The 1,500-member, $2 million Stark Metropolitan Housing Agency Federal Credit Union in Canton, Ohio filed a lawsuit Aug. 27 against its legacy sponsor, accusing it of breach of contract according to documents file in Stark County Common Pleas Court in Canton, Ohio.
The lawsuit alleges that the Stark Metropolitan Housing Authority attempted to wrongfully recover $2 million previously allocated the credit union, withheld $100,000 in subsidies and threatened to raise rent on the building currently used as the credit union's headquarters in an attempt to evict the cooperative.
The credit union also claimed the housing authority's actions have jeopardized a proposed merger with an unnamed credit union, and interfered with SMHAFCU's mission of providing affordable banking services to low-income residents of local public housing.
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The 2001 launch of the credit union was funded in part by a HUD grant, along with city and county funds, according to the lawsuit. When the credit union was chartered, the housing authority agreed in a contract to provide annual support payments.
Cleveland attorney Mark Wallach, who represents the credit union and filed the lawsuit told Credit Union Times the housing authority has not made its annual support payments to the credit union since 2011 and owes $100,000.
The Housing Authority did not return several calls seeking comment.
Friction between the two parties heated up July 15 when the U.S. Department of Housing and Urban Development Office of Inspector General announced a recent audit revealed the housing authority had wrongly used public housing funds on projects that didn't provide public housing opportunities—including financially backing the credit union, according to the lawsuit.
Theauditreport, which is posted on the HUD Office of Inspector General website, concluded the housing authority did not follow HUD's requirements and its own policies regarding the administration of its program.
"The [Housing] Authority, under the direction of its former executive directors, inappropriately used more than $6.3 million in public housing operating and capital funds to pay ineligible expenses for its commercial development, Metropolitan Centre, and two nonprofit developments, Ruthe and Isadore Freed Housing Corporation and Stark Metropolitan Federal Credit Union," the report said.
In the report, HUD recommended that "funds determined to be inappropriately used should be reimbursed by the [Housing] Authority to its operating or capital fund as appropriate," and that the agency should "pursue appropriate administrative sanctions against the former executive directors for failing to comply."
The lawsuit states the Housing Authority attempted to deflect its own responsibilities revealed in the audit by seeking to blame the credit union, and sent an April 30 letter to credit union Manager Greg Kinsley demanding reimbursement of $2,145,269.
The credit union is asking the court for damages and to declare the Housing Authority can't demand reimbursement, attempt to evict the credit union or interfere with merger negotiations.
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