The biggest default in the history of a federally insured mortgage program for nursing homes is approaching a resolution.
Nearly a year after the Department of Housing and Urban Development wrested control of the Rosewood Care Centers from its owners for defaulting on $146 million in mortgages, housing officials have picked a prospective buyer, and an administrative law judge has approved a nearly $1 million civil penalty for the leader of the ownership group.
HUD took over the Rosewood Care Centers, which consists of a dozen nursing homes and an assisted living facility, last summer. The case underscored gaps in the department’s oversight of a program that insures $20 billion in mortgages for more than 2,300 nursing homes across the country.
The federal mortgage insurance program has had few significant defaults in its nearly 50-year history, but a number of government watchdogs — including HUD’s own inspector general — have routinely warned that the department does not spend enough time monitoring the financial viability of nursing home owners and operators in the program.
The insurance program, which also backs the mortgages of just over 1,000 assisted living facilities, is a pillar of the country’s elder-care system, keeping borrowing costs low for financially struggling care centers. About 15 percent of the country’s nursing homes are supported by the program, compared with about 5 percent a quarter-century ago.
The Rosewood default prompted the HUD inspector general to issue subpoenas seeking financial records for the operation of the Rosewood facilities, according to court filings. Lawyers for some investors in the nursing homes said the F.B.I. was investigating, along with the Securities and Exchange Commission.
In the case of Rosewood, the ownership group led by Zvi Feiner, a rabbi from Skokie, Ill., defaulted last August on $146 million in mortgages for the facilities in Illinois and St. Louis after years of failing to pay the lenders and vendors. Last week, a federal administrative law judge approved a settlement requiring Mr. Feiner to pay $965,678 for failing to file three years of audited financial reports required under the mortgage program.
HUD, in addition to appointing a receiver to manage the facilities, has paid about $18 million to operate the nursing homes while it sought a buyer. Last month, lawyers for the government told the federal judge presiding over the receivership that it had selected a firm to buy the facilities. It did not identify the winning bid because the sale had not been completed. A department spokesman also declined to identify the buyer.
Greystone, a large real estate lending and management firm that had been servicing the Rosewood mortgages when the company defaulted, confirmed through a spokeswoman that it had submitted a bid for the Rosewood properties. But Greystone, one of the nation’s largest lenders under the nursing home mortgage guarantee program, would not say if HUD had selected it.
Mr. Feiner’s lawyer, Ariel Weissberg, said he was “appreciative” that HUD had reached a resolution with his client. But other legal issues remain for Mr. Feiner and his investment companies.
He faces more than $1 million in federal and state tax liens, some of which relate to income from his nursing home investments. Rosewood vendors say they are owed some $20 million, and there are nearly three dozen pending personal injury lawsuits filed by families of Rosewood patients, according a report filed by the receiver.
Spokeswomen for the F.B.I. and the S.E.C.’s office in Chicago declined to comment on the status of those investigations.