Questions Arise on Charitable Agency, Plan for Homeless Shelter : Arleta: An immigrant couple seeks to raise $50,000 to renovate a building. But mounting debts and close financial ties to their charity are under scrutiny.
It sounds like another heart-warming, rags-to-riches story.
An immigrant couple who became successful contractors after escaping from Romania with just the clothes on their backs want to “reach out and return some of their good fortune to the community.”
So says the 12-page prospectus Julian and Elfride Georgescu prepared to seek donations for a charity they founded to run an 80-bed shelter for the homeless in Arleta.
All they need to open the doors, the charity’s program director said in an interview last week, is $50,000 to renovate the two-story, stucco building.
But it turns out that’s not quite the whole story.
What the prospectus fails to disclose are the close financial ties between the Georgescus and Family Aid and Housing Unlimited Inc., the charity they founded.
The Georgescus own the building at Woodman Avenue and Osborne Street and are in danger of losing it unless they pay their mortgage broker about $50,000 by March, said Steven D. Jones, vice president of Westworld Financial, the couple’s lender. Delta Loan Services Inc., an arm of Westworld, initiated foreclosure proceedings against the Georgescus this fall because the couple has been in default since August, 1991, on two loans totaling $718,000, Jones said.
The prospectus also fails to mention that the charity plans to hire Julian Georgescu as executive director and pay him $36,000 annually.
But it does list what real estate experts say are unusually high maintenance costs of more than $17,000 a month, in addition to rent and utilities, for the proposed shelter.
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The Georgescus, who live in Granada Hills and own Georgescu Development Inc., acknowledged in interviews last week that they plan to use charitable funds donated to Family Aid to get the building out of foreclosure so it can be converted into a shelter.
They said they raised only about $7,000 this summer in a telemarketing campaign, but that those donations barely covered their fund-raising expenses.
The couple also said they plan to resume making monthly mortgage payments of $8,759 to Delta Loan Services by leasing the building to their own charity, which is actively soliciting government funds and private donations to cover the rent.
But they denied there is anything improper about using the charity to bail themselves out of economic straits and pointed out that the homeless would also benefit.
“It’s not a scam,” Julian Georgescu said. “Right now, we are in this situation because we could not raise funds to open the shelter. We need the people’s help.”
State officials responsible for overseeing California’s 65,000 charities said Family Aid may have violated laws against misleading advertising by stating that the $50,000 was intended to renovate the building, when at least some of it would be used to take the property out of arrears.
But the officials said it is unlikely they will file charges against the charity because the fund-raising claims about renovation were made verbally, not in writing, and are subject to interpretation.
“The misleading part may be that they are implying there is no barrier to using the building for a charitable purpose,” said James M. Cordi, the deputy attorney general in charge of the charitable trusts section in Los Angeles.
But “it’s a gray area” because renovation could theoretically include anything necessary to prepare the building for use as a shelter, Cordi said.
Although the Georgescus may not have violated any laws, their actions go against principles and practices embraced by established charities, said several watchdog organizations, trade groups and other charities that serve the homeless.
In particular, they expressed concern about the cozy financial relationship between the Georgescus and the charity they founded.
“When you’re setting up a nonprofit organization, you do it out of the goodness of your heart to help people,” said Dan Langan, spokesman for the National Charities Information Bureau, a watchdog group. “You don’t say, ‘OK, I’m going to set one up and pay myself $36,000 to do it.’ That’s nonsense. That isn’t in the spirit of charity at all.”
Charities ideally should be run by a board of at least five volunteer directors who do not profit from their association with the agency, Langan said.
Asked to identify Family Aid’s board of directors, Julian Georgescu said “there are seven board members and that is all I can say.”
He declined to disclose their names.
“Founders usually have a close personal or emotional relationship with the agency, but not a financial stake,” said Patricia Lewis, president and chief executive officer of the National Society of Fund Raising Executives, a trade association based in Alexandria, Va., that represents 14,000 fund-raisers. “The problem I see here is there is not a disinterested relationship between the landlord and the organization.”
The Family Aid saga dates back to November, 1989, when the Georgescus took out two high-interest, short-term construction loans for $718,000 from Westworld Financial.
The money, derived from a pool of 20 investors, was to purchase and rehabilitate the office building now being proposed as a homeless shelter.
Under the terms of the loan, the Georgescus were to make monthly interest payments of 15% on the loan, and then pay off the principal by March, 1991, either by refinancing the property through a conventional bank at a lower interest rate or by selling it, said Al Haberstroh, Westworld Financial president.
After the Georgescus fixed up the building for office and retail use, it was reappraised at $1.4 million, Julian Georgescu said.
But the commercial real estate market soon plunged, making it impossible for the Georgescus to sell the building or to even lease it to cover their mortgage payments, Haberstroh said.
The couple offered to return the building to the investors in lieu of foreclosure, but instead worked out an agreement in the fall of 1991 to make partial mortgage payments while they continued trying to lease, sell it or refinance it, Haberstroh said.
But the clock was ticking.
By early this year, the Georgescus were also having difficulty making payments on other loans, including a $100,000 note held by Westworld Financial on a 12-unit apartment house on Saticoy Street in North Hollywood, Jones said.
That building is now also in foreclosure, according to property tax records.
Faced with mounting difficulties, the Georgescus decided to pursue what they said was a longtime dream to start a homeless shelter.
“We were real poor when we first came to this country and lived in Astoria, Queens, so I know what it is like,” Julian Georgescu said.
“We didn’t know one word of English . . . snow got in my shoes because I didn’t have no money for boots. . . . Everything we had was picked up from the streets.”
The couple informed Westworld Financial early this summer of their intention to convert the building to a homeless shelter.
Their chances of succeeding at getting government funds were boosted this fall when a well-respected social worker volunteered her services and started spreading the word about the group.
Shortly afterward, one of the investors signaled his intention to call in the loan, and Delta Loan Services initiated the foreclosure.
The Georgescus had only paid 29% of the $96,349 they owed between August, 1991, and June of this year, Haberstroh said.
But that information was not widely known.
Family Aid recently succeeded in gaining a key endorsement from Shelter Partnership, a nonprofit agency that provides assistance to other groups working with the homeless in Los Angeles County.
The umbrella group had included the charity on a list of organizations worthy of funding that it submits to government agencies, said associate director Jeff Schaffer.
But Schaffer said last week that now that he is aware of Family Aid’s financial situation, he will have to re-evaluate the group before recommending it for funding.
