FORM 10 - K

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý   No  o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ý

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-12 of the Act).  Yes  o No  ý

 

 

PART I

 

Item 1. Business

 

Overview

 

Assisted Housing Fund L.P. I (the Investor Partnership) is a limited partnership formed on November 2, 1987 and organized under the laws of the State of Washington.

 

The Investor Partnership’s General Partner is Murphey Favre Properties, Inc., (MFP), a wholly-owned subsidiary of WM Financial, Inc. which is a wholly-owned subsidiary of Washington Mutual Bank (WMB), a wholly-owned subsidiary of Washington Mutual, Inc.

 

The Investor Partnership raised $3,511,000 from the sale of 703 units of limited partnership through a public offering completed on April 14, 1989. The Investor Partnership is solely engaged in the business of real estate investment. Accordingly, a presentation of information about industry segments is not applicable and would not be material to an understanding of the Investor Partnership’s business taken as a whole.

 

The Investor Partnership has invested as a Limited Partner in 11 limited partnerships (Property Partnerships) which developed, own, and operate residential apartment complexes located in various locations across the country.  Each apartment complex benefits from several forms of federal assistance programs and qualifies for low-income housing tax credits (Tax Credits) pursuant to Section 42 of the Internal Revenue Code (the Code). There are 335 partners in the Investor Partnership.

 

The investment objectives of the Investor Partnership include the following:

(1) provide Limited Partners with tax benefits from investing in the Investor Partnership in the form of low-income housing tax credits under Section 42 of the Code,

(2) preserve and protect the Investor Partnership capital, and

(3) realize long-term capital appreciation in the value of the properties upon the sale or refinancing of the properties or the Property Partnerships.

 

During the next several years the properties will have completed the 15-year compliance period, thus eliminating the opportunity for an occurrence of a tax credit recapture event which may occur when there is a failure to comply with the requirements of the Internal Revenue Service.  As each property completes the compliance period the Investor Partnership may explore opportunities to sell or refinance the properties within the guidelines allowed and permissions granted by the U.S. Department of Agriculture Rural Development Agency, through its Rural Housing Service (RHS) under its mortgage note agreements.  The sale of any properties will be determined individually on a case-by-case basis, and we cannot assure you that we will sell any of the properties or if we do sell any of the properties, that we will realize any meaningful profit as a result of the sale.

 

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Property Partnerships

 

The Property Partnerships own rental property consisting of apartment projects occupied by low- and moderate-income tenants.  Duration of leases for occupancy in the properties is generally 12 months.

 

The following table provides information regarding the Property Partnerships and their locations.

 

Property Partnership		Location		Date Interest Acquired		Number of Apt. Units
Fairview		Plymouth, WI		December 1, 1989		40
Ionia		Ionia, MI		December 1,1989		24
Logan		Logan, OH		December 1, 1989		32
Rolling Brook		Algonac, MI		December 1, 1989		24
Wexford		Onsted MI		December 1, 1989		24
Blue Heron		Bainbridge Island, WA		March 20, 1989		40
Glenwood		Lake Stevens, WA		June 1, 1988		46
Pacific Place		South Bend, WA		October 4, 1988		24
Cove		Big Rapids, MI		July 12, 1989		48
Washington		Perry, MI		July 12, 1989		24
Fayette		Fayetteville, WV		December 1, 1989		68
						394

 

For information regarding placed in service dates, please see Schedule III.

 

All of the projects owned by the respective Property Partnerships were financed and constructed under Section 515 of the National Housing Act, as amended, and are administered by RHS. Under this RHS program the Property Partnerships provide affordable housing to tenants subject to regulation by RHS as to rental charges and operating methods.  Lower rental charges to tenants are recovered by the respective Property Partnerships through an interest reduction program which reduces the effective interest rate over the lives of the respective mortgages to 1 percent and a rental assistance program whereby RHS pays the respective Property Partnerships for a portion of qualified tenant rents.

 

Each Property Partnership has, as its Developer General Partner (DGP), one or more individuals or an entity not affiliated with the Investor Partnership or MFP.  In accordance with the Property Partnership agreements under which such entities are organized, the Investor Partnership depends on the DGPs for the management of each Property Partnership.  See Management’s Discussion and Analysis of the Financial Condition and Results of Operations in Item 7 for additional information regarding the Property Partnerships.  As of December 31, 2002, the Property Partnerships and their DGPs were as follows:

 

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PROPERTY PARTNERSHIP			DEVELOPER GENERAL PARTNER
1.	Fairview Apartments Company Limited Partnership (Fairview)		Rural Housing Corporation
2.	Ionia Limited Dividend Housing Association Limited Partnership (Ionia)		Rural Housing Corporation
3.	Logan Apartments Company Limited Partnership (Logan)		Rural Housing Corporation Thomas R. Runquist Arthur H. Winer
4.	Rolling Brook II Limited Dividend Housing Association Limited Partnership (Rolling Brook)		Rural Housing Corporation
5.	Wexford Manor Limited Dividend Housing Association Limited Partnership (Wexford)		Rural Housing Corporation
6.	Blue Heron Apartment Associates Limited Partnership (Blue Heron)		Dujardin Development Co.
7.	Glenwood Apartment Associates Limited Partnership (Glenwood)		Dujardin Development Co.
8.	Pacific Place Apartment Associates Limited Partnership (Pacific Place)		Dujardin Development Co.
9.	Cove Limited Dividend Housing Association Limited Partnership (Cove)		Kenneth & Lowell Werth
10.	Washington Street Limited Dividend Housing Association Limited Partnership (Washington)		Kenneth & Lowell Werth
11.	Fayette Hills Limited Partnership (Fayette)		LeRoy Eslinger and Douglas E. Pauley

 

A wholly-owned subsidiary of MFP, Murphey Favre Housing Managers, Inc. (MFHM), is a Special Limited Partner of each Property Partnership and has certain approval rights over the actions of the DGPs of the Property Partnerships.

 

Regulatory Compliance and Liquidity

 

Each of the Property Partnerships has received an allocation of Tax Credits.  In general, the Tax Credit runs for ten years from the date the property is placed in service.  The required holding period (the Compliance Period) of the properties is 15 years.  During these 15 years, the properties must satisfy rent restrictions, tenant income limitations and other requirements,

 

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as promulgated by the Internal Revenue Service, in order to maintain eligibility for the Tax Credits at all times during the Compliance Period.  Once a Property Partnership has become eligible for Tax Credits, it may lose such eligibility and suffer an event of recapture if its property fails to remain in compliance with the requirements.  To date, none of the Property Partnerships has suffered an event of recapture of Tax Credits.

 

In 2002, reserve account deposits of Fairview, Logan, Pacific Place and Wexford fell short of the amounts required by RHS.  In addition, Logan’s tenant security deposit liability was under-funded by $3,050 and Logan was $10,150 in arrears for property taxes due in 2002, which are both violations of RHS regulations.  Cove had overdue property taxes amounting to $1,138 at December 31, 2002.  While Cove made the required reserve deposits in 2002, its reserve account balance at December 31, 2002 totaled $17,514 which is $88,656 below its required balance.  As a result of violations of RHS regulations in 2000 and 2001, RHS issued a Letter of Acceleration on the mortgage note on the Logan property on August 29, 2001.  RHS suspended further proceedings on October 11, 2001, based on preliminary agreements reached with the Logan DGPs and the Logan property management agent.

 

During 2002, RHS did not take action against any of the Property Partnerships that were not in compliance with its regulations.  While RHS has not pursued any further action against Logan or initiated any action against Cove with respect to its overdue property taxes, we cannot assure you that RHS will not take action against the Property Partnerships which are not in compliance with applicable regulations.  This could result in acceleration of a Property Partnership’s mortgage note and ultimately foreclosure on its property.  The foreclosure on any of the properties might result in the complete loss of that Property Partnership’s investment, and might lead to a tax recapture event with respect to that property, which would have a material adverse effect on the financial condition of the Investor Partnership.

 

Each of the Property Partnerships tries to maintain compliance with all of the applicable regulations and each of those Property Partnerships that are not in compliance are taking steps to remedy their respective situations.  However, we cannot assure that all of the Property Partnerships will remain in compliance with all applicable regulations.  Accordingly, we cannot assure you that RHS will not foreclose against any of the Properties or that a tax recapture event with respect to any of the Properties will not occur.

 

Subsequent Events

 

On February 5, 2003, under deposition in his own bankruptcy proceedings, Mr. Arthur H. Winer , one of Logan's DGPs, admitted that he had used Logan funds for unauthorized purposes contrary to federal government regulations.  The Investor Partnership is actively pursuing restitution of these funds and is exploring the possibility of obtaining a replacement DGP for the Logan property.  We cannot assure you that we will be successful in either of these efforts, which could have an adverse effect on Logan and, as a result, the Investor Partnership.  For additional information, please see

 

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“Item 3. Legal Proceedings.”

 

Item 2. Properties

 

The Investor Partnership owns limited partner interests in the 11 Property Partnerships which own and operate properties, all of which benefit from some form of federal assistance program and which qualify for the Tax Credits added to the Code by the Tax Reform Act of 1986.

 

Each Property Partnership has received an allocation of federal low-income housing tax credits under Section 42 of the Internal Revenue Code, administered by the respective state allocating agency.  Under this program, housing provided by each Property Partnership is subject to additional monitoring of tenant eligibility by the respective state allocating agency.

 

The individual Property Partnerships have loan agreements with and mortgage notes held by RHS.  All mortgage notes have a maturity of 50 years and bear stated interest rates between 8.75% and 10.75% and have an effective interest rate of approximately 1% resulting from participating in the RHS interest reduction program.  The mortgage notes are secured by the real estate, rents and any profits of the Property Partnerships.

 

For additional information regarding the properties of the Property Partnerships, please see “Item 1.  Business—Property Partnerships.”

 

Item 3. Legal Proceedings

 

During 2001 and 2000, Mr. Arthur H. Winer, one of the Logan DGPs, made multiple unauthorized withdrawals of project cash totaling approximately $24,000 in violation of RHS regulations.  Further, it was discovered that project bank accounts, valued at $60,131 at December 31, 2002, had been pledged in violation of RHS regulations.  As a result of the DGP’s actions, RHS issued a Letter of Acceleration on the mortgage note on the Logan property on August 29, 2001. The mortgage note balance totaled $987,480 at December 31, 2002.  RHS suspended further proceedings on October 11, 2001, based on preliminary agreements reached with Logan’s other DGPs and Logan property management agent.

 

On February 19, 2002, Arthur H. Winer, one of Logan's DGPs, filed a Petition in Bankruptcy in the U.S. Bankruptcy Court for the Southern District of West Virginia, in Charleston, WV, under Chapter 7 of the U.S. Bankruptcy Code. The bankruptcy filing is styled In Re Winer, Arthur H. (Bankruptcy No. 0240067). As of the date of filing of the Petition in Bankruptcy, the “automatic stay” under the Bankruptcy Code went into effect and all actions to collect debts of Mr. Winer are precluded, absent approval of the U.S. Bankruptcy Court.  Among these debts are funds from Logan totaling approximately $84,000 (the Logan Debts), comprised of operating and reserve account funds of approximately $60,000, tenant security deposit funds of approximately $9,000, and other funds of approximately $15,000 that Winer used for personal business.

 

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On May 22, 2002, MFP retained outside bankruptcy counsel to represent it, on behalf of Logan, in the DGP bankruptcy action and to prepare and file a Proof of Claim on its behalf, to register with the Bankruptcy Court, Logan’s creditor’s claim for the Logan Debts, which Mr. Winer had removed from the various Logan reserve and other accounts.  A Complaint To Determine Dischargeability of Debt and For Judgment was also prepared and filed on behalf of Logan on May 31, 2002, in which Logan seeks to obtain a Court order that Logan’s creditor’s claim for the Logan Debts is not dischargeable as a part of Mr. Winer’s bankruptcy action and to obtain a judgment against him for the amount of the creditor’s claim (thus creating an “adversary proceeding” in the bankruptcy action (i.e., Adversary Proceeding No. 00-0070)).  Mr. Winer (the Petitioner) prepared and filed an Answer to Complaint To Determine Dischargeability of Debt and For Judgment on or about June 17, 2002 denying the material allegations of the Complaint.  On February 5, 2003, under deposition, Mr. Winer admitted that he had used Logan funds for unauthorized purposes and contrary to federal government regulations.

 

MFP has filed a Motion For Summary Judgment asking the Court to decide the question of the non-dischargeability of the Petitioner’s debt to MFP based on the pleadings and evidence currently before it.  No response to the Motion has been received from the Petitioner.  A trial on the adversary proceeding has been scheduled for April 11, 2003 and a pre-trial conference has been scheduled for April 1, 2003.

 

MFP is also seeking to enforce the provisions of the Amended and Restated Certificate and Agreement of Logan Apartments Company Limited Partnership that provides for the termination of Mr. Winer as a DGP of Logan effective as of his filing for bankruptcy.

 

The Investor Partnership is actively pursuing restitution of the Logan Debts and is exploring the possibility of obtaining a replacement DGP for the Logan property.  We cannot assure you that we will be successful in either of these efforts, which could have an adverse effect on the Logan Property Partnership and, as a result, the Investor Partnership.

 

Item 4. Submission of Matters to a Vote of Security Holders

 

None

 

PART II

 

Item 5.  Market for the Registrant’s Securities and Related Security Holder Matters

 

The Registrant’s securities consist of 703 Units of Limited Partnership Interest (the Units), originally valued at $5,000 per unit.  There is no market for the Units and it is not anticipated that any public market is likely to develop in the future.  Units may only be sold, assigned, exchanged or otherwise transferred upon compliance with the terms of the Limited Partnership Agreement. As of the date of filing of this report, the Partnership has 334 Limited Partners and one General Partner.

 

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The Partnership has not made any distributions to holders of the Units in 2000, 2001 and 2002 and does not anticipate making any significant distributions in the future.

 

Item 6.  Selected Financial Data

 

The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Consolidated Financial Statements and Notes thereto and other financial information included elsewhere in this report.

 

		Year Ended 12/31/02			Year Ended 12/31/01			Year Ended 12/31/00			Year Ended 12/31/99			Year Ended 12/31/98
Rental Revenue		$	1,652,137		$	1,608,923		$	1,586,293		$	1,540,441		$	1,505,575
Interest Revenue		13,752			17,860			25,085			24,068			24,835
Income (Loss)		(570,606		)	(518,516		)	(457,473		)	(513,222		)	(500,629		)
Income (Loss) Per Limited Partnership Unit		(812		)	(738		)	(651		)	(730		)	(712		)
Total Assets		9,802,220			10,410,686			10,933,585			11,431,980			11,949,410
Mortgage Notes Payable		$	12,257,788		$	12,296,564		$	12,287,154		$	12,319,268