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The U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General (OIG) audited Michaelson, Connor, and Boul, Incorporated (MCB), a management and marketing contractor for HUD real estate-owned properties in Michigan. We selected MCB based on the results of our audit of Custom Closing, a HUD-designated closing agent for the State of Michigan (see OIG audit report #2009-CH-1021, issued September 2009). Our objective was to determine whether MCB complied with HUD’s requirements regarding the sales of HUD single-family real estate-owned homes (HUD homes) in Michigan, in particular the closing activities. The audit was part of the activities in our fiscal year 2010 annual audit plan.

MCB did not adequately provide oversight of the closings on the sales of HUD homes. Specifically, it did not always request lead-based paint stabilization services and/or city presale inspections in a timely manner. Further, it did not adequately monitor the closing agents and report to HUD deficiencies with closing sales of HUD homes as required under its contract. As a result, HUD and MCB incurred an additional $1 million plus in holding costs to maintain the homes in its inventory and lost the opportunity to receive more than $47,000 in proceeds as buyers cancelled their sales contracts due to closing delays.

On February 5, 2010, HUD awarded MCB the contract for overseeing and/or monitoring lenders for compliance with HUD’s requirements. MCB’s current management and marketing contract was scheduled to end on August 31, 2010. However, HUD extended MCB’s current management and marketing contract to September 30, 2010. Given that MCB’s contract is scheduled to expire in less than 30-days, this report does not contain a recommendation for MCB to improve its procedures and controls regarding the oversight of the closings on HUD homes since it will no longer perform this function.

We recommend that the Deputy Assistant Secretary for Single Family Housing require MCB to provide documentation showing that the buyers cancelled their sales contracts for case numbers 263-335607 and 262-151588 for reasons other than delayed actions by MCB and/or the closing agents or reimburse HUD $47,947 from non-Federal funds for the losses HUD incurred on the sales of the two homes.

We also recommend that the Deputy Assistant Secretary for Single Family Housing implement requirements for the new management and marketing contracts that provide specific responsibilities for performing activities under the contracts, including but not limited to requesting city presale inspections and lead-based paint stabilization, to ensure that sales of HUD homes close in a timely manner and monitoring the closing agents for compliance with their contracts with HUD.