Owner of low-income apartment complex alleges mismanagement of property
One of the buildings that makes up the Heritage Apartments complex in Waterloo. (Photo courtesy Black Hawk County Assessor's Office)
A trio of out-of-state companies are engaged in a court battle over a financially troubled low-income apartment complex in Waterloo.
Two Nebraska companies called Waterloo Affordable Housing, or WAH, and Central States Property Management are suing Leumas Residential of Virgina in U.S. District Court for the Northern District of Iowa.
WAH claims it is the title holder of the 53-year-old, 101-unit Heritage Apartments complex, having acquired it in 2006. The company alleges it obtained a loan in December 2006 to completely renovate the complex over the next two years. The loan included a federally insured mortgage under a program administered by the U.S. Department of Housing and Urban Development.
The company claims that in January 2024, HUD "ignored" Iowa's foreclosure laws and asserted its right to take over the complex based on WAH's alleged default on the mortgage. As part of that process, HUD allegedly contracted with Leumas to act as the new property manager, replacing Central States in that role.
Since then, the lawsuit claims, Leumas has taken possession of the complex and "ousted" representatives of WAH and Central States from the property.
The two plaintiffs now allege that Leumas has been mismanaging the property, in part by failing to market and rent the available units in the complex, by failing to guard against vandalism and "secure the safety of the Heritage Apartments' residents." The alleged mismanagement has reduced the resale value of the complex, the plaintiffs argue.
The lawsuit was originally filed in state court, where Leumas Residential admitted that it "has taken over management of the Heritage Apartments per its contract with HUD," but denied any wrongdoing.
Court records show that in 2019, WAH filed for bankruptcy and in 2022 sued the Iowa Finance Authority for allegedly blocking WAH's efforts to sell Heritage Apartments.
At the time, WAH was claiming it stood to lose $3.3 million as a result of the Iowa Finance Authority's insistence that the proposed buyer place $800,000 in escrow to guarantee funding for building repairs that would ensure the apartments remained habitable.
In response, the authority argued that the federal Low Income Housing Tax Credit program that WAH had benefitted from was enforced by the authority, which had the right to place such conditions on the sale of the property.
In court, IFA stated the proposed buyer, a company called EPM, had "significant" issues complying with federal standards for low-income housing at another property it owned. After a year of litigation, EPM backed out of the deal, according to court records, and the lawsuit was dismissed.
Each year, HUD conducts about 20,000 physical property inspections of low-income properties to measure their safety, sanitary conditions and overall maintenance. HUD then assigns a numerical score of 0 to 100, with anything above 60 considered a passing score.
HUD data shows the Heritage Apartments scored 55 points on a 0-100 scale in June 2023, and that it scored 44 points in February 2023. Those were among the lowest scores in Iowa in recent years.
