The federal government, charging Leon Finney Jr. and The Woodlawn Organization (TWO) with ”gross mismanagement,” is seeking to take possession of Woodlawn Gardens, a 504-unit private housing development that is more than $15 million in debt.
Since March, 1972, TWO has failed to make a mortgage payment on the low-and moderate-income development at 63d Street and Cottage Grove Avenue, and an audit by the U.S. Department Housing and Urban Development accuses TWO of illegally diverting more than $800,000 away from Woodlawn Gardens.
In addition, the 27-building Woodlawn Gardens, the largest low-rise project built in the United States under a now-defunct government financing program enacted under the National Housing Act, is facing 11 building code violation lawsuits, and has overdue utility bills totaling more than $500,000.
A city inspection this past summer uncovered dozens of uncorrected problems, including missing smoke detectors, rodents, roaches, leaking pipes, clogged sewers and missing windows and doors. The cost of needed rehabilitation has been estimated at nearly $2 million.
Finney denies any wrongdoing. He argues that economic factors doomed the project from the start.
But he concedes that he will lose control of the project soon.
From the beginning, Woodlawn Gardens was a well-intended idea that went wrong.
Built in 1969 at a cost of more than $9 million, the project was a highly regarded effort to house the poor and the working poor in the economically depressed South Side neighborhood of Woodlawn. TWO has its roots in the 1960s during the era of the radical community organizer Saul Alinsky.
But, despite the high hopes of an innovative federal program and Finney`s community-based group, the development was a disaster from nearly its first day, crushed by skyrocketing inflation, an under-funded federal housing program and, according to the federal government, ”gross mismanagement.”
The object of the federal program under which it was built was to provide 3 percent mortgages to stimulate the private sector to build low- and moderate-income housing.
But many such developments ran into serious financial trouble when inflation increased precipitously in the mid-1970s and the relatively low rents were no longer enough to pay utility and maintenance costs, taxes and mortgage payments.
”The truth is that Woodlawn Gardens was doomed to fail at its inception,” said attorney Anthony Fusco of the Legal Assistance Foundation who is representing the tenants in one aspect of the case.
The project, sponsored by TWO and the Kate Maremont Foundation, began with the signing of a mortgage note for $9,346,000 in 1968 by Victor deGrazia, executive vice president of the developer, known as TWO-KMF.
The first mortgage payment was deferred until Jan. 1, 1971, but, in March, 1972, TWO-KMF failed to make its payment and has not made a payment since.
A low occupancy rate early on, combined with huge expenses due to inflation, construction problems and vandalism, resulted in a losing venture, said Finney, who as a member of the Chicago Housing Authority board, is one of the city`s top housing officials. He also has been chairman of the Chicago Board of Education`s desegregation monitoring committee and a member of the Chicago Plan Commission. Finney and his father, Leon Sr., own several restaurants, including Leon`s Bar-B-Q.
”This was a troubled project from the beginning,” Finney said. ”There was no way for it to get better without recasting the mortgage. You can point fingers at everybody, but we were all caught up in the spirit of doing something for the community.”
In a brief filed July 7, HUD attorney John H. Mahoney argued that TWO and its affiliates have ”managed (or, more accurately, mismanaged) this property since its inception. Slipshod or non-existent maintenance has resulted in an unsafe and unsanitary housing conditions.”
But attorney Robert Weissbourd, representing the Woodlawn Gardens Tenants Council, disagreed: ”The issues are pretty murky, but an overwhelming percentage of what happened to this project had nothing to do with
mismanagement.
”They may have had too many balls in the air and they were growing heavier. They certainly did some things legally wrong, but it`s not like these funds were going into Mr. Finney`s pocket.”
In 1981, HUD filed suit in U.S. District Court seeking to foreclose on the property.
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The lawsuit inched along. But in June, 1984, Woodlawn Gardens filed for bankruptcy under Chapter 11, which allows a debtor to stave off creditors while a plan of financial reorganization is drawn up.
One of HUD`s first moves was an audit that found that $818,000 in income from Woodlawn Gardens had been diverted into other TWO organizations. The largest portion, $731,244, went to the Woodlawn Community Development Corporation, which manages the housing complex.
HUD contended the transfers were illegal, citing an agreement signed by TWO-KMF in 1968 barring the transfer of any funds from Woodlawn Gardens. In addition, HUD asserted, a federal statute carrying a jail term of three years and a fine of $5,000 prohibits the transfer of rents from a federally insured project to any other entities if the mortgage is in default.
The findings of the audit ”are shocking” and indicate ”continued and repeated illegal conduct,” Mahoney said in his brief.
They are also the source of a bitter squabble in bankruptcy court. HUD says that Finney has conceded that funds were diverted and Finney claims that`s not exactly true. HUD claims that Finney`s affiliated organizations owe a total of $687,000 to Woodlawn Gardens. Finney says it`s more like $77,000.
Shortly after the HUD audit, the U.S. Attorney`s office looked into the case but declined to prosecute.
Finney said he never profited personally from any funds from Woodlawn Gardens.
”Cash flow one way or the other may be up or down and there tends to be intercompany borrowings,” Finney said. ”But the money is always paid back.” TWO-KMF has filed a proposal in bankruptcy court to keep some control and pump in $7.7 million in new funds.
Finney said he is seeking investors for a cash contribution of $731,000 and has requested loan commitments of $3.5 million from the Community Investment Corp. and from the Chicago Housing Department.
Mahoney described the proposal as ”a self-serving plan to further bleed the assets of this property.”
But the issue may soon become moot.
An order, prepared by HUD, was on Bankruptcy Court Judge John Schwartz`s desk Friday awaiting his signature to permit HUD to seek immediate possession of the housing project.
”This has been a headache since the day (the deal) closed,” Finney said.
”I detest admitting failure, but we haven`t been able to generate enough money to make it work. We`re interested in a new owner and new management company that will be responsive to the community. We`re very much worried about the government getting possession.”
But there is disagreement over who should take control of the development if TWO is forced out.
Fusco, who is representing tenants with regard to $84,000 in missing security deposits, contends a HUD takeover would be better for residents.
Under HUD regulations, the agency would have to rehabilitate the complex and provide rent subsidies through the Section 8 program of the Housing and Community Development Act of 1974, Fusco said.
He said HUD would be ”likely to sell the buildings to a new entity,”
but would be required to continue providing Section 8 subsidies for at least 15 years.