Low-income housing developer Dominium Management Services and a “constellation” of related entities have fraudulently diverted millions in tax credits earmarked for affordable housing into their own pockets, thereby cheating tenants and taxpayers, a proposed class action alleges.
The 52-page lawsuit alleges Dominium and 57 related companies have unlawfully “doubled dipped” by obtaining low-income housing tax credits to finance parking costs for at least 18 Minnesota properties while simultaneously charging tenants monthly for parking. While developers are allowed to finance parking with either low-income housing tax credits or separate tenant charges, they cannot do both, the complaint says.
According to the lawsuit, the Dominium defendants have accomplished this by misrepresenting their eligible cost basis so that roughly 90 percent of their parking costs are financed by low-income housing tax credits while the rest is covered by monthly tenant charges.
“Dominium does this by significantly under-reporting its costs related to the parking construction and improvements to [state and local] Allocators,” the lawsuit, which was removed to Minnesota federal court on March 5, claims. “Dominium thereby has engaged in fraud and deception and has been unjustly enriched.”
Dominium is one of the largest developers and providers of low-income housing in the country and primarily rents to senior citizens, the suit begins. Among the accommodations touted by Dominion is the availability of underground heated parking, which the case says is “highly desirable” to Minnesota seniors due to the state’s extreme winter weather.
Dominium’s business model is dependent on at least two sources of public funding, both of which impose upon the developer significant regulatory obligations, the lawsuit says. According to the complaint, Dominium is a regular applicant for and recipient of low-income housing tax credits, which help finance its development or acquisition of low-income housing, and monthly rent charges based on tenant income that are supplemented with additional rent based on government-established formulas in the form of federal and/or state rent subsidies. Both funding sources are highly regulated and subject to complex rules, the suit stresses, and low-income housing tax credits are awarded to developers by state and local “allocator agencies,” per the case.
According to the complaint, the amount of low-income housing tax credits available to an applicant is based primarily on a project’s “eligible basis,” or the amount spent for constructing or acquiring and rehabilitating low-income housing. The higher the eligible basis, the lawsuit says, the more low-income housing tax credits a project may be awarded. The case says a project’s eligible basis is generally calculated using costs connected to acquisition, construction and/or rehabilitation, including eligible “soft” costs.
“This process creates the public benefit of increasing the supply of affordable housing,” the suit reads.
With regard to costs associated with parking spaces or structures in Minnesota, the lawsuit says low-income housing tax credit applicants must make a choice between charging tenants separately for parking or having parking costs included in a project’s eligible basis.
“Developers must choose one option or the other. They cannot ‘double dip’ when financing parking costs,” the lawsuit says, calling the choice between options “fundamental” to the low-income housing tax credit system given the government confers the tax credits to make parking free to low-income tenants.
When it comes to parking, the lawsuit alleges Dominium has chosen not to decide, and instead opted to receive low-income housing tax credits for parking while at the same time charging tenants for parking spaces. According to the complaint, Dominium has misrepresented the costs related to parking construction and improvements at affordable housing properties in St. Anthony, Coon Rapids, St. Paul, Crystal, Cottage Grove, Woodbury, Minneapolis, Champlin, Columbia Heights, Lexington, Blaine, Spring Lake Park, Minnetonka and St. Cloud, Minnesota, at which it applied for and was awarded low-income housing tax credits.
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