Former property manager corroborates claim of Section 8 fraud

A second former employee at the Rolling Hills Apartments has come forward with allegations that the owner, the Aspen Companies, fraudulently billed HUD for vacant Section 8 units.

As the on-site property manager at Rolling Hills Apartments, Jeremy Cox was responsible for preparing a monthly invoice for the US Department of Housing & Urban Development requesting reimbursement for low-income tenants supported by Section 8 funds.

“I was the one who created the invoice,” said Cox, who was employed by the Aspen Companies from April through mid-July. “I would get an email when they paid. I knew exactly to the cent what we were billing for. That’s how I know we were billing for vacant units.”

Over the course of his tenure Cox said the number of vacant units ballooned from two or three to nine, with the illegitimate Section 8 funds that flowed into the Aspen Companies’ business account rising from about $3,000 to $6,000 per month.

Cox’s statement to Triad City Beat corroborates a claim previously made by Gene A. Smith that he witnessed another property manager falsely report to a HUD employee that there were only two vacant units when in fact there were 13.

“In all cases like this we would certainly investigate these allegations,” said Brian Sullivan, a spokesperson at HUD’s national headquarters in Washington, DC. “In accordance with protocol, we have HUD staff and we have contract administrators who will look into it.”

A spokesperson for the Aspen Companies said on Tuesday “that all allegations related to Section 8 fraud are categorically false.”

Cox was fired from his position as property manager in mid-July, and quickly replaced by Tursha Ellis; Smith alleges she misreported the number of vacant units during an Aug. 12 visit to the site by HUD employees.

In a recording provided to Triad City Beat, Aspen Companies Regional Manager Avraham Derhy informs Cox that he’s being fired at the instigation of Adam Mermelstein, one of the owners.

“I just got off the phone with Adam, and to cut straight to the chase, unfortunately we’re gonna have to part ways,” Derhy told Cox. “Certain things have developed amongst the owners and investors where they’re making us put a new face on the property. It pains me to inform you of that because even with the struggles I felt like we were going to right the ship. But I guess we’re not gonna get that opportunity.”

Derhy told Cox that “obviously a lot of it doesn’t have to do with your negligence at all and it’s just been festering and accumulating over the past couple years,” adding that the owners nonetheless felt that management needed be held accountable for current conditions.

“Secondly, the city has been in contact with the owners, and they’ve made it really clear that they’re not interested in working with the current management going forward,” Derhy said. “And that’s something which the owners don’t want to worry about. The tax credits being at risk. They don’t want to have to continue to worry about violations continuing to roll in. It’s gotten to a point where the city — and I guess as a result of the residents — don’t want to have to deal with status quo; they want a change.”

The Aspen Companies, a New Jersey-based real estate concern that is a leading provider of Section 8 housing across the South and Northeast, is in a position to profit from the sale of Rolling Hills with the city’s cooperation in financing an investment by a new owner.

Winston-Salem City Council passed a resolution in April exercising its powers as a housing authority to authorize financing for a new company owned by a group of investors in Denver to acquire Rolling Hills Apartments. The city council has considered rescinding the resolution to leverage a commitment from the potential buyer to increase a pledged investment in the property from about $17,000 to roughly $45,000 per unit, Mayor Allen Joines said.

Derhy cited a press conference held by Joines, Councilman Derwin Montgomery and the Ministers Conference of Winston-Salem & Vicinity as setting events in motion that led to Cox’s firing.

“To get to the point where the mayor is talking about how bad our property is — that’s something which I think has been unprecedented — it was really after that press conference that it really hit the investors, because until then — obviously we keep them posted, and Adam lets them know what’s going on — big picture stuff I don’t think they really know to what extent,” Derhy told Cox. “After that occurred, I think that’s when they really started getting involved. Whatever transpired over the past two weeks is what led to Adam calling me now.”

Derhy told Cox that “the majority of the decision-making” driving Cox’s termination came from the city.

“We crossed certain people that weren’t pleased with being crossed, and they have the power,” he said. “They can implement certain things that I can’t control, obviously that you can’t control. We answer to certain people that are gonna have their way.”

He added that when “certain finances are at stake” with the property, the company is “not gonna take any risks.”

Joines said the purpose of the press conference was “to bring attention to these deplorable conditions” at the apartments, adding that they didn’t suggest any particular tactic such as firing the property manager to address the situation.

“What we wanted to see was an improvement in the living conditions, and how the tenants were being treated,” Joines said. “We were sharing that from the tenants’ perspective, the managers were unresponsive or retaliatory when they reported things.”

Cox said he clashed with Montgomery and with the staff in the city’s housing & community development department over his aggressive handling of evictions to push out tenants who violated their leases by engaging in criminal and disruptive behavior. Cox said he was scrupulous about ensuring that he filed eviction papers before tenants complained about violations, and that city staff discouraged him from pushing out troublesome tenants.

Cox said he doesn’t believe the Aspen Companies is interested in selling the property. Contrary to Cox’s understanding, Joines indicated that the property is under contract to sell to a prospective buyer. He added that the city’s code enforcement division is currently verifying the cost of bringing the property up to code.

“What we’ve seen in the past is a buyer comes in and does the minimal investment, and they slip back into their current condition,” Joines said. “I think a higher level of investment could keep them a good place to live for individuals.”

Joines added that he does not believe city council would be willing to support financing to allow the Aspen Companies to obtain tax credits in exchange for investing in the rehab of Rolling Hills.

“I don’t think that’s an option for the Aspen Companies,” he said. “We have not been very pleased with their handling of their properties.”

Jeremy Cox said he billed HUD for the vacant units with his supervisor’s knowledge and blessing.

“It was communicated to me that we could pretend that we didn’t know that the people were abandoning the units,” he said. “We knew they were vacant because we would find out when we inspected them. But it’s not like people would stop by the office and say, ‘Hey, we’re abandoning the unit.’… I would mention it and they’d be like, ‘Ah, they didn’t come in and tell us.’”

When asked who specifically told him to bill for the vacant units, Cox initially responded, “All of them.” When pressed about whether he spoke to anyone else, such as Mermelstein about the arrangement, Cox clarified: “Abe for the most part, yes.”

Cox said he didn’t consider the conduct to be wrong or criminal. Cox said he considers Avraham Derhy, who goes by Abe, to this day to be a friend.

“No, because I was told if it was found that we were wrong, we would go and give the money back,” he said.

HUD announced a new inspection of Rolling Hills Apartments by its Real Estate Assessment Center last week. “The purpose of the REAC inspection is to provide information to help ensure safe, decent and affordable housing,” the agency said in a prepared statement, “and to restore the public trust by identifying fraud, abuse and waste of HUD resources.”