Affordable Housing Tangle : Orange County Condo Owners Stymied by Suit
Six months ago, Christopher DeClue was transferred from Orange County to a new job as a power plant operator near Oxnard. But he has to rent a room near his new job because he can’t sell his family’s El Toro condominium.
“It’s frustrating,” said his wife, Jean, who has stayed behind with her 2-month-old daughter.
Complicated Battle
The DeClues and the owners of 491 other homes in the county are caught in the middle of a complicated, 2-year-old legal battle over whether to reinstate Orange County’s affordable housing program, which had enabled moderate-income families to buy their first homes.
On one side is the county, which implemented the affordable housing program but abandoned it in 1983 to promote free enterprise in the housing market. On the other side is the Orange County Renters Assn., which has sued to reinstate the program because it wants to make homes available to a broader range of buyers.
Last November, residents living in six condominium projects in Yorba Linda and the Saddleback Valley learned by registered mail that a notice of the lawsuit had been attached to the titles of their homes. The so-called “lis pendens” notice, homeowners and Realtors contend, has made it nearly impossible to sell the properties.
Under the county’s affordable housing program, the 491 condominiums were subject to resale controls that set income-screening criteria for new buyers and restrictions on resale prices. The notice, posted by lawyers for the renters’ group, warns potential buyers that, if the lawsuit succeeds, the controls might be reinstated--a threat that several local real estate salesmen say has brought sales of the condominiums almost to a standstill.
On Wednesday evening, 150 homeowners gathered in an auditorium at the Saddleback Valley Board of Realtors headquarters to consider taking legal action of their own to try to remove the notice from their titles. They drove from Benchmark Village, Old Trabuco Highlands and Serrano Creek Villas in El Toro, Valencia in Mission Viejo, Vista del Cerro in Laguna Niguel and Kellogg Terrace in Yorba Linda. And they listened to a lawyer and real estate salesman explain how they had become victims of a lawsuit to which they are essentially “innocent bystanders.”
The homeowners were told that when the Orange County Board of Supervisors in June of 1983 decided to no longer require builders to set aside 25% of their projects for lower cost housing, it also decided to lift resale controls on the “affordable” housing that already had been built. The controls, established when speculation had sent Orange County’s housing prices soaring, were meant to preserve homes for future generations of moderate-income residents.
Soon after the county’s action, the Orange County Renters Assn. and renter Christine Moseley filed a lawsuit in Orange County Superior Court, seeking to reestablish the county’s affordable housing program, including resale controls.
Although the county sent notice of the pending lawsuit to homeowner associations and individual homeowners who sought release from the resale controls, many homeowners paid little heed to the legal battle raging over their property until last November, when the lis pendens was filed. The legal notice warns, in part, that “any resale of the housing units . . . may be held invalid . . . “ if the lawsuit is won.
That uncertainty is deterring title insurance companies from guaranteeing a free and clear title on the condominiums. “To my knowledge, no one is insuring free of that action (the lawsuit),” said Bill Russell, operations manager for Chicago Title Insurance in Santa Ana. The cost of such insurance, if it were available, he said “would be a larger price than anyone would want to pay.”
Mission Viejo real estate salesman Mike Mattson, who is trying to sell some of the condominiums, said most sales agents refuse to show the houses because they feel it is a waste of time.
Sherman Smith, another Mission Viejo real estate salesman who once specialized in selling “affordable” condominiums, organized the homeowners’ meeting Wednesday. He explained to the homeowners that unless they make a winning legal argument to remove the lis pendens, it will remain on their property until the highly complex affordable housing lawsuit is resolved. The case is awaiting trial and, both sides predict, it could drag on for years.
Smith has requested financial or legal assistance from the California Assn. of Realtors, which says it is studying the matter. Smith said he expects to have a lawsuit filed within 30 days.
The plaintiffs in the lawsuit who filed the lis pendens refuse to withdraw it. Marilyn O. Tesauro, a lawyer for the Center for Law in the Public Interest, a Los Angeles-based nonprofit law firm representing the plaintiffs, said they are concerned that even if they prevail against the county in court, a judge would refuse to reimpose resale controls on the condominiums unless new buyers had been informed of the possible consequences of the lawsuit.
Tesauro said the advocates of resale controls believe the controls are warranted to protect a valuable public investment. The homes were made affordable, she noted, with low-interest mortgages financed by tax-free revenue bonds. Ironically, however, a loophole in the resale controls made it relatively easy for sellers to command a market price for their homes. The county had only 60 days to find a qualified buyer, after which the resale controls were removed.
Real estate agents say that some condominium owners are sidestepping the problem of selling their homes by renting them out in violation of the terms of their loans, which say that the homes must be owner-occupied. Others are staying in their condos because they say they need the money from the sale of their units to place a down payment on another house.
Charisse Krieger, who wants to move to a larger home with a yard where her 2-year-old daughter can romp, said she has “lost nights of sleep” over the predicament. “I told my husband I feel that I live in Russia,” she said.
And Ken and Sheryl King are dreading August when Ken, a Marine now stationed at El Toro, has orders to report to a base in South Carolina. “I’d like to be able to bring my family with me, but I may not be able to,” said King, who has been trying to sell the family’s El Toro condominium for $79,900--the price that he says other condominiums in his area are selling for. But he said that Realtors are advising that because of the lis pendens on his property, he should drop his price.
Real estate salesman Sherman Smith said he refuses to try to sell any affordable unit with a lis pendens unless the homeowner is willing to offer a discount of $3,000 to $5,000 below market value. Smith estimates that currently, 20 to 30 condominiums with lis pendens notices attached to their titles are listed for sale. He said he knows of six cases where buyers have backed out of escrow after learning about the notice.
“We are not asking anyone to drop the lawsuit but to remove the lis pendens,” said Steve Geidt, a 33-year-old assistant administrator at Saddleback Community Hospital who wants to sell his condominium in El Toro but says he can’t because of the lawsuit disclosure.
Some homeowners blame the county for the pickle they are in. Chris Kegel, who lives in the Kellogg Terrace condominium complex in Yorba Linda, describes himself as “one of the people held hostage” through no fault of his own. “It is not what we’ve done. It is what the County of Orange did to us,” he said. “I think it’s the county’s fault for removing the resale stipulations. None of us ever asked for them to be removed.”
