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Nobody knows exactly how many Albuquerque homes have been turned into small assisted-living facilities where the elderly pay thousands of dollars a month to live out their years.

Officials say the number is certainly in the hundreds, but no one knows for sure because no one's counting. Nobody's watching what goes on inside, either.

Under state law and city ordinance, group homes with fewer than three residents face zero regulation and no oversight. Even though they include for-profit businesses that charge residents as much as $5,000 a month, state and city officials say, they don't even need a business license.

"It would be a lot more difficult to put a swimming pool in your yard than open one of these," Albuquerque Deputy City Attorney Pete Dinelli said. "There are no permitting requirements, no licensing, no oversight."

Homes with three or more residents do face regulation. They're required to get a license, go through an annual inspection and maintain 24-hour trained supervision of residents. But even those paper requirements translate only roughly into practice.

According to David Rodriguez, director of the state Division of Health Improvement, the state finds an average of three group homes a month that should have licenses but don't. Typically, Rodriguez said, one of those is operating illegally and has to be shut down.

Moreover, annual inspections of conditions at the state's 265 licensed adult residential care facilities is only beginning to catch up with a long backlog.

"Only in the last three years have we had the budget to create a license inspection team," Rodriguez said. "Some of the facilities have not been inspected in seven to 10 years. We're finding a higher level of noncompliance than we expected."

The movement toward residential care grew from a number of factors: deinstitutionalization, federal legislation and shifting family dynamics.

The state residential care facilities also serve a variety of purposes. The vast majority in the Albuquerque area offer assisted-living care for the elderly, but others serve the developmentally disabled, chronically or terminally ill people, and recovering addicts, Rodriguez said.

Although Albuquerque officials say they learned of the proliferation of group homes mainly through complaints from neighborhood residents, federal law has sought for decades to place such facilities in residential settings.

In 1996, the New Mexico Supreme Court struck down a lower court ruling barring a group home for AIDS patients from a Southeast Albuquerque neighborhood.

Citing the federal Fair Housing Act, the court wrote: "The federal government has expressed a clear policy . . . against restrictive definitions of `families' that serve to exclude congregate living arrangements for the disabled."

A city ordinance modeled in part on the FHA defines a family as "any group of not more than five people living together in a dwelling." Based on that ordinance, the city has only sought to license and regulate group homes with more than five residents, despite the state's theoretically lower threshold for oversight.

Similar to state law, the city ordinance provides for licensing and regulation of group homes with more than five residents. It also limits licensed group homes to one per 1,000 households, or about 24 per City Council district.

But as with the state, homes that fall beneath the city's threshold receive no oversight.

The city's only other recourse is its nuisance ordinance, which allows the city to act against decrepit properties or those that are a source of frequent criminal activity.

When complaints about the proliferation of group homes started rolling in during 2004 and 2005, Albuquerque's Safe City Strike Team launched an investigation, said Dinelli, who oversees the team.

An Albuquerque police detective found 46 group homes with five or fewer residents in the Northeast Area Command alone, according to a memo. But most had generated few calls for emergency services.

"We have to establish that there's a threat to the health, safety or welfare of the community," Dinelli said. "Five senior citizens who are bedridden doesn't really qualify."

But Dinelli said the growing number of unregulated group homes is still a concern.

"You can do the math. If you've got four people paying $4,000 or $5,000 a month, there's a lot of money to be made," he said. "Are they doing background checks on employees? Is there adequate training? In some cases, the answer is probably yes, but we have no way of knowing."

Victor Marshall is an attorney representing a group of homeowners trying to block a company called New Life Assisted Living from turning a Northeast Albuquerque residence into a group home. He argues that the federal Fair Housing Act is a poor fit for the situation unfolding in Albuquerque.

In its 1996 ruling, the state Supreme Court wrote that the standard to determine if the residents of a group home essentially constitute a family is "whether the residents bear the generic character of a relatively permanent functioning family unit."

In the case of the AIDS patients, the court noted that they shared meals and household duties and paid rent to the nonprofit that ran the house based on a sliding scale.

"We're talking about a totally different situation now," Marshall said. "These are for-profit businesses that are trying to weave through zoning regulations and take advantage of the situation. It's a recipe for substandard care, because they actually have a financial incentive not to provide the care that's going to be needed."

State Rep. Janice Arnold-Jones, an Albuquerque Republican who has worked on the issue, said the state needs to push through tougher regulations. She said the groups are proliferating in New Mexico in part because other states have already tightened up their laws.

"You cannot do this in Texas," she said. "You can't do this in Arizona or California, so they're coming here."

Arnold-Jones said she has also been pushing to meet with officials at public agencies and the courts because she believes state and federal money is being used to pay rent to the unregulated group homes.

"We're not even to the point of looking at how wasteful this is in terms of public funds," she said. "It's clear to me that Medicare and Medicaid dollars are being ripped off."

Rodriguez said the state Department of Health has already started a review of the regulation that exempts homes with fewer than three residents.

"If you're providing this kind of care, why should it matter how many people you have?" he said. "People are asking, why are we regulating it if there's three residents but not if there's two."