A Baltimore nonprofit that develops, maintains and manages affordable housing properties for city residents who are at risk of homelessness stopped paying rents for several clients enrolled in a federally funded housing assistance program.
Labeled as a highly complex and unusual case of missing money among those impacted, the situation involves as much as $2.2 million in grant funding administered via the Mayor’s Office of Homeless Services from the U.S. Department of Housing and Urban Development during the coronavirus pandemic. City officials said the contractor responsible for paying tenants’ rents and providing case managers reneged on its responsibilities and couldn’t provide necessary documentation and paperwork to prove compliance.
City officials said they are committed to ensuring every tenant stays housed — and paying off what’s now owed to landlords in back payments.
The federal housing department said in an emailed statement that they have referred the matter to HUD’s office of the inspector general, which conducts audits for instances of waste, fraud and abuse. Investigations can result in criminal charges, civil penalties and administrative sanctions. The agency called the matter an atypical situation and pledged to work with the city to assist the tenants.
Further “corrective actions” with the grantee or subrecipient are possible, the agency wrote.
Irene Agustin, director of the Baltimore Mayor’s Office of Homeless Services, said city officials have not determined how much money the city owes the landlords and how many tenants have back rent to be paid off. She also said it wasn’t clear what money the city would use to pay off owed rent.
Agustin said grant subrecipients are given incremental payments, usually monthly for rental assistance programs, until all of the award has been spent. Agustin said the agency’s review of the documents showed the nonprofit, Empire Homes of Maryland, was on track to “spend down” the funding, which refers to the amount of money that has been drawn against an award.
The city notified HUD of complaints from clients and landlords in March.
“Our concern, first and foremost, is with the clients; it’s concerning when landlords are saying they haven’t received payment from the contractors,” Agustin said in a Friday interview. “We had to take the appropriate steps to handle the situation.”
This is the latest blow to a city that is no stranger to federal scrutiny. City officials, nonprofit leaders and housing attorneys said they fear some of the city’s most at-risk tenants — people with disabilities, mental health disorders and limited means — will lose housing after being told they were taken care of.
City officials cut off Empire Homes, a wholly owned subsidiary of AIDS Interfaith Residential Services, Inc., from at least one grant from the U.S. Department of Housing and Urban Development that it received from the homeless services office last year. That grant, worth about $1.3 million, was meant to provide rental assistance and support services to 39 people living with HIV, according to a city spending board agenda from November 2021. It would have expired in 2024.
The board approved another grant to Empire Homes worth $1.5 million in June 2021 that expired in March and was intended to support more than 100 people experiencing homelessness or at risk of it. City officials were in the process of renewing the grant but rescinded the renewal notice in May.
In all, up to 140 people could be affected, city officials said.
Anthony I. Butler, executive director of AIRS and Empire Homes of Maryland, told The Baltimore Banner that city officials have been late with numerous payments to his organization since last year.
“We don’t front the money, we pay as we go,” Butler said. “If we’re not paid by the city, we can’t pay the landlords.”
Butler said the city and HUD have been understaffed and slow-moving throughout the coronavirus pandemic, with both offices experiencing vacancies and high levels of turnover. He pointed to a WBAL-TV story from October that found the city had 2,000 invoices in its system more than 30 days old, worth more than $20 million total owed to vendors and contractors. He said that mirrored his experience.
“We submitted invoices for reimbursement that were never paid,” Butler said. “Those landlords are now frustrated and are filing for eviction. And we have no authority to make them whole because we haven’t received the funds.”
City spending board documents from November show funding to both rental assistance programs administered by Empire Homes was held up last year, once due to city administrative delays and again because of HUD-related delays.
Butler said the city didn’t tell him why the contracts were pulled but sent him a letter stating that they would be terminated. The Mayor’s Office of Homeless Services, now in charge of paying landlords and overseeing case management services for the tenants, hasn’t reimbursed the landlords either, he said.
“MOHS is promising landlords to make payments and is promising us the same thing,” he said. “At this point, it’s a citywide issue which will have an impact on the available inventory of landlords who are willing to accept Section 8 [housing vouchers] as a funding source.”
At the same time, Butler said his organization struggled during the pandemic. Like other nonprofits, his found it difficult to recruit and retain staff and said tenants’ paperwork and other needs were backlogged as a result. He said he laid off staff as a result of losing the contracts.
Court records and other public filings reveal an organization dogged by financial woes. In April, a judge sided with the Harbor Bank of Maryland in a confessed judgment case against Empire Homes for more than $985,000. Empire Homes obtained a loan for more than $1 million in 2014 and defaulted on it, according to the bank’s complaint, failing to provide the institution with certain financial information and failing to provide proof of insurance on its collateral as required by the loan.
Records show more than $940,000 in the principal loan amount was due to the bank in March. The organization accrued more than $25,000 in interest and more than $11,000 in late fees by the time the judgment was entered.
In January, the bank sent Butler and the organization a notice of default, demanding they comply with the loan’s terms within seven days. No action was taken, according to court filings. The bank then “accelerated” the loan, demanding repayment.
Butler said that case is unrelated to the situation with HUD and MOHS; he blamed it on the pandemic. “They had to file that,” he said.
Both AIRS and Empire Homes received federal money through the Paycheck Protection Program in 2020, according to an online database, created to buoy small businesses during the first months of the pandemic. AIRS received $325,200 and had $329,644 forgiven, including interest, according to the database. Empire Homes, meanwhile, obtained $69,800 and had $65,489 forgiven. Both loans were said to be going toward payroll.
According to Empire Homes’ latest IRS disclosure forms, the organization had been losing grant money, program service revenue and other revenue through the fiscal year that ended in June 2020. But expenses increased, including salaries, employee benefits and other compensation, from the year prior. Empire Homes ended fiscal year 2020 with $1.9 million in revenue and more than $8.2 million in net assets; Butler reported a salary of over $165,000 that year.
Butler maintained that the problems with making landlord payments for the MOHS contracts were a result of city bureaucracy, late reimbursement and labor shortages. The organization has other contracts with city agencies, he said, including the health department.
“We’re not completely clean here. We did have our own staffing issues in December that we thought we were working through,” he said. “Again, we can’t pay what we don’t have.”
At least two tenants supported by Empire Homes of Maryland told The Baltimore Banner that their landlords began complaining about missed rental payments last year. The tenants said they lobbied their case workers to pay the bills, only to have their pleas go unanswered.
J. Kelliher, who lives in Northwest Baltimore and asked to be identified by her first initial and last name for personal safety reasons, said she can understand why her landlord would move to evict her and her family after more than a year without rent. Living with a seizure disorder, she had a contract with the nonprofit to pay a portion of the rent.
After a car accident in October, Kelliher — a mother of three children and who is expecting a fourth — said she could no longer work due to her disability and completed paperwork earlier this year that should have eliminated her rent responsibility altogether. But she said Empire Homes didn’t do the recertification work. In all, she owes about $12,000.
Now that the city has intervened and she has legal representation from Maryland Legal Aid, Kelliher said her landlord has softened; representatives from East Coast Management LLC, the home’s property manager, declined to comment.
Kelliher said she is anxious about what will happen once the back rent is paid off and she continues to accrue costs that aren’t being paid.
“I have kids who are facing being homeless at this point,” Kelliher said.
Another client also had an eviction case brought to court earlier this year. After the city intervened, the landlord escalated the case to a tenant holding over filing, which gives property owners more power to remove renters from properties if a lease has expired. Court records show the tenant, who also lives in Northwest Baltimore, owes the landlord more than $15,000, which began accumulating last year.
Agustin said there’s a range of what the city now owes landlords, ranging from six to twelve months’ worth of rent. Each client’s contract is being reviewed as quickly as possible, she said.
“If I could say everyone was missing six months, that would be easier,” she said. “It’s pretty severe, and the fact that the time we’re taking to sort through this and try to figure this out for each client, not only is it concerning in terms of the payments owed, but also the time and effort it’s taking to sort through this.”
The city also is working with providers to ensure that clients can be transferred to other programs smoothly and timely, she added.
Agustin, who assumed the position in June 2021, said she credits her agency for unearthing the problems with the contracts and said there will be ongoing monitoring of nonprofit partners and subrecipients to prevent a similar breakdown from occurring in the future.
Anything involving federal funds requires “total compliance,” she said.
“I know how hard it is to fund a nonprofit, and we want to make sure our subrecipients understand the requirements, so we’re performing at the highest level we can,” she said. “It’s scary, especially if clients have received eviction notices already.”