When the Rhode Island Plaza apartment building opened in the segregated Washington of 1952 with a federally secured loan, it was hailed as a model of how the government could encourage high-quality housing for blacks.
But it was a troubled project from the start and failed to attract enough black families to fill the 413 units despite such enticements as rent reductions. Within two years, the owners defaulted on the mortgage.
After paying off the insurance company that had made the construction loan, the government took control of the financing and said it would decide whether to foreclose or continue to allow the original owners to operate the building.
Twenty-five years later, the government still has not made that decision even though the owners of the building are now more than $800,000 behind on their mortgage payments, according to a report by congressional investigators that was released yesterday.
The problems at Rhode Island Plaza, 1300 Rhode Island Ave. NE, typify the Department of Housing and Ruban Development's loss of control of many housing projects across the country, the investigators' report said.
As of last July, the investigators said, the department held mortgages totaling $3.7 billion on 2,047 projects containing 268,000 apartments. Of those projects, more than half -- 1,101 -- were in default, 384 were moving toward foreclosure and only 562 -- or 27 percent -- were current in their payments.
The details were released in a report prepared for Sen. William Proxmie (D-Wis.), chairman of the Senate appropriations subcommittee on HUD-Independent Agencies.
HUD released a statement yesterday that said "the report does not reveal any new program or policy issues . . . HUD is the first to admit that the job is not yet completed, but significant progress has been made in the past two years."
The statement said the department is "gravely concerned about potential fraud, abuse and mismanagement in its housing programs," but suggested that the findings of the congressional investigators were "isolated incidents." t
Proxmire said the findings by the committee's investigators indicate that recent "allegations of fraud made with respect to the Clifton Terrace project represent one single tree in a forest of mismanagement and corruption" involving properties over which HUD has jurisdiction.
Earlier this month, Proxmire heard testimony from two federal housing officials who said they had been taken off an investigation of Clifton Terrace after they recommended to Patricia R. Harris, then-secretary of housing and urban development, that the department foreclose on the mortgage beacuse of the project.
Their testimony was solicited by Proxmire after a series of articles in The Washington Post last month alleged 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 tenants between 1974 and 1978.
The congressional investigators examined 131 HUD projects, including Rhode Island Plaza and two others in the District, in preparing their report to Proxmire.
The investigators said the Trenton Park cooperative development in Southeast Washington hasn't made a single monthly mortgage payment to HUD in 30 months. They also said that the former manager of the Galen Terrace development in Southeast was accused of pocketing $19,000 by preparing phony invoices for work never performed.
There was no connection between Youth Pride, Inc., and any of these projects.
It was the transformation of Rhode Island Plaza from a luxury building to a troubled structure for poor families that attracted the most attention from the congressional investigation. While the investigators found no evidence of fraud at the project, they criticized HUD for failing to either foreclose or work out a new mortgage agreement on the building.
Helen McGlauchlin, chief of the loan management section of HUD's area office for the District, said it would be "no great benefit to foreclose" on the building, which she said is "well-maintained and consistently full."
Today, the building retains a sem-blance of its original luxury, which included parquet floors, a 24-hour service desk, built-in television antenna in each apartment and four automatic elevators. The main entrance is off a circular drive on 13th Street. The spacious lobby has an Art Deco look, with indirect lighting and solid glass doors.
Children romp in and out of the elevators. Resident manager Herman Roberts said he is "proud of the condition" of the building, but added that some of the rents are "hard to collect. The orginial monthly rental range of $82 to $142 now is $192 and $255. Commercial space on the ground floor, facing Rhode Island Avenue, is only partially used, with a florist, barber and beauty shops, dry cleaner and restaurant.
HUD acquired the mortgage on the bulding when the owners, Fred Schnider and Melvin H. Schlosberg, defaulted on the original mortgage and HUD, as the insurer, was forced to take it over.
McGlauchlin said the overdue debt was built up in the early years and that in recent times, except during a rent strike from 1975 to 1977, the owners have been making regular monthly payments, sometimes in excess of the amount due, in an effort to whittle away at the delinquency. In Jun, for instance, she said the owners made a $32,000 payment although only $27,000 was due. As of Aug. 24, HUD records show, $811,859.55 remained owed on the original principal of $3,594,000 of the mortgage issued on July 28, 1952.
The problem, according to McGlauchlin, is that the original mortgage is scheduled to be paid off in 1981, but with the existing debt that will never happen. What is supposed to happen in these circumstances, both HUD and the congressional investigators agree, is that a new mortgage should be negotiated, or HUD should foreclose and find a new owner.
HUD loan officers have been meeting frequently with representatives of the owners, McGlauchlin said, but she said, "we can't agree" on terms to recast the mortgage.
Ownership of the building remains with the same families who built it, but neither Schnider nor Scholosberg's son, Bruce, could be reached for comment over the weekend.
J. Gerald Lustine, president of Lustine Realty Company, the building's management agent, said "not one penny has gone into the owners' pockets" since he took over operation five years ago. "There are no salaries drawn" by the owners, Lustine said, "and whenever collections exceed expenses, the excess is forwarded to HUD."
Lustine blamed the housing department for "part of the delinquency," saying that HUD rejected five applications for rent increases in the early 1970s. When a rent increase was finally approved, "it was excessive, and the tenants struck," Lustine said.
When Rhode Island Plaza opened in 1952, a newspaper report hailed it as "the biggest luxury apartment building in the country built for coloreds."
Also speaking of Rhode Island Plaza, an official of the Federal Housing Administration (FHA) said at the time, "From the mortgage credit viewpoint, this project can have far-reaching significance. Its success could well determine whether new sources of money for similar projects could be opened up."
But the project failed to attract enough black families. When even rent reductions didn't work, the owners made the apartments available to both white and black families. But by mid-1954, only 300 units were rented and the owners defaulted on the mortgage.
The New York Life Insurance Co., which made the original loan for construction, notified FHA that it wanted to collect its loan, which had been insured by the government agency. FHA paid off the insurance company and a spokesman said it would try to decide whether to foreclose or continue to allow the original owners to operate the building. That is still the situation, the investigators said.
Investigators said HUD has been reluctant to foreclose on multifamily projects, although HUD officials offered different explanations.
One high-ranking official told investigators that HUD's goal of preserving low- and moderate-income housing does not enter into decisions about whether or not to foreclose. But area loan service officers disagreed, according to the investigators, saying they often have been reluctant to recommend foreclosure because of "headquarter's emphasis on maitaining low- and moderate-income housing in the private sector."
It is for that reason, the investigators were told, that HUD has not recommended foreclosure of the Trenton Park cooperative apartments at 6th and Mississippi Avenues SE although the owner hasn't made a payment in 30 months.HUD has not been able to devise a plan for the owner to work out its delinquency since the agency took over the mortgage 11 years ago.
Among other findings uncovered by the Senate invstigators were:
The brother of the resident manager of the Northern Canal Apartments, in Lowell, Mass., was hired to paint the apartments. The manager gave his brother $60,000 in a 13-month period, plus an average of six gallons of paint per apartment. Investigators found cobwebs in many of the apartments that supposedly had been freshly painted, and where painting was done, holes in the walls and other damage that should have been repaired first were painted over.
$65,000 in project funds were missing from a Los Angeles project, but HUD's area loan manager didn't investigate because he said he thought the money would be recovered before foreclosure.
HUD inspectors reported in 1973 that a 348-unit project in Chicago badly needed repairs to the roofs. Because of the repair costs, HUD didn't press the owner when he fell behind on mortgage payments, in hopes he would use the money to fix the roofs. Follow-up reports in 1977 and March, 1978, however, showed the roofs still leaked. Last November, HUD inspectors reported that the owner was "making good progress" on repairs and the roofs no longer required immedieate attention. But when the Congressional investigators visited the development in June, they found severe leaks in the roofs of more than half the 34 buildings, and at least 30 apartments were uninhabitable because of water damage.