HUD OIG assisted the U.S. Attorney’s Office, Northern District of Illinois, in the investigation of Lakeview Sheridan, LLC, and Fremont Sheridan Properties. Lakeview Sheridan is a multifamily property located in Chicago, IL, and Fremont Sheridan was the management company for Lakeview Sheridan. Under section 223(f) of the National Housing Act, HUD insured the mortgage on Lakeview Sheridan in May 2006 through its Federal Housing Administration (FHA) insurance program. To participate in the program, Lakeview Sheridan was required to execute a regulatory agreement with HUD. The agreement required Lakeview Sheridan to use tenant rent payments only for payments on the HUD-insured mortgage or to pay for reasonable and necessary expenses and necessary repairs to the property. Payments made from property rents for items other than those defined by the regulatory agreement could be paid only from surplus cash. Beginning about February 2008, Lakeview Sheridan defaulted on its HUD-insured mortgage. However, the property continued to collect tenant rents and generate income. At the time of default, the property did not have surplus cash.
In June 2014, a former owner of Lakeview Sheridan pled guilty to equity skimming and wire fraud, for fraudulently diverting Lakeview Sheridan rents, assets, proceeds, and income. In January 2015, the former owner was sentenced to 78 months incarceration and ordered to pay restitution of more than $1.86 million to multiple entities, including $543,214 to HUD. Our office recommended that HUD’s Departmental Enforcement Center take administrative action against the former owner. In April 2015, HUD notified the former owner of his proposed debarment from future participation in procurement and nonprocurement transactions, as a participant or principal, with HUD and throughout the Executive Branch of the Federal Government. In July 2015, HUD affirmed the proposed debarment and notified the former owner that he had been debarred. HUD has already taken corrective action; therefore, there are no additional recommendations at this time.