The Department of Housing and Urban Development provided a $9.4 million loan guarantee to renovate an apartment complex in Colorado Springs, Colo., eight months after the owner convinced the county to value the complex at just $3.8 million, a Watchdog.org investigation found.
The loan for Apollo Village Apartments defaulted and the property was foreclosed on in 2012 with HUD losing as much as $4.5 million on the deal, public trustee records show.
Pete Sepp, president of the National Union of Taxpayers, said these government programs put a substantial amount of taxpayer money at risk and should be eliminated.
"Unfortunately, many government loan programs to individual business people aren't necessarily dictated by the best interests of taxpayers or the laws of the marketplace," he said after reviewing information Watchdog.org provided him on the loan. "It's a classic dilemma we see with the federal subsidies programs."
After the owner defaulted, HUD officials apparently did not do everything they could to recover as much money as possible, a fact Sepp called "unbelievable."
Instead of foreclosing, HUD sold the note to a private company for $5 million and the company foreclosed on the property six months later, selling the Apollo complex for $6.2 million -- netting a $1.2 million profit the government could have realized to offset part of the loss, foreclosure and HUD records show.
Christine Baumann, spokeswoman for the regional HUD office in Denver, said it was HUD policy to sell the defaulted loans through the Multifamily Assets Loan Sales instead of foreclosing.