
expired in December, 1982, and was not renewed. Thereafter, Abrams continued on a month-to-month basis...to take over management in March, 1983.
50. V&M conducted an audit of the Abrams operation, and found that Abrams had not instituted a systematic maintenance program, that no unit repairs were made except on an emergency basis, that substantial physical repairs had to be made, and that $260,000 had been spent on supplies between January 11, 1983 and March 11, 1983.
51. In June, Mourad and Vasquez met with Abrams, and unsuccessfully attempted to negotiate a resolution of the management dispute.
52. At the end of June, 1983, the Inspector General for HUD issued an audit report recommending that Abrams be terminated from management due to (1) violations of the management and regulatory agreements; (2) inadequate controls over costs; (3) improper or questionable costs charged to project; (4) project not operating in economical fashion; and (5) manager and mortgagor were at odds over management policies.
53. At the end of June, 1983, State Management entered into a contract with plaintiff to assume management control of the proj ect.
54. On July 1, 1993, Mr. Sif linger informed plaintiff that plaintiff would be approved to become the manager upon the resolution of the various matters raised in the auditor's report.
Abrams had been holding in escrow and applying these funds to unpaid closing costs instead of applying the money to project expenses.
56. Salk also informed plaintiff that HUD was considering termination of plaintiff ^s participation in the section 8 program because of the unresolved matters in the auditor's report.
57. Following the Inspector Generates report, Abrams was given an additional 500-600 units to manage.
58. In conversations with HUD officials, including Siflinger and Salk, plaintiff was informed that the only conditions under which plaintiff would be permitted to assume full management control would be if plaintiff obtained financing in the private market, and pre-paid the HUD mortgage.
59. Beginning in January, 1984, plaintiff began to seek private financing, and undertook pre-payment negotiations with HUD.
60. On June 21, 1984, Mourad filed a formal complaint against Salk and Siflinger with the Inspector General's Office, alleging incompetence, arbitrary and prejudicial conduct, refusal to disclose the audit, and favoritism toward Abrams.
61. No action was ever taken on this complaint.
62. Since 1983 plaintiff had been attempting to obtain a copy of the auditor's report. On September 27, 1984, plaintiff again attempted to obtain a copy of the audit report and a full
63. Because of the refusal of HUD to provide plaintiff wit:
a copy of the audit of its own project, plaintiff expended approximately $25,000 in attorney^ fees attempting to obtain these records.
64. In January, 1984, plaintiff secured a mortgage with th Winter Hill Bank for $2,000,000 which enabled plaintiff to pay off the HUD mortgage.
65. Despite the representations of Salk and Sif linger, HUD still refused to permit plaintiff to assume management control, and continuously rejected plaintiff's applications to be designated as manager.
66. In late 1986, management control was finally transferred from State Management to V&M.
67. As a direct and proximate result of HUD^s refusal to permit Plaintiff to assume control for almost five years, Vasque and Mourad had to borrow funds to live on in lieu of management salary, and incurred debts between 1984 and 1986 in excess of $500,000.
68. The obligations assumed under these debts are ongoing, and the interest payments to date have amounted to more than $750,000. D. FACTUAL ALLEGATIONS CONCERNING RENTAL LEVELS
69. As a condition of the sale, Inge and Vasquez signed a Housing Assistance Payments contract [the HAP contract] which
70. In 1982, the HAP contract set out rental schedules for the apartments in the complex which were below market value for comparable units. Under this schedule, plaintiff had a rental deficit of approximately $197,000 in its first year of ownership
71. From its experience as mortgagee-in-possession, HUD knew that the project:
a. had been operating at a deficit since its inception ;
b. had ordinary operating and administrative expense:
in excess of $1,300,000; and
c. from 1978 through 1980, its actual rental income had never exceeded $800,000 per year.
72. Notwithstanding its actual knowledge, HUD established rental structure which would lead to the financial insolvency of the project.
73. HUD acted knowingly or with reckless disregard for the effects of the rental structure.
74. Due to a negligent overestimation of annual taxes by HUD in the amount of $188,400, Mr. Salk informed plaintiff on December 7, 1983 the rents would be retroactively reduced.
75. Plaintiff protested, and, as a result of plaintiff's protest, HUD refrained from retroactive lowering of rents but insisted upon freezing rents at 1983 levels until 1985.
77. After private funding was obtained in July 1986 plaintiff was informed that it could forego the preparation and filing of annual audited financial statements if it accepted HUD^s nawl y-lnsjii'butad- automatic annual rent adjustments. Plaintiff agreed to this arrangement.
78. In 1988 plaintiff was informed by HUD that, due to its failure to provide audited financial statements plaintiff was in violation of its HAP agreement and faced termination from the Section 8 housing program.
79. Although exempt from this requirement, plaintiff has been forced to incur $20,000 per year in additional expenses to prepare audited financial statements.
80. In July 1986, plaintiff also learned that HUD would no longer budget money for replacement reserves nor would it retroactively reimburse plaintiff for repairs.
81. Plaintiff received an automatic rent increase in » November, 1987 of $102,400 for calendar year 1988.
82. In October, 1988, having learned of its alleged liability for increased excise taxes (totalling $41,564 more tha the prior yearns taxes) under Chapter 121A, plaintiff requested rent adjustment from HUD. The request was denied.
83. In 1988, plaintiff's expenses exceeded income by $201,400.
84. the grounds that plaintiff submitted inadequate financial information.
85. In 1989 plaintiff's expenses exceeded income by $134,600.
86. Between 1982 and 1989, plaintiff's accumulated shortfall of income over expense was in excess of $1,064,800.
87. Plaintiff Mourad was forced to personally borrow large sums of money at excessive rates of interest to defray project expenses, replace and/or repair physical facilities and equipment. Mr. Mourad borrowed in excess of $223,200 for these purposes.
88. In 1990, project expenses exceeded income by $144,000. A requested rental increase was rejected in April, 1991.
89. HUD's bases for rejecting the increase were:
a. that the audit did not conform to HUD requirements;
b. that no formal adjustment request had been received; and
c. the interest rates being paid by plaintiff exceeded conventional rates.
90. Inexplicably, HUD next informed plaintiff that it did not need a formal audit. Instead, HUD said, only a balance shee and operating statement would be required.
Subject to c. 121A excises at all times since plaintiff's acquisition of the property, plaintiff asked HUD in 1991 to reopen its 1984 rent review.
92. HUD admitted that it had used c.59 taxes rather than C.121A excises to calculate rents and that this resulted in a $58,000 shortfall if C.121A excises were charged for 1984. However, HUD denied plaintiff's request on the basis that plaintiff's refinancing of the property resulted in a lower rate of interest and, therefore, an offsetting reduction in plaintiff's expenses.
93. HUD knew, or in the exercise of due care should have known, that its basis for denial of the requested increase was false.
94. In 1993 the monthly differential between HUD's section 8 rent schedule and comparable market rents was $29,496, or $353,900 per year. For the same period, plaintiff's expenses exceeded income by $325,000.
95. But for Mr. Mourad's continuing ability and willingness to borrow money on his personal signature, the project would hav< collapsed.
96. Due to defendants' neglect and refusal to establish an appropriate rent schedule, Mr. Mourad has a personal indebtedness exceeding $1.5 million.
c. 121A and that abatement procedures could be used to reduce the taxes.
98. In May, 1979, the Tax Office of the city of Boston informed Mr. Siflinger that HUD, as mortgagee in possession, owe< back taxes under C.121A on the Westminster/Willard projects in the amount of $737,200 and that interest was accumulating at 8%.
99. On March 7, 1979, Mr. Salk submitted a 1978 C.121A tax return for Willard Place which showed project expenses exceeded project income by $1,572,100. On March 14, 1980, Mr. Salk submitted the 1979 C.121A tax return for Westminster Place which showed project expenses exceeded project income by $1,652,300.
100. By December, 1981, HUD owed approximately $750,000 in unpaid excises on the Westminster/Willard complex, and, while th< sale process to Inge-Vasquez was proceeding, HUD was attempting to negotiate a settlement of its C.121A tax arrearages.
101. By 1980, the accumulated taxes, interest, and penalties assessed against Westminster/Willard amounted to $1,279,800.
102. HUD's negotiations resulted in an agreement in which arrearages would be based upon 15% of the projects gross income using 1978 as the exemplar year, and resulting in a stipulated liability of $691,900, and a savings to HUD of $587,900.
103. By December, 1981, HUD and the City of Boston had agreed to terms of the settlement of HUD's tax liability.
informed McGrath that the Westminster/Willard project would be sold to new entities.
105. Robert Ryan, Director of the BRA, then wrote a letter to Weidenfeller requesting the "you inform those persons who plai to assume these properties that they must have the approval of the Boston Redevelopment Authority^ Board to act as 121-A entities."
106. HUD failed to inform the plaintiffs that they needed BRA approval to act as 121A entities.
107. On July 26, 1982, HUD tendered checks to the Commonwealth of Massachusetts for payment in full of HUD's liabilities; the tender was rejected by the Commonwealth for reasons which are unknown to Plaintiff.
108. By July 30, 1982, HUD had still not informed the Commonwealth or the BRA that the property had been sold.
109. The failure and refusal of HUD to inform the plaintiff of the outstanding taxes, liens, and indebtedness of the project prior to it making a bid was willful and deliberate, and constituted fraud and misrepresentation.
110. At the time of the transfer, HUD knew that there was approximately $750,000 in unpaid C.121A excises on the property, but HUD wilfully and deliberately concealed this cloud on title from Inge-Vasquez.
111. Year, to apply to the BRA for removal of the property from its C.121A designation, which would permit the purchaser to operate the property free of the excise requirements of C.121A and of BR? oversight.
112. Had plaintiff been informed that the taxes were owed, or that HUD was threatened with executions against the liens by the Commonwealth, it could have applied for relief under this provision of C.121A, and it would have paid substantially reducec taxes under c.59, and would have been free of other C.121A limitations.
113. As a result of HUD's failure to inform Inge-Vasquez that the property was subject to the tax liens, or that the City and Commonwealth were threatening to attempt to collect, plaintiffs were unaware of their rights, failed to exercise same, and eventually lost rights to relief which were theirs by statute.
114. Because of HUD^s failure to inform Inge-Vasquez that the sale was subject to the provisions of C.121A, plaintiffs subsequently incurred millions of dollars of tax liability and hundreds of thousands of dollars in legal expenses.
115. The loss of these rights and the damages incurred were the direct and proximate result of the willful failure of HUD to timely disclose information concerning the property which it had a legal obligation to disclose.
116. Back taxes continued, but without any formal notice to any of ths negotiating parties by HUD that the development had been transferred.
117. In fact, C.121A assessments and bills were still being sent to HUD, but HUD was failing and refusing to forward them to plaintiffs.
118. In June, 1983, Mr. Salk notified the City Assessor thai the properties had been transferred, and plaintiffs requested that bills be sent directly to V&M.
119. These letters prompted a review by the City of Boston Assessor, who determined that the project might not be subject tc C.121A, but rather, might be subject to c.59 property taxes.
120. In April, 1983, as a result of an inquiry from a potential buyer, plaintiff wrote to Mr. Salk to inquire specifically if the property could be sold to a third party free from any C.121A restrictions.
121. On June 29, 1983, Mr. Salk replied that the project was not subject to C.121A.
122. Mr. Salk had been directly involved in the negotiations concerning HUD's tax liability under C.121A, and knew that the project was in fact subject to C.121A.
123. The representation made by Mr. Salk was false, and was made with the intention that plaintiff rely upon it, or with a reckless disregard for the truth or falsity of the statement...and that the bill would be $40,200 based upon a value of $1,876,000.
125. In December, 1983, Richard Cohen of the City Assessor' Office, caused entries to be made in Plaintiff's tax records the removed the property from C.121A and made it taxable under c.59.
126. In June, 1983, Mr. Salk informed plaintiff that HUD would assume full liability for any taxes incurred under C.121A prior to December 31, 1981.
127. In July, 1983, HUD had still not informed the BRA that the property had been sold.
128. The audit report of the Inspector General determined that the original fifteen year budget had been based upon annua] taxes of $259,000, and that under the new schedule, the taxes were $31,000, and therefore, V&M Management was overpaid $228,000.
129. On December 7, 1983, Mr. Salic unilaterally informed plaintiff that effective December 7, 1983, rents would be reduc< by $188,400 a year because HUD had "mistakenly" overestimated taxes, and had "mistakenly" determined the contract rents.
130. In fiscal year 1983, the c.59 taxes on plaintiff's property were $97,200, leaving a deficit under the schedule established by Mr. Salk of $66,200, which had to be made up froi plaintiff's operating budget, or borrowed by plaintiff.
131. Mr. Salk of $60,900, which had to be made up from operating budget, or borrowed by plaintiff.
132. In fiscal 1985, the c.59 taxes on plaintiff*s property were $71,500, leaving a deficit under the schedule established b;
Mr. Salk of $40,500, which had to be made up from operating budget, or borrowed by plaintiff.
133. As a direct and proximate result of the arbitrary, capricious and unreasonable actions of Mr. Salk, by the end of fiscal 1985, plaintiff was in debt in the amount of $198,600 for tax liabilities under c.59.
134. In July, 1986, Richard Cohen of the City Assessor's Office unilaterally, and without prior notice to the plaintiff, caused the plaintiff^s property to be removed from c.59 status and placed back on C.121A.
135. As a result of this action by the City, plaintiff informed HUD that the unpaid tax liability under C.121A was $393,300 and requested that HUD pay the balance due in a lump su:
payment in lieu of increasing the rent schedule.
136. The Commonwealth thereafter reassessed the plaintiff for C.121A taxes retroactively to 1982, and added interest and penalties in the following amounts: taxes now due through 1986, $669,800; interest, $492,200; penalties, $126,300, for a retroactive total of $1,288,300...pay the balance of the actual taxes due under C.121A if HUD would pay the interest and penalties, or alternatively, if HUD would negotiate a resolution of the plaintiff's tax matters as part of the negotiations concerning HUD's tax liability.
138. In January, 1987, having had no response to previous letters, plaintiff sent a demand letter to counsel for HUD asserting that due to HUD^s failure to notify the BRA of the transfer to Inge-Vasquez, and the subsequent double taxation, that HUD was now responsible for $300,000 in back tax payments. There was no response to this letter.
139. In April, 1987, HUD settled its back tax liability to the Commonwealth in the amount of $2,627,800 for $1,200,000;
140. As of December, 1993, plaintiff^s total tax liability, including interest and penalties, was $2,664,600, all of which was the direct and proximate result of the fraud and misrepresentation by HUD and its employees, and the failure and refusal of HUD to adjust rents to comparable market value since 1982. F. FACTUAL ALLEGATIONS CONCERNING THE 223 (F) APPLICATION
141. By the Spring of 1991, it had become clear to plaintifl that HUD would not make any adjustment in the rent, and that if the projects were to maintain viability, that private refinancinc would have to be found.
the mortgage under Section 223 (f) of the National Housing Act.
143. In a series of meetings with HUD officials prior to submitting the 223 (f) application, plaintiff and plaintiff's representatives were told that the value of the project would be based upon full rental comparable market rent, rather than the substantially lower project rent schedule, and that the analysis would be based upon full fair cash value.
144. The Plaintiff repeatedly stressed that time was of the essence, since the interest payments on unpaid bills and loans were increasing to the point where they were almost insurmountable.
145. In December, 1991, plaintiff submitted a request for conditional commitment, and tendered a check for $14,900. This was followed in March, 1992, by an unconditional application, and plaintiff tendered an additional $14,900 fee; HUD assured the plaintiff that upon payment of the fee, processing could be completed within six months.
146. In July, 1992, no action having been taken, plaintiff and its representatives met with HUD to determine what items were missing or incomplete.
147. Following this discussion, it was determined by HUD that many of the items thought to be missing were in fact in the HUD Regional Office.
149. In April, 1993, HUD finally responded, and informed plaintiff, among other items, that the lead paint test was not adequate (although it met Massachusetts validity standards) and that the processing of the application had stopped until a new test could be done.
150. In June, 1992, the Regional Economist for HUD approved the conditional commitment request, but subsequently delegated t< TRI Capital Corporation, a HUD approved delegate processor the processing of the loan.
151. In April, 1993, TRI requested supplemental information such as title searches, summaries of any pending litigation, credit reports, other businesses in which any interested party was involved, organizational documents of V&M Management, the HA] contract, and the most recent Section 8 contract rents.
152. TRI had a close working relationship with Regional HUD and HUD knew or should have known from past experience that TRI would require these documents, whose absence would have been disclosed by a cursory review of the application when it was filed, instead of waiting almost a year and one half into the process; many of the documents requested were HUD records, and could have been obtained directly from the Regional Office.
153. The eventual analysis by TRI increased the funding level to $9 million, and was based on the existing rent schedule should have been rejected in a timely fashion once the figures were submitted.
155. The original $7.5 million loan was based upon a 9.5% interest rate, but at $9 million, the loan could not be supports by the existing rent structure.
156. Before plaintiff's loan was rejected, HUD undertook a process of reducing the interest rate on its own loans and commitments to 7.875%; at this level of interest rate, the $9 million loan could have been supported by the rent structure.
157. HUD knowingly and willfully withheld information concerning the lower interest rates from plaintiff which would have permitted plaintiff's application for insurance to have bee approved.
158. In September, 1993, plaintiff was informed that the request had been rejected. The principal ground for the rejection of the application was that the net income of the project would not support the mortgage payment.
159. If the 223 (f) application had been processed at the comparable market rent as HUD had represented it would, the income would have been sufficient to support the loan applied for.
160. The application was also denied on grounds that the project had experienced continued insolvency and operating deficits.
that TRI had specifically found that these twenty year old buildings were of no historical or architectural significance.
162. In its initial inspection report, TRI estimated repair;
to be $135,800, but on final review, these repair estimates were increased to $608,100: HUD knew or should have known that many o the items in the amended repair list were items which had been found to be satisfactory in a previous HOD inspection, or were matters which constituted long-term capital improvements.
163. HUD suggested that the debt service could be reduced b negotiating reductions of outstanding loans, but HUD knew or should have known that such negotiations would be fruitless unless Plaintiff had a firm commitment from HUD to insure the refinancing.
164. The two year delay in processing the 223 (f) applicatio resulted in increased interest payments of at least $500,000, an required the Plaintiff to incur legal and consultant expenses in excess of $300,000. G. ALLEGATIONS CONCERNING HUD73 ADMISSIONS OP LIABILITY
165. By December, 1993, it had become clear to Plaintiff that there would be no relief through a refinancing, and on December 9, Plaintiff wrote to HUD requesting that the matter of the rent increase be reopened.
166. On January 7, 1994, representatives of Plaintiff met with HUD officials to discuss the rent increase. 1993.
168. In March, 1994, Plaintiff's representatives met with HUD officials twice to discuss the rent increases.
169. On April 14, 1994, HUD wrote to Plaintiff and admitted that there had been an "erroneous assumption that the project wa liable under c.59 taxes. As a result the initial budget was insufficient 16 pay the project^s real estate taxes".
170. HUD then reviewed the budget for 1981 through 1984, an paid Plaintiff $178,206 in retroactive adjustments between the HUD budget and the C.121A taxes.
171. HUD also reviewed the automatic rent adjustment and concluded that in 1986 and 1991, there were special adjustments to be made for a total of $127,940.
172. In May, 1994, HUD made a further adjustment for a special increase for 1993, and for payment of rent board fees in 1992 and 1993; the total adjustment was $34,257.
173. On June 15, 1994, HUD made additional adjustments and retroactive payments in the sun of $354,747 as a special adjustment to pay for water and sewer bills under a special amnesty program, and for a further adjustment of taxes for 1981 through 1984.
174. HUD has informed Plaintiff that no other adjustments will be made increases for eight projects pursuant to the provisions of the Title II Prepayment and Preservation Program, 12 U.S.C.S4101, eŁ sea. . the total amount requested was $100,734,000, the total amount approved by HUD was $98,027,200, of which $14,450,100 was designated for repairs, $14,369,000 for rent increases, and the balance of $69,208,100 was pure profit for the owners and developers.
176. Between July, 1994 and December, 1994, HUD approved fifteen loans and rent increases under the Title II Program; the total amount requested was $54,724,000, the total amount approve by HUD was $60,741,100, of which $19,988,800 was designated for repairs, $12,579,000 for rent increases, and the balance of $28,173,300 was pure profit for the owners and developers.
177. In many instances, HUD approved loans for substantiall more than was requested, for example, Beacon Companies requested $34,741,000, and received $36,867,300, of which only $918,500 wa dedicated to repairs.
178. In at least one instance, HUD authorized rent increase of 70% above market rates.
179. At the same time, HUD has consistently refused to consider acting as an insurer for a private refinancing loan, ha refused to consider Plaintiff's requests for a rent adjustment t market rates, and has refused to consider Plaintiff's requests for a full retroactive settlement of the outstanding tax
I. FIRST CLAIM FOR BELIEF--DEPRIVATION OF CONSTITUTIONAL RIGHTS
180. The allegations of Paragraphs Ten through One Hundred Seventy Nine are incorporated herein by reference.
181. The actions of the Defendants in refusing to permit Plaintiffs to assume management control, to establish adequate budgets that would not require Plaintiffs to assume substantial indebtedness, to raise rents to levels that would permit Plaintiffs to operate the project consistent with the policies and provisions of federal housing law, and the refusal to approve the Plaintiffs' application for insurance underwriting.
a. deprived plaintiffs of their rights to use and enjoy their property consistent with the purposes and provisions of tht National Housing Act of 1937, as amended, and,
b. deprived plaintiffs of their property without just compensation; and;
c. deprived plaintiffs of their property without due process of law, and;
d. deprived plaintiffs of equal protection of the laws;
183. The misrepresentations made by Defendant's HUD employees Salk and Siflinger concerning the quality and nature oj the property, and the imposition of restrictions and requirements not authorized by law deprived plaintiffs of their property without due process of law.
equal protection of the laws. J. SECOND CLAIM FOR RELIEF-- DEPRIVATION OF STATUTORY RIGHTS
185. The allegations of Paragraphs Ten through One Hundred Eighty Four are incorporated herein by reference.
186. The refusal of the defendants to permit plaintiffs to assume management control deprived plaintiffs of their rights under the housing laws of the United States, including, but not limited to. Section 1437f of Title 42.
187. The refusal of the defendants to set a rental schedule and a budget that comported with comparable market rents and project budgets deprived plaintiffs of their rights under the housing laws of the United States, including, but not limited tc Section 1437f of Title 42 and the Title II Preservation and Prepayment Program, 12 U.S.C. §4101 et seq.
188. The refusal of the defendants to increase the rental schedule to one that comported with comparable market rents deprived plaintiffs of their rights under the housing laws of tl United States, including, but not limited to. Section 1437f of Title 42 and the Title II Preservation and Prepayment Program, ] U.S.C. §4101 et sea.
189. The refusal of the defendants to grant special adjustments to pay for C.121A excises and interest deprived plaintiffs of their rights under the housing laws of the United States, including, but limited to. Section 1437f of Title
190. The refusal of the defendants to approve Plaintiff's application for insurance pursuant to the provisions of section 223 (f) of the National Housing Act deprived plaintiffs of their rights under the housing laws of the United States, including, but not limited to. Section 1437f of Title 42 and the Title II Preservation and Prepayment Program, 12 U.S.C. §4101, et seq.
191. The refusal of defendants to permit plaintiffs to participate in the Title II Prepayment and Preservation Program deprived plaintiffs of their rights and benefits under the program. K. THIRD CLAIM FOR RELIEF--VIOLATION OF COMMON LAW RIGHTS
192. The allegations of Paragraph Ten through One Hundred Ninety One are incorporated herein by reference.
193. The misrepresentation by defendant's HUD employees Sa] and Sif linger concerning the nature of the property, the right < plaintiffs to manage, the tax liability, and the C.121A restrictions on the property resulted in the plaintiff s* justifiable reliance upon said misrepresentations with resulting change of position by and detriment to the plaintiff.
194. The wilful and deliberate withholding of information 1 defendant's HUD employees, Salk and Siflinger, concerning the nature of the property, the right of plaintiffs to manage, the tax liability, and the C.121A restrictions of the property constituted fraud.
195. The wilful and deliberate misrepresentation and withholding of information by defendant's HUD employees, Salic and Sif linger concerning the nature of the property and the C.121A restrictions on the property prevented plaintiffs from exercising their rights under state law to withdraw from the C.121A designation, and constituted tortious interference with rights under state law.
196. The actions of the defendants in preventing plaintiffs from assuming management control, in not adjusting rental levels, in not establishing adequate budgets, in refusing to underwrite loan insurance, and in not extending the provisions of Title II constituted a tortious interference with the right to enjoy property and with the right to enter into contracts.
197. The actions of the defendants in preventing plaintiffs from assuming management control, in not adjusting rental levels, in not establishing adequate budgets, in refusing to underwrite loan insurance, and in not extending the provisions of Title II constituted a tortious interference with advantageous business relations.
198. The actions of the defendants in not adjusting rental levels, and in not establishing adequate budgets caused plaintiffs to incur substantial debts, led to the imposition of liens on the property, all of which constitutes slander on title. One Hundred and Ninety Eight, inclusive.
200. This count is for pain and conscious suffering and is brought by the plaintiff, Alphonse Mourad, as an individual.
201. The plaintiff asserts that the defendants, by their negligent handling of loan applications, tax issues, rental adjustments and other matters concerning the projects have cause him to experience pain and conscious suffering, forced him to incur expense for medicine and medical treatment, and prevented him from conducting his business affairs, all to his great damage.
WHEREFORE, plaintiffs request that this Court:
1. Assume jurisdiction over this natter;
2. Set this matter to a trial by jury;
3. Enter an order declaring the present rental schedule and budget to be in violation of the laws of the United States;
4. Appoint a special master to be compensated at defendants' expense to determine comparable rentals and budget requirements from January, 1982 through the entry of judgment ir this matter;
5. Enter an order directing the defendants to adjust the rental schedule and the budget in accordance with the findings < the special master retroactively to January, 1982;judgment in this matter;
7. Award compensatory damages to plaintiffs and against defendants in the amount of $12,000,000;
8. Award plaintiffs their costs and reasonable attorney^ fees;
9. Make any other order this Court deems just and necessary.
Respectfully submitted, By their attorneys,
DiMENTO & SULLIVAN
January 13, 1995
Eugene F. Sullivan, Jr.
BBO NO. 485720
100 State Street
Boston, Massachusetts 02109
Francis J. DiMento
BBO No. 125000
100 State Street
Boston, Massachusetts 02109