Two federal housing officials told a Senate subcommittee yesterday they were taken off an investigation of the operation of Clifton Terrace apartments after they recommended to Patricia R. Harris, then secretary of housing and urban development, that the department foreclose on the mortgage because of mismanagement of the project.
The testimony came at a hearing on allegations in a series of articles last month in The Washington Post. It was alleged in the series that HUD allowed P.I. Properties Inc., a real estate spinoff of Youth Pride Inc., a city black self-help group, to ignore mortgage payments, utility bills and tenants' complaints while stealing at least $600,000 from the government and the tenants between 1974 and 1978. chairman of the appropriations subcommitee on HUD-independent agencies, said after yesterday's hearing that he will ask Harris' successor at HUD, Moon Landrieu, to testify at the next hearing, on Dec. 5. Because Harris was mentioned so often by yesterday's witnesses, Proxmire said "it may be necessary to call Mrs. Harris also."
"I don't want to be too retrospective," Proxmire said. "I don't want to concentrate on who was guilty, but rather on how to improve the situation for the tenants." He said he avoided asking questions about "possible criminal behavior" because of an ongoing investigation by the U.S. attorney's office here.
Samuel C. Weisbach, who was a loan specialist at HUD, told Proxmire that he recommended in mid-1977 that the agency move in on P.I. Properties "because it seemed obvious that project income [tenants' rent] was being diverted improperly." He said his boss "said he would see 'Pat that evening and recommend we foreclose."
Instead, Weisbach testified, shortly thereafter "I was informed by my immediate superior" that a higher HUD official "had assigned him [the superior] to personally handle all matters pertaining to Clifton Terrace."
About the same time, according to Fred W. Pfaender, another HUD official who testified yesterday, James Clay, then director of the agency's D.C. area office, reversed his earlier call for foreclosure on the HUD-financed complex at 14th and Clifton streets NW.
Pfaender said Clay recommended that foreclosure "be held in abeyance while he undertook activities to cure the mortgage default and clear the audit findings." P.I. had made only four payments in three years.
Two weeks ago, Proxmire asked the General Accounting Office to look at Clifton Terrace. Among yesterday's witnesses was a GAO official who testified that investigators have obtained files indicating that HUD "delayed foreclosure on the project despite indication of serious financial problems,"
Asked for a comment on yesterday's testimony, Harris' press aide referred a reporter to comments Harris made at a breakfast meeting Oct. 23, at which she said she had spent very little time working on the case and that she felt HUD's foreclosure action had been swift. She said the government had to build its case carefully to avoid losing in court and to regain ownership of the project.
Pfaender, now director of HUD's office of single-family housing, testified that he wrote in a memo on Aug. 15 1977, to his new boss, Marilyn Melkonian, "that Secretary Harris had evidently met with Mr. Clay and negotiations with the sponsor [P.I.] had been renewed."
Pfaender said yesterday that "to the best of my recollection, it was after my Aug. 15 memorandum to Ms. Melkonian that she indicated to me that she would handle the case personally. "For all practical matters, my involvement with Clifton Terrace ended at that point."
Proxmire said, "It seems odd to me that you were taken off the case, taken out of the game and put on the bench, at the most critical time. What reason was given?"
"There was nothing in writing," Pfaender replied. He said Melkonian said the secretary was "personally interested" and he got the idea that Melkonian, who was new to the job, wanted to impress Harris by taking charge herself.
Proxmire said Pfaender's memo "implies that the reason for the 13-month delay [in seeking foreclosure] resulted from a decision by Secretary Harris to try to work out the problems."
Proxmire praised Pfaender, who was demoted shortly after being taken of the Clifton Terrace case, and Weisbach, who retired from HUD in May 1978, for their testimony. "It's not easy to do what you are doing," Proxmire said. "It takes courage."
Pfaender said the Clifton Terrace project came under his jurisdiction on June 30, 1975. It was then that HUD agreed to sell the apartment project to P.I. Properties for $820,400 -- about $400,000 less than a previously agreed-upon sale price, with a no-down-payment, 100 percent mortgage to be held by the HUD secretary.
"I was alerted as to the background of the sale" by HUD's property disposition staff, Pfaender testified, "and was verbally advised I could expect trouble."
Proxmire asked if Pfaender meant that he was threatened. Pfaender said no, explaining that he meant the transaction was a "trial sale" and that others in HUD did not expect it would be successful, that the rental income would not produce enough excess to support the mortgage payments.
On Sept. 7, 1976, Pfaender asked the director of HUD's D.C. area office to request a prompt audit "and advised him that foreclosure might be the only alternative for Clifton Terrace."
By April 26, 1977, Paender advised HUD's assistant secretary for housing "that we were suspicious that the owner-management agent [P.I. Properties Inc.] was misusing project funds" and that P.I. Properties had made only four mortgage payments by then, with more than $182,000 already delinquent on the $820,400 mortgage.
Pfaender got the results of the audit by the HUD inspector general's staff in Philadelphia on May 9, 1977. But although in the past Pfaender had found the auditors to be "very tough, detailed and hard in their recommendations, I was personally very disappointed" in the recommendations, which included suggestions that the owners "correct dificiencies in the accounting system, consider changing the management agent and make arrangements for bringing the mortgage current."
Pfaender said he had expected the auditors "would have recommended referring the case to Justice" for possible criminal prosecution.
The relatively mild recommendations "were the strangest part of the audit," Pfaender said. "It's usually the other way around, with us complaining that the auditors are too tough, such as pushing us to go after repayment of $40 for a Christmas party held by" somebody doing a good job.
"You weren't born yesterday," interjected Proxmire. "How do you explain it?"
"I can't explain it," Pfaender answered. "I just thought they blew it."
Proxmire pressed, asking Pfaender why he didn't complain.
"The inspector general reports straight to the secretary," Pfaenderr explained, adding that lower-level HUD officials "are very slow to criticize the IG."
The GAO witness, Henry Eschwege, director of the community and economic development division, testified that in addition to delaying action on foreclosure, HUD made the sale "under unusual circumstances" and inadquately monitored the activities of the new owners.
Eschwege said the no-down-payment mortgage "was not a common procedure," and that HUD official "prepared a so-called 'waiver of criteria to negotiate sale' to justify the deviation from normal practice."
But although GAO found "a number of problems" at Clifton Terrace, Eschwege said "they are not unique."
He said, that throughout the United States HUD holds mortgages on about 2,000 multifamily projects, valued at about $3 billion, and that 75 percent of them are delinquent in their payments, totaling about $500 million. Additionally, Eschwege said, HUD owns about 500 projects as a result of foreclosures.
"That's astonishing," said Proxmire shaking his head.
HUD responded to yesterday's testimony with a statement that said, "The record shows that prior to its initiation of foreclosure in June 1978, HUD attempted to work in good faith with this then-respected community organization." Since taking over management of the complex, HUD said, it has "attempted to act in the interest of the taxpayers, the tenants, the community and its concern for due process of law."
Also testifying yesterday were four tenants of the complex, who urged Proxmire to see that in the future, tenants have a voice in management of the buildings.
The Post series cited records of P.I. Properties and statements of a former P.I.. bookkeeper in reporting that three officials of the nonprofit firm systematically diverted, misappropriated and stole from the tenants while operating the apartment project.
The three officials are Mary Treadwell, former wife of Mayor Marion Barry, who with Barry founded Pride in 1967; Joan M. Booth, Treadwell's sister, who acted as project manager, and Robert E. Lee Jr., who was the former general manager of P.I. Properties.
No allegations implicated the mayor in any way. Treadwell has denied all wrongdoing; Lee has refused to discuss specifics and Booth has declined to be interviewed.