Some Apartment Owners on Shaky Financial Ground : Facing Steep Quake Repairs in Addition to Hefty Mortgage Payments, Some Landlords Could Be Threatened With Foreclosure

Jack and Sally Nissenbaum have spent many sleepless nights since the Jan. 17 earthquake jolted the San Fernando Valley, worried about the aftershock if their lender decides to foreclose on the $1.3-million mortgage on their 50 apartment units.

The apartments, located in five buildings on Alabama Avenue, Valerio Street and Variel Avenue in Canoga Park, were heavily damaged in the quake, causing about three-fourths of the tenants to move.

“We have very minimal income from the properties, not enough to pay the mortgage or the utilities,” said Sally Nissenbaum. To make matters worse, the properties were assessed at $750,000 shortly before the quake--or $550,000 less than what the Nissenbaums owe the lender, Home Savings of America.

Jack Nissenbaum, who has owned the apartments with his wife since 1979, blamed the buildings’ depreciation on the weak economy of the past years, which forced landlords to lower rents and reduced the value of apartments.

Fortunately, the Nissenbaums received a two-month moratorium from Home Savings on their $12,000 monthly mortgage payments. But they also face the difficult challenge of repairing the apartments and filling them with tenants again so they will not lose the properties.

For now, Home Savings has agreed not to foreclose. But the Nissenbaums will have to start paying back the mortgage in a few weeks, before the apartment units can be repaired and rented out.

In addition to unpaid utility bills and mortgage payments, the Nissenbaums also worry about an estimated $8,700 property tax bill due next month. “I don’t know what’s going to happen. You can drive yourself crazy thinking about different possibilities, and some of those possibilities are horrendous,” said Jack Nissenbaum.

Unlike many homeowners who were given an opportunity by their lenders to delay mortgage payments on their damaged homes for a few months, not all small apartment owners received similar consideration from their lenders. Some apartment owners are being told to continue making mortgage payments on damaged and vacant buildings.

Although the Nissenbaums’ apartments were tagged habitable by building inspectors, they require extensive repairs, including broken windows, separated walls, and a collapsed ceiling in at least one unit. The couple will not know how much the repairs will cost until they get a damage estimate from their insurance company.

Home Savings, knowing of the problems that can arise whenever a property is worth less than what is owed on it, gave the Nissenbaums a moratorium on the mortgage payments until April 1. The couple, who have earthquake insurance, hope to receive a settlement from their carrier by the end of March and start rebuilding.

A few miles away in Reseda, veterinarian Morton La Pittus is not so lucky. He owns 28 apartment units in two buildings located on the 6400 block of Shirley Avenue, about a mile from the epicenter of January’s quake. La Pittus, who also owns a home in Rancho Santa Fe in San Diego County, lives in one of the apartment units during the week.

The buildings sustained about $100,000 in damage, La Pittus said, and he asked the lender, First Nationwide Bank in San Francisco, for a three-month moratorium on the $5,600 monthly mortgage payments so he could use the money for repairs.

Unlike the Nissenbaums, La Pittus had no earthquake insurance, and his lender, First Nationwide, did not give him a grace period for paying his mortgage. “I wasn’t looking for anything free. I asked for a three-month moratorium, but I wanted them to tack the three months to the end of the loan,” he said.

La Pittus and the Nissenbaums both requested the mortgage moratoriums after seeing Home Savings and First Nationwide’s newspaper ads offering deferred payments to customers to help them recover from the deadly quake. However, most of those programs were intended for residential mortgage holders whose homes were damaged or destroyed in the quake.

How much a commercial lender is willing to bend with a borrower may have something to do with the type of mortgage they hold. For instance, under California law, original mortgage loans are typically non-recourse loans, meaning that a lender cannot sue the borrower to make up the difference if a repossessed property is worth less than the debt on it. But most refinanced mortgages are recourse loans, meaning that if a lender forecloses on a property that is worth less than what is owed on the mortgage, the borrower can be sued to make up the difference.

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The mortgages on both of La Pittus’ apartment complexes are recourse loans because he refinanced in 1985. He has owned the units since 1977.

By comparison, the Nissenbaums are still paying on the original mortgage loans on their five apartment complexes.

La Pittus said he was told by Keith Cousans, First Nationwide vice president of commercial loans, that the lender cannot offer a moratorium on a refinanced loan.

In addition, La Pittus said First Nationwide threatened to put the properties in foreclosure if he stops paying on the $800,000 mortgage loan. If the bank repossesses the buildings and is forced to sell them for less than the outstanding loan, “they said they’d turn around and sue me for the difference,” La Pittus said.

Cousans declined to comment.

According to La Pittus, even with the damage to the buildings--which he said suffered mostly cosmetic damage--the properties are still valued at about $1.2 million, more than enough equity to cover the mortgage held by First Nationwide.

Sherry Rosen, of the Apartment Assn. of the San Fernando Valley, said that generally, “banks are being good about extending loans” made to apartment owners. “But the problems are with lenders who sold the (mortgages) to other parties, and, in some cases, refinanced loans.”

Bruce Indermill, of Hallmark Property Management in Van Nuys, agreed that “most lenders are being cooperative,” but, he said, many lenders are still studying landlords’ requests for moratoriums on loan payments. Hallmark manages 45 residential income properties, all apartments, throughout the Valley and elsewhere throughout Los Angeles County.

“We are still assessing what’s going on and how the repairs are going to be paid. We’re (Hallmark) the information conduit for the owners, so they can fill out the FEMA and SBA applications,” said Indermill, referring to loans sought from the Federal Emergency Management Agency and the Small Business Administration. “We’re doing the legwork for them.”

The Nissenbaums are counting on a settlement from their insurance company to pay for the damage to their five buildings. La Pittus, who had no earthquake insurance, has applied for an SBA loan to pay for the $100,000 damage to his two buildings.

In addition, La Pittus also petitioned Los Angeles County officials to waive the $3,456 property tax bill due next month. “I’ve used the $14,000 extra cash I had in the account to pay for some repairs, and I’ve also used the money that was set aside to pay for property taxes,” he said.

Sally Nissenbaum, while thankful for the two-month moratorium extended by Home Savings, said getting the extension was a trying experience.

“They paper you to death. The bank keeps demanding all kinds of documents already in their files. I don’t know what we’re going to do if we don’t hear from the insurance company before April 1, when we have to start making payments again. We’re scared to death the bank will call the loan,” she said.