Towns join lawsuit over withheld funding

Two Barnwell County towns have joined Southeastern Housing & Community Development as plaintiffs in a lawsuit over withheld funding to demolish dilapidated homes.

Southeastern Housing & Community Development (formerly Southeastern Housing Foundation) filed a lawsuit August 18 against S.C. State Housing Finance and Development Authority (the Authority) and S.C. Housing Corporation (SCHC). The lawsuit alleges the Authority withheld $2,310,000 in federal funding through the Neighborhood Initiative Program (NIP) from the Barnwell-based Southeastern Housing.

“These communities are entitled to the full amount of the award,” said Robert Thomas, Southeastern’s executive director.

Acting as a non-profit partner to five governmental entities, Southeastern entered into agreements with SCHC on May 1, 2015 to allocate the following funding: $205,662.56 to the Town of Williston, $1,303,038.56 to Bamberg County, $274,248.56 to the Town of Blackville, $708,627 to Allendale County, and $2,905,000 to the Town of Estill (Hampton County). Funds were to be used to purchase and demolish dilapidated houses, as well as follow-up maintenance on the properties.

Southeastern states the process was going smoothly with several buildings being demolished. However, the positive working relationship was “altered” when Tracey Easton, an attorney for the Authority, sent an email to Thomas. “In the email, Ms. Easton threatened Southeastern’s continued participation in NIP and attached a letter accusing Southeastern of attempting to circumvent NIP guidelines,” states the lawsuit.

Easton stated that all processing of Southeastern’s projects, such as requests for payment and review of NIP applications, would be on hold until the matter was resolved.

“Our organization was blind-sided by that letter and at no time prior to the letter did NIP staff reach out to us to get any kind of clarification. The letter stopped the progression of demolishing properties for at least seven months for a program that is expiring at the end of 2017. That letter embarrassed us, damaged our credibility with our partners, and has put undue and unwarranted stress on us personally and our organization,” said Thomas in a March 8 letter to Jennifer Cogan, development awards manager for the Authority.

Part of the contention stems from Southeastern Construction & Development Company, the construction company solely owned by Southeastern Housing & Community Development, subcontracting some of the work.

Easton claims the Authority was not aware of this when they approved Southeastern Construction as the company that would do the demolition work. She said subcontracting the work defeats the purpose of the Identity of Interest Policy and “appears to be an attempt to circumvent NIP guidelines.”

“I am not quite sure how you reached the conclusion that subcontracting defeats the purpose of the form as we think it means exactly what it says and we did disclose the identity of interest,” said Thomas in his August 9, 2016 response to Easton.

The lawsuit also states the Authority already had such records regarding the subcontractors, but they did not review their own records.

In her email, Easton also claims Southeastern was overpaid for three properties, including two in Blackville. However, the lawsuit claims the overpayment on one Blackville property and another in Allendale County was much less than Easton claims. Payment received for another Blackville property was approximately $282 less than costs incurred by Southeastern. The lawsuit also states the Authority fails to account for the $1,500 cost of an asbestos report that Southeastern paid per property.

Thomas said Southeastern did not participate in NIP to make money, and actually loses money on some properties. “We took it on because it was needed within our service area and it is a natural fit as we move toward participating in more community development,” he said.

The Authority later conducted a review and issued a list of observations. Several corrective actions would need to be satisfied in order for the hold to be lifted against Southeastern.

“The observations noted during the review are serious in nature and have raised serious concerns as to Southeastern Housing Foundation’s continued participation in the program,” stated Easton in a Feb. 15 letter.

“It should be noted that after a full audit, there were no ineligible costs noted under the financial management compliance review,” said Thomas in a March 8 response letter.

He concurred with some of the observations and said they had taken some corrective steps, such as repaying $3,000 for mistakenly billing asbestos testing twice for two properties and obtaining a workman’s compensation policy. However, he did not agree with all observations, including those about procurement and contracting.

“We maintain that there was no lack of disclosure on our part and that is the reason used for asking us to return the funds,” he said.

The lawsuit states the Authority and SCHC “continually revised the program guidelines and processes relating to NIP” after the award agreements were ratified.

Several more emails and letters were sent back and forth between the parties over the coming months.

On June 23, Easton sent a letter to Ellis Lesemann, the attorney retained by Southeastern, informing that the hold would be lifted once Southeastern executed amendments in regards to the award amounts. The amended amount would have been $1,929,772, a reduction of $1,288,056, according to documents.

Lesemann responded on June 30 that Southeastern was declining to sign and return the amendments. “Instead, Southeastern intends to perform and enforce the NIP Awards in the amounts already awarded and confirmed through binding award agreements.”

“Unfortunately, it is not an option for your client to participate in the Neighborhood Initiative Program (NIP) without the execution of the amendments,” replied Easton.

Southeastern’s attorney also informed the Authority’s attorney on June 30 that Southeastern would be seeking judicial relief of $2,310,000 for the NIP funding they would have been awarded if not for the “improper hold.”

The towns of Blackville and Williston along with Bamberg County have joined with Southeastern as plaintiffs, although the governmental entities have no financial obligation for the lawsuit.

“We believe it bolsters their case for us to join as a plaintiff. We also believe that it is in the Town of Williston’s interest to join Southeastern in that we have a number of houses that were set to be demolished when work was halted by South Carolina Housing Finance and Development Authority and S.C. Housing Corporation,” said Williston Town Administrator Kenny Cook in a memo to council last month before council unanimously approved to join as a plaintiff.