SR-01-22-2013-3ECity Council Meeting: January 22, 2013
Agenda Item: J�E
To: Mayor and City Council
From: Andy Agle, Director of Housing and Economic Development
Subject: Assignment of Recovery on Claim
Recommended Action
Staff recommends that the City Council authorize the City Manager to execute an
Assignment of Recovery on Claim to Comprehensive Housing Services (CHS), an
Orange County based company, in the amount of $26,030.
Executive Summary
The City contracted with CHS to administer the Residential Rehabilitation Program
(RRP) funded by a Community Development Block Grant through the U.S. Department
of Housing and Urban Development. CHS deposited RRP funds from the City into a
third -party escrow account in conjunction with implementing the RRP. After learning
that $26,030 in RRP funds held in the escrow account were fraudulently appropriated by
an escrow company principal, CHS immediately reimbursed the City for the total
amount of these funds. CHS is attempting to recover their loss of funds and requires the
City to assign the recovery on claim. The Assignment of Recovery on Claim assigns
and transfers all distribution or recovery on the City's claim to CHS. The City has been
fully reimbursed and there is no loss.
Background
Since 1996, the RRP has provided financial assistance for repairs to apartment
properties occupied by low- income tenants and to low- income, owner - occupied
properties. On October 23, 2007, the City Council authorized the City Manager to enter
into a contract with CHS to administer the RRP.
Discussion
The City provided funds to CHS as part of the contract to implement the RRP. CHS
routinely deposited RRP funds into an escrow account with Rehab Financial
Corporation (RFC) in conjunction with administering the RRP and disbursing funds to
loan recipients. RFC had successfully administered escrow funds for years on behalf of
CHS without incident. However, in 2010 CHS learned that an RFC principal absconded
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with the escrow funds from Santa Monica and several other cities. At the time, the RRP
had a balance of $26,030 held in escrow with RFC and CHS immediately returned that
amount to the City, using its own company funds. In April 2011, the former principal of
RFC was found guilty of embezzlement. The City's escrow balance was found to be
part of funds embezzled. As a result, the City may be listed as a recipient of a judgment
for restitution. Since CHS reimbursed the City for those funds, any distribution or
recovery from the judgment should be transferred or assigned to CHS to mitigate their
loss of funds. The City shall remit any distribution from judgment to CHS, and in effect
make CHS whole.
Financial Impacts & Budget Actions
There are no financial impacts to the City associated with assigning recovery of any
claim to CHS. CHS has previously remitted the amount of $26,030 to the City, thereby
reimbursing the City in full.
Prepared by: Ava Lee, Senior Development Analyst
Andy Agle, Director
Housing and Econo
Development
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Forwarded to Council:
Rod Gould
City Manager