Equity Skimming Compliance Requirement

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ID Status Date Public/Private Industry AHACPA Contact
#7049 Closed public Multifamily Les Sparks
Customer Reply

I am doing an audit of the a For profit multifamily property. The client falls below the threshold for HUD audit. The multifamily has a mortgage from MHDC rather that HUD. MHDC wants the property to follow HUD guidelines. The property received a short advance/loan from an affiliate entity. The affiliate is a non HUD entity. The advance was repaid two months later. Should there be an equity skimming compliance requirement violation? Is this a finding?
Kathy Christensen

From Les Sparks:

Well, if MHDC wants you to follow the HUD Audit Guide, then equity skimming is definitely an issue. Clearly, under the Guide payment of advances can only be made from surplus cash. SO… it is usually a finding when this happens unless there are other circumstances I am not aware of. They would have to say something other than what HUD indicates for this not to be a finding. It is certainly on in HUD.

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