Foreclosures, Wave of Suits, Mark Once-Rosy Monterey Hills

Times Staff Writer

Foreclosures of more than half the units in a section of the Los Angeles Community Redevelopment Agency’s troubled Monterey Hills subdivision are stirring fears among residents that the character of the area will change from privately owned residential to rental.

It is the latest chapter in the story of a government-backed housing development which was built to help the middle class move into the expensive Los Angeles market and then went awry when many of the dwellings began to sink on improperly compacted landfill.

For the record:

12:00 AM, Sep. 21, 1988 For the Record
Los Angeles Times Wednesday September 21, 1988 Home Edition Part 1 Page 2 Column 5 Metro Desk 3 inches; 78 words Type of Material: Correction
An article Sept. 15 misstated the effect of a state Assembly bill designed to help owners of homes in the Monterey Hills development complex. The bill, authored by Assemblyman Richard Polanco (D-Los Angeles) and now awaiting the governor’s signature, does not require Los Angeles Community Redevelopment Agency to repurchase damaged properties in the development. Rather, it strengthens the agency’s authorization to buy back the properties and requires that it report to the Legislature by Jan. 1 on whether funding is available for such a program.

Only seven months after reaping $6 million in a settlement with the redevelopment agency, 45 of 87 homeowners in the Drake Terrace section of the 1,611-unit development have pocketed their money and allowed Security Pacific National Bank to foreclose on their homes. At least 12 other Drake Terrace property owners are in default on their mortgage payments and face foreclosure, bank officials said.

Security Pacific is negotiating to re-sell the units to a private developer and expects to go into escrow on the sale within a week, Keith Marshall, bank vice president for administration, said.


Under the terms of the Drake Terrace settlement, the CRA is committed to make the units habitable with $3 million worth of repairs. But officials acknowledge that it will be some time before they collect money from their insurance companies.

Enforcement Too Costly

While the redevelopment agency has banned rentals of the units to protect the home-owning character of the area, officials said they have not been able to enforce the prohibition because it would be too costly.

The ban applied to those buying their homes under favorable financing terms offered by the CRA, the majority of dwellings.


Property managers employed by many of the homeowner associations told a reporter that many of the CRA-subsidized units are already being rented in violation of the CRA regulation. Agency officials acknowledged there has been a proliferation of rentals despite their no-rental policy. And that has undermined the redevelopment agency goal of developing affordable housing for first-time homeowners, they said.

Homeowners remaining in Monterey Hills are worried about the possibility of more rentals.

“If they (the bank) sell the property, who are they going to sell it to?” Bud Weiner, president of the Monterey Hills Federation, asked at a homeowners meeting in August. “If they sell it to a group that rents out the units, the value goes down all over the hill.”

“Some of the clientele that we have here now renting are less than desirable,” said Roger Boeker, a Drake Terrace homeowner. “We don’t want any more of that happening.”


CRA officials said the developer negotiating with Security Pacific does not intend to rent the Drake Terrace units. “My understanding is that in keeping with the agency’s program, the new person is going to develop a sales program to get those units back in private ownership,” Lillian Burkenheim-Silver, CRA project manager for Monterey Hills, said.

Conceived in the 1960s as a haven for homeowners seeking quick access to downtown Los Angeles, the Monterey Hills development is the CRA’s largest residential development to date. A total of 21 condominium and townhouse complexes were built in the late 1970s with prices ranging from about $65,000 to about $160,000 and at interest rates well below prevailing rates.

The highly touted development, a few miles northeast of downtown, was subsidized by the CRA to encourage first-time homeowners, who had only to put down 5% of the purchase price. Others were required to come up with at least 15%.

The agency built the development on hilly terrain that had been considered too steep for construction. To prepare the land for building, dirt as much as 120 feet deep was laid in parts of the complex. But in the early 1980s the landfill began to settle rapidly and unevenly, and cracks and other structural faults appeared in some of the development’s buildings. Unhappy in homes increasingly plagued with serious problems, many homeowners began to sublet their properties.


Then the lawsuits began. The Drake Terrace Homeowners Assn. suit was the first to go to trial of five brought by homeowners groups against the CRA and the contractors associated in the project. The next suit, brought by the Eaton Crest Homeowners Assn., is expected to go to trial today. Three others are awaiting trial and still others have yet to be filed.

A bill that would require the CRA to buy back as much as $20 million worth of damaged property from homeowners is currently awaiting Gov. George Deukmejian’s signature.

Many homeowners in the affected sections of the development have sought to sell their homes, but have been unable to interest buyers or reap fair market prices for their properties. Left with homes whose values have sunk with the soil, Drake Terrace homeowners were forced to default on their loans, using the money they received from the settlement as down payments to purchase homes elsewhere. While content with their settlements, some have been encumbered by bad credit ratings resulting from the voluntary foreclosures, making it difficult to finance new homes. Others resent their forced reentry into a housing market that is tighter in Los Angeles County today than ever before.

James and Melinda Osman received $40,000 from the Drake Terrace settlement. They bought their condominium in 1981 for $112,000 and put only 5% down. Enticed by what appeared a stunningly good deal--a 30-year mortgage at 10.5% interest--they slept outside overnight to reserve their place in line for the complex.


“We loved the place when we first moved in there,” Osman said. “I mean, my God, you couldn’t find a better deal.”

The Osmans acknowledge they got a pretty good deal on the settlement, as well. It allowed them to buy a new house in Glendale. But Osman said he will never forget the wrenching decision to default on their mortgage payments.

In the most severely affected Drake Terrace building--Via Arbolada--only seven of the 21 units are still occupied.

Heather Hinton, 49, lives in Via Arbolada and has not made mortgage payments since March. But because of a disability, she is unable to move.


“In June of 1986, I started having a recurring nightmare, that I would be the only one left alone in Drake Terrace with all the buildings crumbling around me,” Hinton said. “It’s getting close to that nightmare.”

So many residents have left Drake Terrace that the homeowners’ association, which had been managing the complex on its own for almost a decade, this April hired a professional management company.

It could take years to determine the ultimate losers in the Monterey Hills morass, whose complex financing scheme brought in investors, banks, insurance companies and contractors.

The project was initially funded through federal loans, tax-increment financing, a Federal Housing and Community Development block grant and the sale of tax allocation bonds and residential mortgage revenue bonds.


The series of four mortgage revenue bonds issued by the CRA totaled $114.3 million.