BY JIM DOOLEY – An Iowa-based mortgage serving company allegedly embezzled as much as $800,000 paid by the City and County of Honolulu for a Kaneohe affordable housing project loan.
The City Council today passed two resolutions authorizing legal action against the Iowa company, Whitehall Funding, Inc., and other firms involved in processing mortgage payments for the Kulana Nani housing complex on Kahuhipa Street.
City spokeswoman Louise Kim McCoy said the missing funds total up to $800,000. The legal actions will have no affect on residents at the Kulana Nani rental project, she said.
The resolutions authorize the expenditure of up to $50,000 to pursue legal claims in the matter.
The parties named by the city as possible targets of the legal complaint were unreachable today at their offices in Iowa and Minnesota.
Kulana Nani is a 160-unit complex built by the city in the 1970’s and financed with a $3.6 million Federal Housing Administration loan.
The loan is due to be paid off in 2013.
According to one of the Council resolutions, U.S. Bank National Assn., trustee for the FHA-backed Kulana Nani mortgage loan, terminated Whitehall Funding last year as the servicer of the Kulana Nani loan.
U.S. Bank sued Whitehall and its chief executive, Thomas Jager, last month in Iowa, alleging that they “misappropriated millions of dollars” from two pools of FHA-backed housing project loans.
The loan servicing agent distributes loan payment proceeds among investors who purchased fractional interests in the pools of FHA loans.Whitehall handled the mortgage loan payments from 2001-2010, according to the suit.
Whitehall “refused to account for loan pool escrow funds” that included Kulana Nani money, the Iowa suit alleges.
Whitehall and Jager have not filed responses in the federal court civil suit.
The Kulana Nani loan was the largest of six loans included in one of the two mortgage pools, according to the Iowa litigation. Other loans financed housing projects in Montana, California and Nevada.
A second related suit was filed by U.S. Bank in March in a Minnesota county court against another firm allegedly responsible for oversight of the escrow funds, Massachusetts Mututal Life Insurance.
Online Minnesota court records say an initial hearing in that case is scheduled May 18.
One of the Council resolutions passed today authorizes employment of a private law firm to represent Honolulu in the Minnesota lawsuit.
The other permits the city Corporation Counsel to “initiate legal action” against Whitehall and Jager for “claims of embezzlement and failure to account for escrow funds.”
The resolution also authorizes initiation of possible legal claims against U.S. Bank National Assn. and Massachusetts Mutual Life.
Monthly mortgage payments made by the City for the Kulana Nani mortgage loan are believed to be some $23,000.
The City has expressed interest in the past in selling some of its rental housing projects, including Kulana Nani, but the status of those plans could not be determined today.
The City bought the land under the apartment complex from Kamehameha Schools in 2009 for $3.5 million.
The tax-assessed value of the land and buildings is $18 million.