There are legal challenges, but in my opinion not the best place to be, when the authorities don't like you.   

@David Thompson Thanks for the reply, yeah I've read quite a few books on the subject by various authors, Phil Pustejovsky, Brandon Turner, Mark Ferguson etc, and spend a considerable amount of time here on Bigger Pockets as well.

The only exception(s) to this (if any) are the items reflected on theaccompanying Escrow Holdback Agreement, if applicable.Citizens is authorized to disburse the final draw in the amount of $________________ in accordancewith the executed Disbursement Authorization on file.It is understood that, in the event the Borrower(s) are dissatisfied in any way whatsoever with theremaining construction after completion by the General Contractor, their sole recourse is against theGeneral Contractor.Borrower(s) and General Contractor, jointly and severally, agree forever to fully protect, defend, andsave harmless Lender from and against any right, interest, claim, and each and every of them, ofBorrower(s) or General Contractor against the Lender, against all losses, costs, damages, and attorneyfees and expenses of every kind and nature which the Lender may suffer, expend, or incur under or byreason or in consequence of holding the remaining proceeds as provided herein."

The housing authority came by and did  a walk through.

They do try to go after the Tenant to recover what they've spent, but they don't have direct access to tenant funds.Obligo is a "billing authorization" which means the Tenant gives them access to a bank account and a credit card.

Despite mortgage rates being double what they were two years ago, the overall borrowing environment remains favorable for state and local entities.Key initiatives driving this surge include efforts by entities like the Michigan State Housing Development Authority, which recently launched a $425 million bond sale aimed at providing affordable mortgages to over 2,700 families.

At the time Brokers ( me) did not have the authority to manage these..

Which can be very personal.Anyhow, I definitely had my reservations about what they did at first... and I actually sat and waited for them to do anything for a month while they waited for me to "fix" my credit (moving money between different cards and removing myself as an authorized user on certain accounts). 

What would matter is that you specifically did NOT have the local authority approve it. 

Best thing to do is to call the local housing authority and they can explain some numbers for you and the process (assuming you can get ahold of them).You could always just post the numbers here or in the proper forum and double check it.