The NHA appealed to the 9th U.S. Circuit Court of Appeals, where a mediator asked the parties to negotiate a settlement, according to NHA.
The two sides then agreed to substantially lower the penalty.
“As a result of the mutually negotiated settlement, NHA was able to avert a potential loss of $70 million,” said attorney Craig Kaufman, who represented the Navajo Housing Authority.
Kaufman said the $26 million will be returned to the housing funding pool and will be included in the Native American Housing Assistance and Self Determination Act allocation in 2018.
The NHA is the largest recipient of those funds and receives roughly $80 million a year.
“We evaluated all the options and determined it was in the best interest of the Navajo people to settle with HUD and restore balance rather than endure a lengthy and costly litigation process,” NHA interim Chief Executive Roberta Roberts said in a statement.
“The new board wanted to begin with a clean slate and a renewed relationship with HUD, so with this behind us, we are now out of the unknown and we can now begin to move forward.”
Maria “Elena” Gaona, a HUD spokeswoman, said in a written statement that the NHA’s lack of progress on projects in 2012 put tens of millions of dollars at risk.
The $26 million settlement represents the largest enforcement action under the Indian Housing Block Grant program, she said.
She added that HUD will continue to work closely with the NHA to make progress on current and future housing goals.
Reach the reporter at craig.harris@arizonarepublic.com or 602-444-8478 or @charrisazrep on Twitter.