Dream Fades for Urban Pioneers : Wilmington: Eight of the 19 families in a “sweat equity” partnership have sued the builder of their houses, which they say they now can’t afford.
Not that long ago, they fancied themselves pioneers. Working-class folks who would do something few dream of doing anymore in Los Angeles:
Building a new neighborhood.
Pooling their money to buy a dusty three-acre lot in east Wilmington, the 19 families set out to build the homes of their dreams. Homes they would be proud of. Homes they could afford.
That’s the way it was a year or so ago for the Home Ownership Partnership.
Today, however, the partnership is in turmoil. Eight of its 19 investors have sued the partnership, charging that the homes they wanted, the ones they helped build, are now priced beyond their means--$60,000 to $100,000 higher, they say, than originally promised.
The partnership, meanwhile, is suing those investors, portraying them as renegades bent on driving the venture into bankruptcy. HOP officials say the investors were never guaranteed specific prices and are now trying to get houses for less than it cost to build them.
“We just want what we were promised,” said Jessie Fernandez, who is leading the investors.
“I’m heartbroken,” said Peter Mendoza, general partner for HOP.
The litigation and the events leading to it have cast a pall over the project at L Street and McFarland Avenue, where 19 new homes, many with red tile roofs, cluster in a cul-de-sac of clean streets and sprouting lawns.
To date, 10 of the homes have been sold to investors. Two are even occupied. But what was portrayed last year as a scrappy success story now has a dark chapter. And no one knows how the story will end.
It began four years ago when Mendoza and the investors launched the partnership, determined to prove to themselves and the city of Los Angeles that east Wilmington deserved and would support new single-family housing. With an initial investment of $15,000 each, the partners raised enough money for a down payment on a $600,000 parcel and set out to build their homes within blocks of Wilmington’s oldest and toughest neighborhoods.
After securing a $2.2-million construction loan from the Bank of San Pedro, the partnership went to work building the one- and two-story homes. Though much of the work--including architectural design--was done by hired professionals, the investors themselves also labored on their future homes. Their “sweat equity” ranged from pouring concrete to framing and painting.
“Everybody was working,” Petra Rocha said the other day, standing with her family near the 1,600-square-foot house they helped build but say they cannot afford to buy.
Rocha, a teaching assistant for Project Head Start, said she, her husband, Jose, and their four children all pitched in on their house, believing that their work would help keep down the final cost. “That’s what makes me so angry,” she said.
The house the Rochas helped build--and invested a total of $20,000 to buy--was originally priced at $130,000, she said. The figure, she claimed, was agreed to by Mendoza in the partnership’s infancy.
“Now, after he told us $130,000, the price is $175,000,” Rocha said. “And he says, ‘If you don’t want to buy it at the price, you can put it on the market.’
“We want the house. We’re not fighting for the money,” Rocha said. “We’re fighting for the house.”
Likewise, Alejandro Hernandez, another of the investors, said he and his wife, Lourdes, have seen the asking price of their house jump from $140,000 to $220,000. And the new price, he says, does not factor in the $20,000 or so that Hernandez figures he and his wife invested in time and materials building the 2,400-square-foot home.
“(Mendoza) made us believe that if we worked hard on the house, we would have our work counted,” said the 24-year-old carpenter.
Similar stories are told by the other disgruntled investors whose lawsuit demands a financial accounting by the partnership and the sale of homes for their original cost.
“We want to find out where the money was spent,” said Fernandez, the lead plaintiff, who said he and two other investors first demanded an accounting of the partnership’s books in September, 1989.
“At that point, there weren’t enough people concerned about an accounting to get one,” Fernandez said. “(Mendoza) managed to keep most everybody at bay so they wouldn’t request an accounting. He’d do special favors like allowing someone to add a room to their plan.”
Now, however, Fernandez and others are demanding a look at the books. They also are demanding that the houses be sold for what they acknowledge are below-market prices.
But partnership officials contend that the investors’ lawsuit is frivolous and potentially devastating to the venture’s survival because it may threaten the project’s financing and the ability of other investors to secure loans.
In a cross-complaint filed by Mendoza and the partnership, the disgruntled investors are accused of pursuing their lawsuit to “extort purchase prices exceedingly below the costs of the houses.” Those investors, the cross-complaint says, think their lawsuit will guarantee them houses “either by blackmail and extortion . . . or by forcing the project into foreclosure.”
The purchase prices offered by the investors, the suit adds, would financially ruin the partnership if they were accepted.
Mendoza acknowledges that preliminary sales prices were discussed early in the project with investors. But he and other HOP officials insist that those figures were little more than estimates based on what they expected the project to cost.
“They were promised a home; they were never promised a price,” said the partnership’s attorney, Lottie Cohen, who with Mendoza blames the higher prices on unavoidable delays in obtaining permits and building the project. The delays, they said, included a long dispute with an oil company over title to the property and capping two wells.
Even with the higher prices, Mendoza said, the houses sought by the investors are still priced far below market value. A typical one-story house in the project was recently appraised at $205,000, $30,000 above its current asking price, according to Mendoza, who is president of Wilmington Home Owners, the community’s largest homeowner group.
“I agree, it would have been a lot nicer if they could have gotten the house at $135,000, but that isn’t the way it worked because of unanticipated delays and costs,” Mendoza said.
Significantly, partnership officials add, 10 of the original investors have already bought--or are buying--their homes at prices comparable to those deemed excessive by the plaintiffs.
The home buyers include Robert and Irene Rivas, who are in escrow on a two-story, four-bedroom house for $220,000. The house, Rivas said, has been appraised at $269,000.
“I feel pretty comfortable with the price,” said Rivas, a 48-year-old longshoreman. “As time went on, I realized the price was going up, but I didn’t question it. What can you do? Prices go up. And we knew we were not going to get something for nothing.”
But Fernandez and the other plaintiffs say they are entitled to purchase their houses at earlier prices and insist that they should be given an accounting of the project’s increased costs. “If they are over costs, we want to know why,” Fernandez said.
He and the other investors also dispute the claim that they are bent on driving the project into foreclosure to obtain below-cost prices. “To buy a house in foreclosure would mean we’d need 10% or 20% down for financing. How are we each going to come up with another $10,000 or $20,000 to bid on foreclosures?” Fernandez said.
“If we had that kind of money, we would have gotten an attorney a long time ago,” said Fernandez, who with the other investors retained an attorney for their lawsuit in November.
As the dispute continues, both sides say they are motivated by the same goal: They want the partnership’s investors to own the homes they have invested money and hard work to obtain.
“I still think it’s a beautiful project . . . and my only hope is that these people will be able to buy their dream homes,” Mendoza said.
But as they stood last week amid the houses they helped build, the eight troubled investors despaired over their dreams.
“My wife feels bad,” Alejandro Hernandez said, staring at the spacious three-bedroom home that sits vacant, like many others.
“It was one of our dreams, you know? To have a house,” he said. “Now, everything is falling apart.”
