Arizona is defying a federal order to eliminate apartments for deaf seniors at a housing complex built specifically -- for the deaf.

"I think it's about the most ridiculous thing I've heard in a while," said Sen. Jeff Flake, R-Ariz., who attempted to negotiate the impasse. "There are a lot of stories of out-of-control regulators, but this just seems to be going to the extreme."

A 2005 federal study found that the U.S. had virtually no affordable housing for the deaf. So the federal government helped build Apache ASL Trails, a 75-unit apartment building in Tempe, Ariz., designed specifically for the deaf. Ninety-percent of the units are currently occupied by deaf and deaf-blind seniors.

But now, the federal Department of Housing and Urban Development says Apache ASL Trails violates civil rights law -- because it shows a preference for the hearing-impaired.

"A preference or priority based on a particular diagnosis or disability and excluding others with different disabilities is explicitly prohibited by HUD's Section 504 regulations," says a HUD memo about the project. "There is no legal authority contained in any of Apache Trails funding to permit such a priority or preference."

HUD is threatening to pull all federal housing aid to Arizona unless it limits the number of hearing-impaired residents to 18 people. The agency would not forcibly remove current residents, but wants many of their units to be blocked off to deaf residents in the future once they leave.

However, when HUD approved and helped fund the project in 2008, it did so knowing that the property was specifically "designed for seniors who are deaf, hard of hearing and deaf blind."

"It's impossible to walk into this building and not see that real people were hurt and continue to be hurt," said Mary Vargas, an attorney for the residents.

The National Association for the Deaf has also stepped in, calling HUD's actions "atrocious" and "a tragic irony."

"HUD is forcing deaf and hard of hearing residents to live in isolation and firetraps," said the Association's CEO Howard Rosenblum in a letter to HUD Secretary Shaun Donovan. "There is no statute or regulation that mandates any 25 percent quota."

State housing director Michael Trailor refuses to comply with the federal orders.

"Quite frankly, the attorneys I dealt with at HUD I would characterize as ignorant and arrogant and much worse, they are powerful," Trailor told Fox News. "And if they worked for me, I would have fired them a long time ago."

State taxpayers and the apartment's developer have spent $500,000 so far fighting HUD. After two years of negotiation, Trailor met with Donovan earlier this year hoping to resolve the dispute.

Trailor said: "He looked me in the eye and said, 'if you say we have taken too long to resolve this, you are right. If you say we haven't handled this very well, you're right. We're committed to solving this -- but to do so can you be patient?'"

Trailor asked "what patience means in terms of time," and was told it would be a matter of weeks.

"It's now been five months," he said.

All 74 units at Apache ASL Trails accommodate wheelchairs. Blinking lights signal when the doorbell rings and when utilities like the garbage disposal and air conditioning are running. A video phone lets residents "talk" with friends.

"It's nice to have a life that's equivalent to other people that are not deaf," said resident Linda Russell. "This building is designed for deaf people, by deaf people, and we know what is best for our needs. And people that don't understand our needs, should not be putting themselves in decision-making positions for us."

HUD provided the Arizona Deaf Senior Citizens Coalition and its developer $2.6 million in funds and tax credits to build the complex in 2008. It is now fully occupied, with 69 of the 74 rented to deaf and deaf-blind residents. They meet daily in a large events room to talk, watch television and play games. The room is largely silent but the residents are animated and busy talking in sign language.

"I've been living here for two and a half years," said 74-year-old Rose Marie Pryce. "I love the deaf environment. We have a great time together. I have lots of friends. (If forced to move) I would be devastated. I would cry. I want to stay here, we need this place."