Stealing Home: Weak Oversight Leaves Rent-Subsidy Fraud Unchecked for Years on End

She checked all the boxes.

Single mom. Two kids. Annual household income less than $40,000. To the US Department of Housing and Urban Development (HUD), that placed her firmly in the “extremely low income” category—making her poor enough to qualify for a Section 8 rent voucher, one of the nation’s most generous public benefits.

At least on paper.

According to the Santa Clara County Housing Authority, which administers Sec. 8 subsidies in the South Bay on behalf of HUD, the recipient made at least double what she reported. And when her eldest daughter married and moved out of state in the fall of 2017, the housing agency claims she conveniently kept that information to herself while continuing to collect rent payments calculated for a bigger family size.

A case manager flagged the certification papers in early 2018 after noticing suspicious inconsistencies; the housing authority’s compliance unit followed up on the hunch and unearthed what looked like pretty clear evidence of fraud.

They discovered that the longtime voucher holder, a paralegal at a local family law firm, earned income from two attorneys with separate practices but shared office space. Each lawyer paid her about $40,000 a year, but she reportedly concealed one of those salaries by submitting falsified tax forms to the housing authority whenever her rent subsidy came up for renewal.

Housing officials say she kept up the racket for eight years. After terminating her benefits in mid-2018, they demanded a $104,712 refund, making it, dollar for dollar, one of the biggest ripoffs in the agency’s recent history.

Though officially an open-and-shut case of grift, the tenant says her side of the story shows how fraud can cut both ways.

The woman accused of stealing taxpayers’ money—who asks to withhold her name—says the housing authority manufactured a charge against her based on piecemeal evidence and shoddy record-keeping. For 25 years, the woman says she relied on Sec. 8 to help keep a roof over her head as she raised her daughter, then a son, and eventually three nephews and a niece. From her vantage point, she says high turnover at the agency has resulted in cases like hers getting passed from one specialist to another so often that relationships, records and context get lost along the way.

Sources familiar with the agency’s inner workings echo her point about decades of federal disinvestment making lax compliance par for the course. In their recounting, the local housing authority invests too little in program integrity and early detection of fraud, which usually involves income underreporting and unauthorized occupants.

Part of the problem, for example, is that Enterprise Income Verification, the HUD software used by housing authorities nationwide to monitor cases, only tracks what clients earn from full-time employment and has no way of knowing firsthand what anyone makes as an independent contractor. As a result, the local agency—like many of its peers—lacks the resources to do much except take clients at their word while Silicon Valley’s burgeoning gig economy makes vetting subsidized renters increasingly difficult while fraud in virtually all sectors of the economy grows more sophisticated.

Meanwhile, even potentially honest mistakes fester into bureaucratic nightmares, and orchestrated scams fall below the radar for years. Or, in some cases, more than a decade.

Out of Sight

Katherine Harasz, who became head of the Housing Authority of the County of Santa Clara in 2016, acknowledges that there’s no targeted system for sniffing out fraud, inadvertent or otherwise. She says she only found out about the paralegal’s case when San Jose Inside inquired about it because “these are not decisions that float up to the executive director level.”

Neither do statistics about subsidies paid to legally ineligible recipients, which she says didn’t come to her attention either until this newspaper asked for them. That’s because, according to Harasz, the agency had to go “line by line” and “case by case” to come up with a log of 860 or so claims from August 2016 to the same time this year. Of those allegations, 38 resulted in demands for repayment totaling $724,046. Going back to 2015, when the agency formed its compliance unit, that amount comes close to $1.1 million. But how much of that has been collected is unclear—even to the people in charge.

“For the record,” Harasz says, “we don’t keep a tally.”

But her best estimates figure that $535,019 is collected and $526,677 is pending under written agreements. In the scheme of things, Harasz says that’s “a drop in the bucket” for an agency with roughly 18,000 clients and an annual budget surpassing $380 million. Case managers who spoke to San Jose Inside on condition of anonymity, however, say there’d be a bigger drop in the bucket if the agency devoted enough resources to correct missteps and purge unqualified applicants from a benefits roll with a waiting list more than 60,000 names long and 13 years closed.

In other words, needy residents don’t receive housing because dishonest subsidy recipients with higher incomes are occupying units intended for people of lesser means.

Yet no one’s really asking about the agency’s record on fraud. And it doesn’t reflect well on the authority that its biggest scams were discovered not by its desk-bound compliance team or harried case workers, but through outside probes—and by pure chance.

Family Ties

HUD designed Section 8 housing vouchers to provide affordable housing for the poorest of the poor—people who otherwise couldn’t secure decent accommodations on their own. Under the program, low-income tenants pay a third of their personal income—be it $50 from recycling cans or $500 from public cash assistance—to participating landlords. The government picks up the rest of the tab. To prevent anyone from improperly enriching themselves off a subsidy reserved for the disabled, the elderly and the destitute, HUD prohibits Sec. 8 rental property owners from leasing to relatives.

Landlord Theodore Nguyen allegedly finagled a way around the rule by passing ownership of a three-bedroom, two-bathroom San Jose condo he bought in 2005 for a little over $400,000 to his mom, his sister and a buddy named Rod Allen. All so he could collect a HUD check to lease to his grandmother, Doan Vo.

For more than a decade after the Toyon Avenue property was deeded to Nguyen, records indicate that he lied to the housing authority by claiming, under penalty of perjury, that the apartment belonged to Allen and that the tenant had no familial ties to the landlord.

Based on that alleged misrepresentation, Nguyen collected $1,212 a month in Sec. 8 subsidies and $243 from his grandmother for five years through 2010. On June 1 of that year, Nguyen asked the housing authority for a rent increase, putting $1,580 a month in his pocket—with, again, more than 80 percent covered by the HUD voucher. In 2015, Nguyen requested yet another hike, and the housing authority agreed to up the rent to $1,700, with $1,416 of it coming from Sec. 8.

The final ask came in early 2016, when Nguyen was apparently ready to take his money and run. The housing authority acquiesced to another rent raise, shelling out $1,666 out of a total $1,950. In May, Nguyen notified the authority that Vo would move out, ending more than a decade-long scheme that bilked taxpayers to the tune of about $200,000.

During those years, the housing authority re-certified the subsidy time and again, taking claims made by the landlord and client at face value. The landlord would’ve been in the clear, too, if not for the remarkable coincidence of a housing authority employee moving into the same apartment complex and overhearing a neighbor talk about how Nguyen and Vo—by then already moved out—were blood-related.

In this case, the housing authority actually sued to collect the money, which memorialized the saga in a lawsuit that culminated last month with a $206,000 settlement deal. The housing agency wasn’t the only party to luck out in this case, however. Nguyen pulled off an elaborate fraud punishable by years in prison—and all he has to do is pay back what he took.

Team Player

Agencies that work with the housing authority praise Katherine Harasz for making the agency more cooperative, transparent and effective since taking the helm in 2016. Harasz, for her part, has one good thing to say about her predecessor, Alex Sanchez.

Katherine Harasz, the head of the Santa Clara County Housing Authority, has been credited with transforming the agency into a collaborative force as the region tackles a housing crisis of historic proportions. (Photo by Nicholas Chan)

That is that under his tenure, in 2008 to be exact, he secured broad regulatory waivers for the local housing authority under a Clinton-era HUD program called Moving to Work, or MTW. So-called MTW agencies gain more spending flexibility in service of three goals: to reduce overhead costs, incentivize clients to become self-sufficient and increase housing choices for low-income families.

“That was a huge federal lift,” Harasz says, “and I think his overall focus was very federal, which makes sense because this is a HUD agency. But I think what happened is that the local relationships were kind of left unattended.”

In 2015, Sanchez left for a gig at ROEM Corporation, one of the housing authority’s development partners. When Harasz took his place the following year, she inherited tensions between the housing authority and partner agencies so frayed that the county began plotting a hostile takeover and San Jose threatened to revoke a decades-old contract with the autonomous HUD subsidiary.

With Measure A starting to generate some $950 million in affordable housing revenue, county Supervisor Cindy Chavez wanted greater control of the housing authority. Meanwhile, Jacky Morales-Ferrand, San Jose’s housing czar, grew increasingly frustrated by the city’s lack of sway over the HUD affiliate, whose five commissioners are appointed by the county Board of Supervisors.

“The community was undergoing this huge shift,” Harasz says, “where all of these local governments and nonprofit service agencies were coming together to figure out how to tackle our rising homelessness. So I was at the table getting to know everyone and getting to know everyone’s concerns, and just started to listen and tend to these local relationships. What’s really nice is that once you start leveraging your resources, your impact is so much more powerful.”

Though San Jose’s housing officials didn’t get around to renegotiating its contract to gain a vote on the housing authority’s commission, Harasz at least gave the city a voice at meetings. She also made peace with the county to quell talk of a takeover. “So we’ve taken a lot of steps since then to bring everyone into the conversation,” she says.

Jennifer Loving—the CEO of Destination: Home, a nonprofit that coordinates a regional multi-agency effort to tackle Silicon Valley’s storied housing and homelessness crisis—used to show up to the housing authority’s commission meetings to criticize the agency’s lack of cooperation. Since Harasz took the reins, though, Loving says she’s seen the agency transform from oppositional force to team player; she now chairs its commission and Harasz now sits on the Destination: Home board. “She has brought exactly the kind of leadership that we need, and because of her, so many more people have been helped,” Loving says. “Especially the most vulnerable people. And that’s critical.”

Under the more collaborative leadership of Harasz, the housing authority used its Moving to Work budgeting leeway by issuing more project-based vouchers to help finance desperately needed below-market-rate apartments. She says many of those projects—including Second Street Studios, San Jose’s first complex built entirely for the formerly homeless—languished for years since the loss of redevelopment funding until the housing authority stepped up.

“The housing agency’s potential is massive as a developer and as a conduit for landlords,” Loving says. “And they have been a good steward in filling that role.”

Harasz credits the Moving to Work designation for allowing her to ramp up the agency’s public housing development and, as of this past year, to tie as much as 40 percent of its voucher inventory to specific projects—double the amount non-MTW are authorized to budget and exactly what the county was angling for as part of its Measure A plan.

But the freedom afforded by MTW to prioritize the county’s Measure A projects comes at the expense of serving families already on the housing authority’s wait list. And, as for all 39 MTW agencies in the US, at the public cost of less regulatory scrutiny.

Stretched Thin

William Fischer, a senior analyst for the Center on Budget Policy and Priorities, says some MTW agencies have leveraged their spending flexibility to improve outcomes for the clients they serve. But he says research shows that for the most part, MTW agencies tend to spend more on management and less on Sec. 8 vouchers and quality assurance. “It can be harder for HUD to provide oversight over MTW agencies because they’re using different rules—rules that they created themselves,” he says.

The local housing authority is responsible for keeping a roof over the heads of roughly 18,000 clients. (Photo by Nicholas Chan)

Sources inside the local housing authority that’s been the case here, too, and that the Santa Clara County Housing Authority’s MTW status has created a blind spot when it comes to program integrity. Though Harasz enjoys goodwill with outside entities, there’s been some unrest among both the unionized and unrepresented rank-and-file employees, many of whom blame the agency’s special status for what they call weak oversight, a bloated administration and unprecedented turnover among front-line staff.

With caseloads-per-specialist teetering in some instances toward the 400 and 500 mark, many of them say they’re stretched so thin that their clients suffer. And so does the integrity of the benefits administered. Inspections have reportedly been reduced to perfunctory walk-throughs—some just minutes long and all scheduled after giving clients a one-to-few-months notice. With so little time for customer service, let alone fraud detection, several employees interviewed for this story say much of the certification process has been reduced to the honor system.

“When people are this rushed, it’s easier to miss the warning signs,” says one employee who asked to remain anonymous because of what she described as an internal culture of retribution. “Word spreads fast, and if people know they can get away with something, they’ll keep gaming the system.”

As a Moving to Work agency, the housing authority had the option of opting out of compliance assessments to HUD. So it did. Now, HUD only comes calling if there’s a fire to put out—like the kind of flagrant mismanagement plaguing the housing authorities in Richmond and San Francisco. And HUD’s Office of Inspector General dedicates its limited bandwidth to critical audits at the worst of the worst of its agencies.

HUD Inspector General David Montoya underscored that problem while testifying before Congress in 2014. “Until HUD is able to modernize its outdated systems and more effectively target its resources, it will continue to be constrained in inadequate oversight,” he told lawmakers. “This is further exacerbated by programs [such as MTW] designed to loosen oversight of funding and reporting which we believe are counterintuitive to the many problems we and [the Government Accountability Office] have reported on over the years. It is my contention that cities, counties and states should do more to share in the burden and responsibility for the management, operation and oversight of their public housing authorities and programs.”

After years without any program integrity team whatsoever, the Santa Clara County Housing Authority formed an eight-member compliance unit in 2015 to police itself. In a presentation to the commission that year, agency officials said the new unit would work hand in hand with federal regulators and the Santa Clara County District Attorney’s Office to police fraud. But all of the work the team has produced since then has been kept from the commission, San Jose’s housing department, the county and, when San Jose Inside asked for its audits last week, from the media, too. A spokesman for DA Jeff Rosen says his office hasn’t heard about any fraud involving the housing authority in years.

Except, that is, for a case referred by the county Social Services Administration, which boasts a 16-member Special Investigations Unit (SIU) that conducts actual fieldwork—stakeouts, surprise visits and the like—to chase down suspected fraud.

Check, Please

The best way to fight fraud is to prevent it. That’s both policy and practice for the SIU, according to the team’s boss, Umesh Pol.

“We don’t want to be punitive at all,” he says. “We just want the client to be forthcoming. In that spirit, we focus a lot on early fraud, on making sure that the data the client provided is accurate so we don’t end up taking their word for it and prevent them from going down the wrong path.”

As the local administrator of state and federal medical, cash and food benefits, the county SSA deals with far more clients than the housing authority—about 70,000 people a year for food stamps alone, for example—but smaller individual entitlements. And as the quality assurance, not to mention investigative, arm of the department, the SIU trains case managers to spot red flags and helps clients sort out inconsistencies as much as possible before they ever receive benefits. The team, which exists by statutory mandate in every county that administers food and cash benefits, also cumulatively identifies about $1 million to $2 million a year in improperly obtained subsidies.

If there’s enough suspicion to merit the effort, the SIU sends investigators—none of whom are armed but all of whom are Peace Officer Standards and Training-certified—to surveil a scene or make an unannounced visit. “Not all require that, of course,” Pol says. “But if someone claims that they’re a single person and you hear that a parent is actually living with them, the only way you could establish that is if you make a home visit.”

The housing authority’s policy, on the other hand, is to notify clients at least a month or more ahead of time. Even if a housing specialist suspects fraud. Pol balks at hearing about the housing agency’s MO. “If you announce it, then what’s the point?” he asks.

As a rule, the SIU tries to work with clients to remedy inadvertent mistakes. But if the fraud is determined to be deliberate, and exceeds a certain dollar amount, then Pol says he refers it for prosecution. “Normally, we establish a threshold,” he says. “Let’s say it’s more than $5,000. If that’s the case, then we’d typically want the DA to look into it. But it’s not just the dollar amount, it’s the intent. If there was malice, that’s also something we refer to criminal prosecution.”

Because of the resources SIU devotes to early detection, it’s rare for fraud to go unchecked for long, Pol adds. Some of the most egregious cases to his memory, he says, went on for a year-and-a-half or more.

When asked what he would do if he stumbled across a case involving a six-figure sum of stolen benefits and that went on for a decade or more—like the $206,000 owed by Nguyen or $307,000 yet another landlord had to refund earlier this year—he seems taken aback. “I would say, ‘Oh my God,’” he replies, ‘“how did that happen?’”

Bogus Babies

Under the housing authority’s compliance system, there’s no way it could have known about the paralegal’s extra income, Nguyen’s family ties or, for that matter, anyone’s side hustle for Uber, Lyft or GrubHub. And it certainly would’ve been none the wiser about the fake babies allegedly claimed as dependents by twin sisters in exchange for bigger rent vouchers and other public benefits.

Lacy Hyland, an investigator for the DA’s Public Integrity Unit, found the Quintero twins by way of an anonymous tip about someone from the Santa Clara County Clerk-Recorder’s Office selling false birth certificates. According to the fake vital records unearthed by Hyland, Marybelle welcomed a baby Isabella into the world on March 5, 2014, and Sylvia celebrated the birth of a boy, Sebastian, a few weeks prior on March 11. In fall 2017, SIU investigator Hau Ngo accompanied Hyland to the twins’ homes to find out if the babies even existed. After some questioning, prosecutors say Marybelle, a veteran employee of the county’s vital records office, admitted that Isabella was no more than a name on a fraudulently fashioned birth certificate.

The two investigators caught up to Sylvia at her home several months later—a visit that apparently rattled Sylvia enough to schedule an appointment a few weeks later with Gregg Kays, a disbarred attorney who works as compliance monitor for the housing authority. At the meeting, Sylvia confessed that her son didn’t exist.

“In fact,” Hyland wrote, “she was adamant about it.”

The twins were arrested in July 2018 on felony counts of perjury, grand theft and fraud and have since posted bail and pleaded not guilty to the charges. When asked if there’s anything the housing authority could have done to catch the alleged fake-babies scheme, Harasz shrugs her shoulders.

“I mean, they faked birth certificates,” she says. “How would we know that?”

Even proponents of stronger compliance at the agency concede that point. In rare instances, fraud is calculated enough to evade the most discerning case workers. Pol, of the county’s SIU, says that’s why it’s so important to conduct thorough eligibility checks at the outset and whenever there’s a significant change to a case. Because while the Fourth Amendment protects against unwarranted searches and drug tests, courts have held that home visits to verify claims by public welfare recipients about occupancy and family size are considered reasonable.

Perhaps a routine eligibility visit may have exposed the Quintero twins sooner. Or maybe their alleged duplicity could only have come to light, as it did, through an anonymous tip, which the housing authority oddly discourages on the program integrity page of its website. “We cannot accept or investigate any allegation,” it states, “if you do not provide your name and contact information.”

No other housing authority in the Bay Area explicitly discourages anonymous complaints, as far as San Jose Inside can tell. And for a tenant looking to report wrongdoing by his or her landlord, that kind of statement might make them think twice.

Loving says she hears little about fraud from her perch on the commission, which prioritizes expanding services for the most vulnerable rather than over-policing them.

“I don’t want to make excuses for people if they’re committing fraud,” she says, “but I think the bigger picture is that people are suffering and desperate and need our help. I want to focus on that, but we’ll do our best to make sure that we’re doing things right.”

Jenny Pham—a 31-year case worker at the housing authority who’s out on leave after getting written up by her supervisor for what she calls workload-related deficiencies—says the agency could nip most of its compliance problems in the bud if it spent more time educating clients about what fraud entails and what they risk by bending the rules, whether intentionally or not. But the frenetic pace of the job makes that kind of one-on-one quality insurance nearly impossible, she says.

The paralegal echoes Pham’s point.

“If they just gave me a warning, I would’ve corrected whatever they told me needed correcting,” she says, noting how her credit is pretty well shot because of the judgment issued against her. “But I didn’t know anything was wrong until they told me to give them $100,000-something back. I guess I’ll just pull that out of my mattress.”

Jennifer Wadsworth is the news editor for San Jose Inside and Metro Silicon Valley. Email tips to [email protected]. Follow her on Twitter at @jennwadsworth.

8 Comments

  1. I think my takeaway from the story is don’t talk to your neighbors. They will only catch you if someone has loose lips.

    Other than that – hey – if billionaires and corporations can steal from the government, we should too. These stories of some individuals here and there biking the government out of a few hundred thousand dollars are nothing. I suggest a story about the 60 largest corporations who paid 0 taxes in 2018. These bay area corporations paid 0 federal income tax in 2018:

    Sales Force – Revenue $800 million
    Netflix – Revenue $856 million
    Chevron: Revenue $4.5 billion

    And so on.

    If they can steal from the government, well, I think we are entitled to also. Just don’t tell your neighbors.

  2. when you say corporations “steal from the government” could you provide more details. It sounds like you’re saying they deceive the IRS with fake claims like “we didn’t make any money” or “we have thousands of babies” etc. It’s pretty certain that the IRS/govt goes over their taxes very carefully.

    there is a big difference between paying “0” taxes and “bilking” the govt. there are lots of reasons for these companies not owing any taxes. One take away from this is – the companies you mentioned employ tens of thousands of highly paid honest working people who pay tons of taxes, some of which goes into supporting housing for disadvantaged persons.

    there are two different narratives here and you seem to have them mixed up.

  3. Somewhat of a fluff piece for the current leadership. Important to note a few items – Alex Sanchez, prior to being Executive Director of the Housing Authority (HA), was the Director of the City of San Jose Housing Department. When he moved to the HA that is when he created the agreement between the City of San Jose and the HA to administer their (CSJ) portion of vouchers (about 40%). It was genius, and ever since, the City of San Jose has been shafted on that deal – and Jacky hasn’t done a thing about it, or really, just doesn’t enough to see that they are losing a tremendous amount of resources.

    Second, the MTW status is somewhat criticized in this piece, but I’m not sure it’s noted that because of the MTW status, the HA can increase their Project Based Voucher allotment to 40% of their vouchers. Non-MTW agencies can only be at 20%. MTW makes much more sense than your conventional HA.

    Third, I, for the life of me, have no clue how Jennifer Loving being on the Board isn’t a conflict. The HA hasn’t served their waiting list in years, and issues vouchers directly to the County under the CHDR program – and Jennifer was put on that Board because of all the pressure with the homeless crisis. Her being planted there was the first part of the County trying to muscle the HA. The County is so dependent on Project Based Vouchers to make Measure A work, that when the HA said “well, we want to serve our Waiting list at some point, which is filled with families, elderly and disabled” the County was like “Stop. The. Press – you are going to do what we want.” So, Jennifer and the County need the HA to fall in line so that Measure A projects can be sustainable – because with out PBV’s, the amount needed for rental assistance and project financing is impossible. So, those festering on the HA’s waiting list will soon be the new CHDR clients, and are suffering while thousands of the County’s clients jump in front of the line.

    Honestly, an alternating approach would be so much better. HA serves a client, then the County gets a referral. The County is desperate though. And the County taking over the HA would’ve made the issue SO much worse, as they don’t have the capacity or expertise to administer a Section 8 program.

    And fraud? Yes, it’s abundant not just in Section 8 – but many of the Rapid Rehousing programs, where they literally have no enrollment criteria, do a terrible job tracking income and continue to use local funds to extend subsidies for households that definitely aren’t the most vulnerable. Households of multiple work-able adults who are in these programs for years that come in zero income, and stay zero income. So, calling out Section 8, but giving a pass to the many other subsidy programs with the same issue is a problem. Thousands are being served that are less vulnerable than many of the elderly and disabled households who are being bypassed.

    Lastly, the workforce at the HA is so disgruntled it’s unreal. So, the sources in this article are pretty weak, at best. I will agree that Katherine is much better than her predecessor, but the lack of transparency from the major housing agencies/advocacy groups in this County (San Jose, HA, Office of Supportive Housing, Destination Home) is out of control. And they continue to not be held accountable.

    • Thanks for weighing in, Transparency.

      I’m sure Katherine would disagree with you about this being a fluff piece. Quotes from her allies were included to balance things out in the interest of fairness.

      That tidbit about 40 percent PBV is already mentioned in the story.

      As for sourcing, I primarily relied on records from civil lawsuits, criminal cases, data obtained through CPRA requests and a host of agency memos, presentations and government statistics.

      • Not that you need any reinforcement, but I think you’re an excellent reporter. This article is great/extensive, and clearly you did your research. I suppose that, for me, being a part of housing in this county for the last five years or so, has been nothing short of discouraging and somewhat shocking (being on the inside, you at times see in meetings and attitudes and lack of foresight/planning why things got the way they are) – and while I appreciate reports like this exposing certain inadequacies in the system, I know it’s just the tip of the ice berg. Thanks for for responding to my comment.

        • I really appreciate you weighing in, by the way! So much of my job relies on knowledgeable sources who see things from the inside, so I would like to invite you to reach out anytime. I may be able to use your guidance. My email is jenniferw [at] metronews [dot] com. Please stay in touch!

    • You also brought up the zero-income households. I did obtain data on that and was going to include it in the story (there were 262 households at the time I asked in mid-August), but decided to focus on the fraud cases for which I already had more substantive narratives through lawsuits, etc. While the cases highlighted in the piece involve Sec. 8, I do not say in anywhere in the story that it’s the only program with lax compliance.

  4. How much effort is put into ts? collecting the refunds assessed against the fraudulent recipients

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