Dream Condos in Monterey Hills Sink Into a Nightmare for Buyers

Nargis Choudhry and her husband thought they were the luckiest couple in the world in 1981 when they managed to buy their first home, a one-bedroom plus den hillside condominium in a new development just minutes north of downtown Los Angeles.

With interest rates peaking beyond 15%, the deal was simply too sweet to pass up--only 5% down, a fixed interest rate of 10% and the project was sponsored by the city’s Community Redevelopment Agency.

“When we originally got this place, we felt the city and the CRA had stamped and approved it,” Choudhry said. “It was our dream house, a wonderful place to live. . . . We had hoped to stay here a little while and then move on to a house.”

Now five years later, the couple and hundreds like them in the massive Monterey Hills redevelopment project are seeing their dreams crumble in a project that is literally sinking into the ground. Unable to sell their homes, or in some cases even rent them, they are virtually trapped.

“Los Angeles has its prison . . . ,” property manager Don Davis said of the plight of the condo owners. “Only the wrong people are in it.”

Built atop canyons that are settling more each day, many of the 1,400 condominiums are tilting and cracking apart. To recover their losses, at least four of the 17 homeowners associations and scores of individual owners are suing the city and the redevelopment agency. Some have sued the builder, at least one of half a dozen architects, the major real estate firm and a myriad of subcontractors besides. The CRA, among others, filed multimillion-dollar lawsuits in return. The first case is not expected to be tried for another two years.

“Everyone sued everyone, from the top guy to the little guy,” said Joel Castro, an attorney representing one of the homeowners’ associations. “Everyone is out for themselves; everyone is pointing a finger at somebody else. . . . It’s the most astonishing legal mess I’ve ever seen.”

For Choudhry, a 33-year-old marketing specialist, “There’s no way out. Not only are we wiped out financially, but we’ve been wiped out emotionally as well. . . . We were fools.”

Although everyone involved agrees that the problems at Monterey Hills are for real, no one is willing to shoulder the blame. The more than 40 companies that insured the various participants are balking against paying off claims, and bills from attorneys and consulting experts are steadily mounting. The CRA has offered to spend $8 million alleviating problems, which it concedes is only a start. The builder blames the CRA, the CRA calls the morass a mystery but many homeowners simply want out.

“It’s a complicated mess up there,” acknowledged CRA board Chairman Jim Wood. “The problem is it isn’t clear whose fault it is . . . . It’s not unlike trying to unravel a malpractice case.”

Conceived in the late 1960s, the Monterey Hills project was envisioned by the CRA as a haven of affordable housing for mostly first-time homeowners who wanted quick access to downtown. A total of 18 condominium and town house projects--each in a distinct style--would be built over a span of several years, with prices ranging from about $80,000 to the low $100,000s. Although some top city officials, including Police Chief Daryl F. Gates and Councilman Richard Alatorre, have homes there, a small percentage of the housing also was reserved for lower-income buyers.

“It was our largest residential project and unique in the sense that we wanted to build a community of multiple homeowners associations, each with its own characteristics,” Wood said. “I think the agency was very proud of it--is very proud of it.”

But, Wood added, “The agency made representations and now we are faced with the results, which are clearly not what we hoped would happen. Straightening it out now is our No. 1 problem.”

Turning the mostly vacant hillside and canyon lands off Via Marisol into a sprawl of condominiums was both costly and complicated. To help finance the project, the CRA issued a series of four mortgage revenue bonds totaling $114.3 million. More than 900 mortgages were issued under those bonds.

Hillsides Lopped Off

Engineering and geological consultants were brought in to determine how the land could be transformed and, based on their recommendations, the work began in the late 1970s under the auspices of the CRA. Simply put, the tops of the three rolling hillsides were lopped off and the earth used to fill in the adjacent canyons.

Once all the grading, earth compaction and street and site preparation work was done, the builder, a company now known as Cal Coast Development Co., began constructing the labyrinth of condominiums. In all, upward of 1,800 units were to be built.

But, charges lawyer Castro, nobody told the potential buyers that part of the development was to be built “on a landfill of over 150 feet and nobody told us landfills of over 100 feet are considered experimental. . . . The original offerings did not even include the word landfill in it.”

By the time the first of the housing went on the market in the early 1980s, word of mouth and a strong advertising campaign were enough to lure hordes of eager buyers into standing in line and even camping overnight for a chance at one of the units.

Among them was Robin Weinstein, a 38-year-old supervisor in the city attorney’s office.

“The location was real good for me and I had a friend living there,” Weinstein said. “I had planned to stay indefinitely.”

Weinstein did not get the unit she initially camped out for, but the ambiance of the rolling hills and the twinkling nighttime view was enough to draw her back for a second try.

“I paid $113,000 for two bedrooms and a den, a wet bar and a really pretty view,” Weinstein said. To lower her monthly payment, she put more than 20% down on her Drake Terrace condominium.

Signs of Trouble

“I feel betrayed now,” Weinstein said. “There are people who have just turned around and walked away. Those are the people who put 5% down. I put too much into it and I just can’t.”

The first signs of trouble came within a few years.

Suddenly, there were tiny lines etched across walls and ceilings in some of the buildings. Doors would not close properly, windows bulged, patio walls began inching away from the main buildings and elevators shifted out of alignment. During heavy rains, water flooded into some units, cascading down walls and gushing through patio doors.

Since moving into their two-bedroom, $96,000 condominium in the Eaton Crest portion of the development in 1981, Janet and Gary Sakata have seen their unit inundated 10 times. The most recent episode occurred last December when four inches of water poured into the condominium.

“My baby was in a crib outside in the hallway,” a still angry Janet Sakata said. “Because of the water, 75% of the place was torn up. . . . Finally I had to evacuate with a 3-week-old baby at a time when I still couldn’t manage on my own.”

Leaving her husband behind to cope with the damage, Sakata, with her baby and 3-year-old daughter in tow, camped out for a week in a relative’s bedroom.

“I stayed here,” Gary Sakata said. “I’d done this before, so I knew exactly what to do.” Using fans and blowers, it took him more than 60 hours to dry out his drenched home.

Not all the complexes appear to be affected, and, in fact, construction on additional units continues. Because of the cloud over the area, however, the newer units are being leased and not sold.

But the damage to some of the condominiums, especially those built atop the deepest fill near the crest of Via Marisol, is progressive.

Building Split

In the 122-unit Temple Terrace section, for instance, construction crews already have physically split in half one L-shaped building that was built partly atop rock and partly atop fill. That way, the units above the fill can slowly sink downward without dragging along their more securely positioned neighbors.

The moving earth has forced residents there to drain their swimming pool, which is marred by wide, arching cracks. The deck around it is crumbling and pulling away.

Throughout much of the area, sidewalks and driveways gap and patios tilt. Pavement in some spots has sunk by as much as a foot, and experts are predicting that the maximum settlement could be more than twice that.

“It’s kind of awful,” said Choudhry, who lives in the Drake Terrace complex. “It’s something that colors your whole life. . . . I won’t bring people into the unit anymore. I don’t even have my family over.”

Choudhry said the prospect of what would happen in an earthquake keeps her awake at night.

In 1986, one city engineering geologist warned that the ground instability could lead to disaster of another kind.

“There is more than a strong probability that a continuing buildup of ground water in the canyon fills underlying Eaton Crest, Temple Terrace, and the street and the slopes to the east can result in a large explosive mud flow blowing out of the existing fill slopes,” wrote George Stolt in a summary of his field investigation.

That mud flow, Stolt continued, could be enough to blanket a neighborhood of homes lying below the development on Collis Avenue.

Construction Complaints

Beyond the settlement problems, some homeowners also complain of crucial errors in construction. Waterproofing panels in some locations were installed backward, substandard grades of woods were used in some flooring, the concrete mix was too weak and drainage, plumbing and landscaping were improperly designed, they say.

“There were a lot of places around here where somebody inspecting must have been walking around with a white cane,” said Don Davis, the property manager for the 198-unit Eaton Crest complex, the largest of the Monterey Hills projects. “Everyone cut corners. And when the soil started going, it all started going.”

But Ed Miller, president of the building company Cal Coast, contends the problems have “nothing to do with the buildings.”

“We purchased what we call buildable lots, finished lots from the CRA,” Miller said. “The culprit, so to speak, is the fact that the original soil, the virgin soils in the canyon . . . were not removed and the compaction, which was contracted to be done at 95% was done between 77% and 90%.

“Therefore when water entered the soil, the soil itself began to compact. . . . It has nothing to do with the construction at all.”

Miller said once the problems were discovered, the designs for new buildings were redrawn to minimize any problems and in the past three years, all have been built on piles and bedrock foundations.

“They are all good units and they are all built on solid foundations but . . . with the mood on the hill . . . we have been a little leery of putting them on the market.”

The City of Los Angeles, which normally inspects construction projects, also is distancing itself.

“We really feel we are peripheral. . . ,” said Deputy City Atty. Les Pinchuk. “The property is located in the city but since it was another agency, they (the CRA) took the position that they weren’t even subject to our rules and regulations.”

A key question in the litigation has to do with the role of various city and private inspectors during construction.

Saying it is committed to solving the earth-settlement problem, the CRA is offering to spend $8 million on two of the most badly damaged complexes. It is a solution few homeowners like.

The proposal, explained CRA attorney Bruce Tepper, calls for injecting concrete deep into the soil as a method of stabilization and then making extensive repairs to the buildings once the ground is shored up.

“There’s really no choice,” Tepper said. “You have to fix it.”

No Guarantee

Consultants estimate that the planning, repair work and subsequent monitoring on those two complexes alone could take as long as eight years. And even then, the homeowners say, there is no guarantee.

“What the CRA wants to do is put a thin level of fill down to the 40- to 60-foot level,” attorney Castro said. “The fill goes as deep as 150 feet. . . . So it’s like capping a root canal. The problem is still there.”

“Put yourself in my situation,” said Eaton Crest resident Sakata. “That means we are here eight more years . . . in a place that’s too small. . . . And our opinion is the fix they are talking about won’t work.

“I just want what’s just and fair. I want (the CRA) to buy me out.”

Although the CRA clearly acknowledges it “was our project,” Chairman Wood said the buyout request “leaves us in a very difficult position.”

“The people believe they were enticed into the project because of the agency’s involvement,” Wood said. “To say I sympathize with them and not do what they want doesn’t give much substance to my sympathy. But if we did that, we would have a project that isn’t fixed and no money to fix it.”

Instead, Wood said, the agency is prepared to spend the millions of dollars it will take to solve the settlement problem and then attempt to force the dozens of insurance companies involved to pay off claims. Even without a buyout, the price tag will be enormous--perhaps $15 million simply to stabilize the land, he said.

“Then there is the pain and suffering, so to speak, and the loss of equity, which can only be solved in a court.”

Wood said it will also be up to the courts to ultimately pinpoint who is at fault.

‘Lawyer’s Dream’

“It is difficult to defend anybody these days,” Wood said. “We’re not inclined to shoulder the sole responsibility for this and . . . untangling all of this is why it becomes a legal morass.

“It’s a lawyer’s dream.”

Meanwhile, as the months pass, more homeowners are willing to do what was once unthinkable--sell their homes at a discount or turn them over to renters.

“We sold five in December, two in January,” said broker Richard Ramos of Bryant Realty in South Pasadena. “But because of the unusual situation, there is no appreciation. They have gone down in value. People are selling to alleviate their burden.”

At least 40% of the homeowners on the hill, estimates property manager Davis, have rented their condominiums.

Still others, like Choudhry and homeowner Bill Baird, feel they can neither sell nor rent.

“I’ve been advised by realtors that they cannot sell mine for the price of the note,” said Baird, who owns a three-bedroom condominium in the Huntington Terrace complex. “My attorney advises me not to rent it because it’s not clear it’s safe.”

So, he has stopped paying the mortgage. Others say they may do the same.

Nargis Choudhry, however, said she has chosen another way to “fight for what is rightfully mine.”

“It’s consuming my whole life,” she said. “I work on the (homeowners) board and I’ve put in hundreds and hundreds of hours and yet I know I will never get back what I’ve put in. I just don’t know what else to do.”