Buyers Caught in Moriarty’s Web of Financial Havoc : Condo Lease-Option Plan Goes Bad, Drives Them Into Court for Homes

When they first saw the new town houses for sale at Skyline Terrace, high on a hill overlooking Los Angeles, many of the young black families shopping for their first homes were sure they had stumbled onto an extraordinary deal.

But they never banked on having W. Patrick Moriarty for a landlord.

As the couples thumbed through brochures and toured the Baldwin Hills site two years ago, salesmen told them they could rent the condominiums for $1,200 a month, put no money down and eventually buy the units on a lease-option basis.

The tenants eagerly signed on the dotted line. Today, they are suing Moriarty for $40 million, alleging that the Anaheim businessman and his real estate firm bilked them out of $183,000 in rent payments that should have been reserved for down payments on their homes.

“We were ripped off. . . . We were used,” said Baxter Roseburr, a Los Angeles businessman who moved into Skyline Terrace two years ago and charges that he lost $9,520 in payments to Moriarty. Other tenants say they have lost as much as $15,000 apiece.

“Our experience at this place has been outrageous,” Roseburr added. “Now, our whole aim is to stay here, to protect the investments we have lost.”

It is proving to be an uphill struggle.

In a last-ditch effort to save their homes, Skyline Terrace residents formed a corporation and are trying to buy the 64-unit development back from three banks that foreclosed on the project after Moriarty’s real estate firm failed to repay $10 million in loans.

The plan is “a novel idea, but also a long shot,” said Ozzie Hunt, an aide to Los Angeles City Councilwoman Pat Russell, whose district includes Skyline Terrace. If the tenants cannot come up with enough outside financing, he added, they may be forced to move.

A final complication is Moriarty himself. Tenants are angered that they have been unwittingly swept up in the controversy surrounding the 53-year-old businessman, whose political and financial shenanigans have triggered a statewide corruption probe.

“When I came here, I had no idea who Patrick Moriarty was. I don’t think any of us did,” said Dr. William E. Merritt as he sat in his comfortably furnished living room. “Today, we know all too well.”

Moriarty, an Orange County fireworks manufacturer, recently pleaded guilty to a variety of corruption charges and is now cooperating with an investigation of his activities by the U.S. attorney’s office and the Orange County district attorney. He has agreed to provide information about state and local politicians who allegedly received bribes from him in the form of money, prostitutes, vehicles, vacation homes and the hiring of relatives.

Jan Lawrence Handzlik, Moriarty’s attorney, said his client would not comment on the Baldwin Hills controversy or any matter that might be under investigation. And indeed, the Skyline Terrace project is believed to figure prominently in the Moriarty probe.

The Times reported earlier that Democratic Assemblyman Mike Roos, former Assemblyman Bruce Young and former Los Angeles City Fire Chief John Girard made investments in the project. Roos and Young also received large campaign contributions from Moriarty.

All three supported legislation to prohibit local bans on the sale of the so-called “safe-and-sane fireworks” made by Moriarty’s Anaheim-based Pyrotronics Corp. The officials have denied, however, that they were improperly influenced by any favors from Moriarty.

Also, Moriarty in 1982 hired the wife of Los Angeles Councilman David Cunningham to work as a sales representative at Skyline Terrace. Sylvia Cunningham, who said she earned about $30,000 during 18 months of work at the project, is one of the defendants in the tenants’ $40-million lawsuit.

Councilman Cunningham was an active supporter of Moriarty’s fireworks legislation. He has refused to comment on charges made by former Moriarty associates that he received prostitutes on several occasions from the Orange County businessman.

“I guess not everybody was a loser up here,” said Ray Murray, a Skyline Terrace resident. “The man (Moriarty) knew how to take care of his friends.”

When it opened in 1982, Skyline Terrace seemed like any other condominium project in Southern California, replete with flags, signs and brochures promoting the new units. The rows of wooden, off-white town houses were priced from $189,000 to $239,000.

But the sales teams working for Moriarty’s B & M Development Co. soon found that few buyers could afford the large down payments required for purchase. In an interview last year, Sylvia Cunningham recalled that she sold only one unit during her 18 months of working at Skyline Terrace.

Cunningham now refuses to discuss the project or any matter pertaining to the tenants’ lawsuit. However, she said in a 1984 interview that she had urged Skyline Terrace owners to embark on an “aggressive” lease-option program so more homes could be sold.

The company began offering such “creative financing” to tenants in August, 1983, and gradually the Skyline Terrace units began to fill up with prospective homeowners.

According to the contracts drawn up by Moriarty’s firm, residents were required to pay all but $100 of their monthly rents to the company, which promised to deposit the funds in a special bank account. The remaining $100 was to pay for a local homeowners’ association.

After two years, tenants could elect to use their accumulating rental payments as partial down payments on their homes, the contracts said. In return, residents agreed to let Moriarty’s company pocket the interest payments generated by their rent deposits.

The deal seemed airtight. But at the same time that tenants began moving into the units, Moriarty’s company was beginning to default on its monthly loan payments to World Savings & Loan Assn.--one of three lending institutions that funded the project.

Real estate records show that the B & M Development Co. began defaulting on its payments to World Savings in August, 1983. During the next 12 months, the company also failed to make payments to California Canadian Bank and Home Federal Savings & Loan.

“Nobody told us he (Moriarty) was defaulting on these payments,” said Jacqueline Hickman, a Skyline Terrace resident who is leading the group’s effort to buy back their homes. “We didn’t have a clue.”

Meanwhile, residents began complaining about a rash of housing problems, ranging from faulty plumbing and poorly installed carpeting to non-functioning security systems and unrepaired holes in their bathroom walls.

Maintenance workers tried to reassure tenants that repairs would be made, but company officials dropped a bombshell in March, 1984, when they revealed that Moriarty’s company did not have money to make the improvements, according to tenant Victoria Christopher.

“We went crazy,” she recalled. “We said, ‘What do you mean?’ We said that our money is in an account. We wrote them letters, saying this and this must happen, that our homes must be brought up to standard.”

At that point, many of the tenants said they stopped making payments to Moriarty’s firm. Confused over who actually owned the property, they began depositing their rent checks in special bank accounts, determined to honor the terms of their contracts, Hickman said.

“One thing we did know is that we might have to go to court to prove we were prudent people, to show that we had set aside monthly notes (so) whoever wound up owning the property would look at us favorably,” she explained.

The tenants’ worst fears were realized March 15, 1984, when World Savings foreclosed on the seven units it owned at Skyline Terrace. Notices were tacked onto the doors of the seven condominiums, telling residents that the bank planned to sell the property and that they might soon be forced from their homes.

By January of this year, the two other banks had foreclosed on the remaining 56 Skyline Terrace units and all the tenants were facing possible eviction.

“As things went along, I said to myself, ‘Somebody’s got to buy this property, so why don’t we do it? . . . Why should we be afraid to try?’ ” said Hickman, a former mortgage broker.

“In the beginning we couldn’t really see it. We thought it was highly unusual for people like us to come together and buy property worth millions of dollars. But we kept talking about it. It wasn’t too far-fetched an idea, and we had nothing to lose.”

Some residents simply gave up and moved away, not wanting to invest more money in the condominiums. But 31 of those remaining took the unusual step of forming a corporation to try and purchase the development from the three banks.

Led by Hickman, members of the newly formed Skyline Terrace Group contributed $10,000 apiece to a trust fund and began contacting banks to open negotiations. At first, the banks did not believe that a handful of middle-class residents with no real estate background could negotiate the purchase of a million-dollar development, Hickman said.

After months of negotiation, however, California Canadian and Home Federal decided to open escrow negotiations with the tenants for 56 condominium units. World Savings declined to open such talks and is negotiating the sale of its units with another buyer.

Harry Palmer, an attorney representing California Canadian Bank in its lawsuit to recover $19 million in unpaid loans from Moriarty, said the tenants’ proposal was “very unique. They have an interest in maintaining their homes and they were in a similar situation as the bank. We were each dealing with a developer that could not pay its loans.”

No one knows whether the tenants will be able to raise the needed money by the end of the 90-day escrow period. Hickman refused to discuss any details of the negotiations, including the purchase price, but was strongly optimistic that the tenants will line up financing.

It is here, however, that the Byzantine entanglements of Moriarty and his former associates could cast a cloud over the situation.

On the one hand, the tenants are pressing forward with a $40-million lawsuit against Moriarty and his former Skyline Terrace employees, including Sylvia Cunningham.

If they purchase the property, the tenants also plan to come before a City Council committee headed by Councilman Cunningham and request $350,000 in federal funds to rehabilitate the Baldwin Hills site, according to former County Supervisor Yvonne Braithwaite Burke, an attorney representing the tenants in their dealings with the city.

Earlier this year, the tenants also applied to the city for $6.4 million in low-interest loans that would help them and other first-time homeowners buy units at Skyline Terrace. The application was withdrawn, but Burke said it may be revived later this year. It too would come before Cunningham’s committee.

Cunningham declined to be interviewed on the issue. Cheryl Grace, his press deputy, said he will not discuss any matter related to Skyline Terrace because of the lawsuit against his wife.

Burke said there is nothing improper in the situation, explaining that the Skyline Terrace request would be judged according to “strict program criteria.”

“I don’t see a conflict here personally,” said Burke, who is a close friend of the Cunninghams, and whose husband, William, once worked as a political consultant to Moriarty. However, some Skyline Terrace residents think Cunningham is in an uncomfortable spot.

Ray Murray explained that “he (Cunningham) has to be taking an objective stance. (When) this thing comes to his committee (the media may say) he’s bending over backwards to get the financing for these people. He can’t win.”

Murray’s wife, Victoria Christopher, added: “If we don’t get the loan from his committee it could be said that because his wife is a defendant and we’ve made certain accusations toward (her), he’s going to stop us and make sure we don’t advance.”

Despite these uncertainties, Skyline Terrace tenants are hopeful that they will be able to save their homes and put the episode behind them.

Some believe they should have been more cautious in signing their lease agreements with Moriarty’s firm. Others say none of them could have predicted they were going to be defrauded. All agree the experience has been harrowing.

“You can’t imagine how it feels when you’ve invested $10,000 with a company like this and you make your monthly payments, only to find out that they’ve gone, you have nowhere to go and the money has disappeared,” Hickman said.

“I think Mr. Moriarty was a very clever man in deceiving everyone.”