The Indianapolis Star from Indianapolis, Indiana • Page D4

INDYSTAR D4 SUNDAY, FEBRUARY 2, 2014 Joseph Nelson, the CEO of Mt. Helix Real Estate Investment Fund, said most of the Section 8 property violations attributed to Mt. Helix were "inherited issues." matt krygefvthe star Fraud Continued from D1 Indianapolis. In the past 18 months, cash-paying investment groups have bought several thousand homes in the Indianapolis area, trying to create portfolios of rental homes that will generate profits for their investors. Indianapolis is among the U.S.

cities where some of the largest home-buying investors in the nation have been most active. Especially desirable to some of those investors are the 7,000 rental homes in the city with so-called Section 8 tenants. The federal subsidies typically cover all or much of the rent and utilities and assure a landlords being kicked out of the Section 8 program or taken to court. The "demand notices" the IHA files against landlords over violations are essentially incontestable unless the landlord wants to go to court, and they require full repayment of rent money in as little as 10 days of the notice. Bud Myers, executive director of the IHA, said the influx of out-of-state investors has made it more challenging for his agency to enforce its myriad rules.

In some cases, he said, it's difficult to even find out-of-state landlords because many are investment funds or partnerships where ownership can be nebulous. "They are trying to put these (houses) into the Section 8 program but not identifying individual owners," Myers said. "If there is an issue (with SECTION 8 FRAUD CASES The Indianapolis Housing Agency faces a hardertime policing the federally subsidized Section 8 housing program as more houses in the program have been bought by investor groups, many of them out-of-state or foreign-owned. A look at some recent examples of fraud claims involving investor groups suggests paperwork errors and red tape are to blame for some of the Section 8 money ending up in the wrong pockets. Criminal activity by residents also is a common reason for the IHA filing claims against landlords for Section 8 refunds, but some landlords or their property managers contend they're not in a position to stop their tenants from committing crimes.

A few cases the housing agency has filed: LS US Property LLC A Section 8 house at 1334 N. LaSalle St. was the source of two fraud claims last year. LS US Property LLC, of Victoria, Australia, was cited for not properly screening tenants at the house. The tenants, both juveniles, were charged last year with robbery, burglary and suspect criminal gang activity and weren't authorized to be living in the house at the time, the IHA says.

The company was ordered to return $5,096 in Section 8 rent checks as a penalty. A previous owner of the house, Square Peg Investments LLC of Indianapolis, also was cited for not notifying the IHA that it sold the house to a Kansas City, company in October 2012. (That company then resold the house to LS US in November 2012.) Square Peg was ordered to return $1,419 in Section 8 rent payments it collected in early 2013, when it no longer owned the house. The local property manager for both Square Peg and LS US, Harvey Levin of Harvey Property Management in Indianapolis, said IHA's demands to repay the Section 8 funds have been satisfied. He refused to discuss the fraud claims filed by the IHA.

YSE LLC The IHA filed a demand notice to retrieve $12,329 in Section 8 payments against YSE LLC and Yariv Bensira for "concealing the sale" of a three-bedroom house at 4120 N. Butler St. to Yehuda Parnes of Israel. YSE continued to collect the Section 8 payments for more than a year after the house was sold, the IHA said. Bensira and a company identified as his "agent," AVA Management of Carmel, couldn't be reached for comment.

Lifetime Properties The IHA demanded $1,790 in back Section 8 payments from Kamran Nasser, a San Mateo, real estate investor. Nasser's Indianapolis-based company, Lifetime Properties, was cited for concealing the February 2013 sale of a Section 8 property it owned at 1711 N. College Ave. to a limited liability corporation based in Hong Kong. The alleged violation came to the IHA's attention, after the Section 8 tenant at the site was murdered last June, according to the IHA demand notice.

Nasser didn't reply to a phone call to his San Mateo office. His company has repaid the $1,790 to the IHA, the agency said. Armstrong Investment Group Armstrong Investment Group of Carmel was cited for accepting $2,411 in Section 8 payments, after selling several houses in the program last year to American Residential Properties of Scottsdale, Ariz. American is one of the nation's largest institutional buyers of single-family homes. Scott Armstrong, of Armstrong Investments, said his company's property management arm did receive $2,411 in Section 8 money for properties after they were sold, but promptly turned the money over to American Residential as the new landlord.

"They gave the payments to the new owner, and rightfully so. I didn't net a penny more than I ever should have," he said. "The demand letter they sent us was unbelievable," Armstrong said of the IHA. "It reminded me of the verbiage of some Nigerian spam email." IHA said the claim has been resolved with Armstrong. Jeff Swiatek The reality of the situation is federal rules), you can't pinpoint who to go after because they are all in syndications or pools.

There's nobody to hold responsible." Traditionally, the IHA has no way to determine if the alleged overseas investors even exist" far in Indianapolis' Center Township, which contains the city's largest pool of outdated, run-down housing. The homes are cheap, some going for a few thousand dollars. However, "in these low-income areas, it's too hard to find quality tenants," said Harvey Levin, owner of Harvey Property Management, which is why Section 8 properties and their guaranteed rents are so desirable to some landlords. Harvey Property Management manages several hundred rentals in the city, including Section 8 homes. Another major investor-buyer, American Residential Properties of Scottsdale, has 57 Section 8 homes in Indianapolis out of a total of almost 500 homes it acquired in the metro area in the past year.

In November, the IHA cited American Residential for fraud for one home, at 8821 E. 41st for wrongly listing a property management company as the owner and for allowing "unauthorized live-ins" and violent crime to occur on the property. American Residential has repaid to the IHA $2,964 in Section 8 money for the alleged violations at the 41st Street home, the IHA said. All told, American Residential has received $315,653 in Section 8 funds for Indianapolis rental homes it's owned since last summer. That makes the publicly traded Scottsdale investment trust one of the largest participants in the Section 8 single-family-home program in Indianapolis.

At times, investors are buying and flipping Indianapolis properties, including Section 8 homes, so quickly that ownership becomes muddied and the IHA has trouble tracking it. The IHA report notes that "One common scheme re-emerging is the practice of bundling 20 to 40 properties into one deed that oftentimes does not contain individual street addresses but legal descriptions only. In turn, this causes discrepancies between the records of the county recorder, treasurer and assessor." The IHA puts the onus on landlords to keep their Section 8 properties in good repair and adhere to rules aimed at reducing crime by kicking out tenants who've committed crimes or let unapproved residents with criminal pasts live with them. Keeping crime out of Section 8 homes is understandable: Half of the 18,243 residents of Section 8 homes in the city are children under 18. "Section 8 has standards," said Myers, head of the IHA.

"If they're just renting them without being responsible for what happens there, then we're looking at housing that isn't going to be decent." The IHA has to walk a tightrope at times in its enforcement actions against landlords, he said. Once kicked out of the Section 8 program, "the people that individually get hurt are the tenants," Myers said, who are forced to find another home if their landlord loses Section 8 eligibility. Call Star reporter Jeff Swiatek at (317) 444-6483. Follow him on Twitter: JeffSwiatek. IHA office of Special Investigations report steady stream of income for the investor or owner.

Landlords also like it that the government pays the subsidies directly to them. Most of the fraud charges by the IHA allege two types of violations former owners keep pocketing federal rental checks even after selling the properties where the rent-subsidized tenants live and investors who continue renting their properties to tenants or illegal live-ins who have committed crimes while living there. In its annual report on fraud and enforcement in the Section 8 program, which became available last week, the IHA's Office of Special Investigations said some of its Section 8 homes are changing hands so fast that it's having difficulty tracking the owners, especially foreign ones. "OSI audits of many Section 8 homes have to date identified many of the concealed owners living in Australia, Canada, Israel, Germany, Hong Kong and Singapore to name just a few," the report says. "The reality of the situation is the IHA has no way to determine if the alleged overseas investors even exist." The report also says that "in the past year, thousands of single family homes have been packaged and bundled into investment vehicles in much the same way the prior hedge fund properties of the 2001-2007 mortgage fraud crises were created." Section 8 housing rules are rigorous, requiring compliance with a host of housing standards, from handrails on steps and screens on windows to bans on lead paint.

For landlords who violate any of its long list of rules, the IHA is allowed to demand payback of their housing subsidies, sometimes going back many months. Refusal to return the payments can lead to properties in the Section 8 program have been run by local, mom-and-pop landlords well-known to the IHA, who are also knowledgeable about the local market and more apt to know their renters personally. But that landlord profile is changing as the out-of-state investment firms move in. Many rely on locally hired property managers to run their properties. The increasingly diverse pool of landlords who made repayments or were served demand notices for Section 8 fraud last year includes an Australian investment group, a representative of an Israeli real estate company, and a publicly traded Arizona investment trust.

One of the most aggressive investor-buyers of Indianapolis homes in the past year, a San Diego firm called Mt. Helix Real Estate Investment Fund, was recently cited by the IHA for violations at several of its Section 8 homes and faces potential repayment of rent subsidies totaling thousands of dollars. Violations included overcharging tenants on their rent and allowing a felon to move in with a tenant. Mt. Helix's chief executive officer, Joe Nelson, said most of the property violations attributed to Mt.

Helix were "inherited issues" from a prior owner and a previous property manager. As for an unauthorized felon living in one of its rental homes, Nelson said "when we discover such concealment, we take actions to correct the situation. (But) if, after move-in, a tenant moves in an undisclosed party, we have no means to discover such an action." Mt. Helix owns about 1,000 homes in the city, most acquired last year. The privately owned San Diego company is on a buying binge in Indiana and aims to own as many as 5,000 houses in Indianapolis and its suburbs and Fort Wayne by 2015, Nelson said.

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