LITTLE ROCK — Little Rock's Housing Authority will soon take control of assets worth millions of dollars from the nonprofit Neighborhood Builders Inc., according to a settlement agreement the Housing Authority's board of commissioners unanimously approved Thursday.
The lawsuit, filed by the Housing Authority in U.S. District Court for the Eastern District of Arkansas, alleged that four former Housing Authority officials created deals that funneled more than $5 million ofpublic housing money to the nonprofit, which they also controlled.
The complaint said the former officials then misused profit generated from housing developments built with the public housing money and unjustly compensated themselves.
The Housing Authority sought a judge's order granting it control of the nonprofit's assets and repayment of all public funds granted to the nonprofit and its officials dating back to 1996.
The settlement agreement doesn't include any repayment of funds but does transfer mortgages and property held by Neighborhood Builders to the Housing Authority. The value of the assets hasn't been determined.
"We're ecstatic," said Bettina Brownstein, an attorney who represented the Housing Authority in the case, which has wound its way through the legal system since February 2007.
"We're restoring things to the way it was supposed to be," she said. "It's putting money back into the Little Rock Housing Authority. It's putting those assets back into the Little Rock Housing Authority."
According to court documents, Neighborhood Builders Inc. was originally created by the Little Rock Housing Authority in March 1996 as Little Rock Housing Redevelopment Inc. It was intended to maximize the federal funds the Housing Authority could obtain for development of public housing projects. It shared staff, board members and office space with the public agency.
In 2004, the Housing Authority officials at the time - formerexecutive director, Lee Jones, and former board members Wooten Epes, Calvin Scribner and John Toney - resigned and separated the nonprofit's offices from the public agency.
They then changed the name of the nonprofit and continued to administer the public housing money that had been transferred into the name of the nonprofit to finance the housing developments, retaining the profits, according to the court documents.
Assets to be transferred back to the Housing Authority in the settlement include promissory notes between the nonprofit and thirdparties for the first two phases of development of Madison Heights of Little Rock, a 307-unit town house and apartment complex near West 12th Street and South University Avenue.
The nonprofit also will transfer its ownership interest in Homes at Granite Mountain, a 52-unit town-home development near Springer Boulevard in southwest Little Rock.
In exchange, the Housing Authority will pay the nonprofit $74,000, an amount that includes $52,000 held in an escrow account.
The lawsuit was filed in February 2007 in Pulaski County Circuit Court by Bank of the Ozarks over a dispute about payout of the escrow money. It was then moved to district court after the Housing Authority and the nonprofit countersued each other.
Ed Armstrong, another attorney who worked on the case on behalf of the Housing Authority, said he expects the value of the assets to be transferred to be worth millions.
"It's their responsibility to provide us that accounting when we get to closing," he said.
Shelly Ehenger, the executive director of the Housing Authority, said the decision to settle the case was made in large part because of the cost of continuing the litigation.
"We just thought it was in the best interests of the public we serve," she said.
The settlement still needs to be approved by the federal Department of Housing and Urban Development and the limited partner of the Homes at Granite Mountain, the attorneys said.
Arkansas, Pages 11, 17 on 04/24/2009