Dispute Divides the Owners of Damaged Reseda Condos

For the owners of the earthquake-ravaged Sherman Court condominium complex, the question was simple and agonizing: Should they try to rebuild their 132-unit complex--abandoned since the quake--or sell the cracked, pink-stucco building?

But as they met in the Sherman Court clubhouse to discuss the issue last week, angry shouting erupted when owners who had stopped paying their condo association dues were barred from voting. “You’re taking away my rights!” one man yelled, shaking his fist.

Condominium association President Douglas Scott pleaded for peace. “Look, we’re all married to each other here, whether we like it or not.”

It’s a marriage of extreme inconvenience. And there are dozens like it throughout Los Angeles.

More than 3,500 condominiums were condemned or yellow-tagged after the quake. Four months later, their owners are at war on several fronts over what will happen to homes that some of them put their life’s savings into.

The battles are pitting neighbor against neighbor, condo owners against insurance companies and developers--and lenders against anyone threatening their financial interest in these properties.

“We’re seeing terrible problems with condominiums,” said Bill Rake, president of Greenspan Co., a Los Angeles firm that represents homeowners against insurance companies in exchange for part of the settlement they get.

“The cooperation from insurance companies has been abysmal,” Rake said. “A lot of people are being forced to live in some of these units that are in shambles. It’s taking forever to get anything fixed. The whole thing is going to blow up and become a major story.”

In Encino, Arthur Rosenberg, president of the Encino Oaks Condominium Assn., said he and most other residents of the 509-unit complex will probably have to put up with the mess months longer while they sue their insurer.

“We’ve gotten some money, but not enough,” to cover all the needed repairs, said the 47-year-old actor. “There are only two ways to do it--mediation or litigation.

“Meanwhile, I’m living in little Beirut here, or maybe Sarajevo, with all the walls split open,” Rosenberg said. “My son’s room has a hole in the wall that goes clear through to the outside.”

Many other condominium owners are running out of patience, money and time.

“There are a lot of deadlines we’re facing,” said Donna Goodwin, a 30-year-old administrative assistant and Sherman Court’s treasurer. “The moratoriums people have on their mortgage payments are expiring. The association has bills to pay.

“I’ve lost everything,” she added. “This was my first home. All my furniture was brand-new. It’s all gone. My clothes have been in storage for four months, including my summer clothes. We have to make some decisions. We have no more time.”

Time is Anne Siegman’s enemy too. The 30-year-old pediatric nurse has been living in a rented apartment with her 3-year-old son since the Northridge earthquake destroyed her federally subsidized condo at Sherman Court.

For a while, she went without other things to keep paying her monthly dues to the condo association and rent on the two-bedroom apartment. “But when I found out a lot of people who make a lot more than I do weren’t paying, I quit too,” Siegman said.

About half of the owners have joined Siegman in not paying their dues, leaving the rest bitter about having to shoulder the burden of ongoing expenses, such as $9,000 a month for 24-hour security at the vacant complex.

The angst Sherman Court owners are suffering is typical of the financial, legal and personal troubles condo owners and lenders are experiencing throughout the city.

A large percentage of condo owners awakened at 4:31 a.m. Jan. 17 were first-time home buyers. While a two-bedroom house was out of their reach, they could get into a condo the same size or bigger in a nice complex with a pool and clubhouse for less than $150,000 and as little as 3.5% down.

“It was cheaper than renting if you could come up with the down payment,” said Lisa Leonard, 28, a Glendale attorney who was one of the first to move into Sherman Court when the complex opened in 1991. “That’s how they advertised this place.”

Since then, however, condo prices have fallen below what many buyers paid for them, wiping out their equity. In the past four years, the average price of condos in the Valley has dropped 15%, to $129,000 in April from $151,983 in April of 1990, according to the San Fernando Valley Assn. of Realtors.

Now, those who initially invested less than that to buy their condos don’t want to rebuild. They view it as throwing good money after bad.

Sherman Court did not have earthquake insurance. The owners have received estimates from several contractors that they will have to pay anywhere from $700,000 to $1.5 million themselves to rebuild.

“Say it costs $1.5 million plus interest, even if it’s low interest on an SBA loan,” Leonard said. “Who’s going to borrow that much on property they have no value in? The assessment on each of the owners would be more than $11,000. A lot of people can’t afford that.

“I could probably afford it,” she added. “But for me, this is an investment. Since I got married, I’ve been renting my condo. If we rebuild, not only do we all have to come up with the extra money, but (real estate) values have to go up at least 10% a year for unit holders just to break even.”

With Southern California’s depressed real estate market, many quake victims who own single-family homes are in the same quandary. But condo owners have some unique and particularly thorny problems, noted Richard Close, a real estate attorney and president of the Sherman Oaks Homeowners Assn.

“Number 1, every decision has to be voted on by a group,” he said. “Number 2, lenders also usually have rights” that are spelled out in the association’s governing covenants.

Moreover, “if you own a condo, unlike owning a house, your neighbors can vote to walk away with your entire investment.”

At least two condominium associations have walked away from their quake-damaged buildings, one in Sherman Oaks and the second in Reseda.

Reseda resident Lorraine Hernandez said her mother, a bilingual teachers’ aide, felt like she had no other choice.

The two dozen or so residents of her mother’s Victory I complex in Reseda voted to abandon the red-tagged building at Victory Boulevard and Tampa Avenue. It is one of several condemned buildings in the block that remain vacant.

Hernandez said the Victory I residents “could have gotten a loan from the Small Business Administration. But they couldn’t afford to pay the loan and pay rent while the building was being repaired.

“They had meetings, trying to make decisions on what to do. They finally just gave up and wrote a letter to the lenders saying: ‘We’re walking away, do whatever you want to do.’ So far, my mother hasn’t had credit problems, but she’s waiting for it to show up on her TRW report.”

Other condo owners, including most of those in Sherman Court, aren’t that desperate. But they are fed up enough to sell their units for whatever they can get--if only to get on with their lives.

So last week the association met in the clubhouse to take an advisory vote on what they should do with their building. A motion to not rebuild failed by just two votes.

Some older residents were glad. “I put 50% down on my unit in 1991, so my payments were small,” said one 60-year-old woman.

The reason the vote was advisory, and not final, is another indication of how complex and touchy rebuilding issues have become.

North American Mortgage Co., Sherman Court’s biggest lender and one of the largest in the country, went to court last week to keep the owners from doing anything that might hurt their financial interest in the complex.

Fearing a distress sale of the building in its present condition could cost the Santa Rosa-based company millions, North American obtained a court order that, in essence, ties the owners’ hands for now. That’s why last week’s vote was merely to gauge which way residents were leaning.

At the meeting, two lawyers in a Costa Mesa-based firm representing North American also said the company would only negotiate individually with the owners of the 87 Sherman Court condos it holds mortgages on--not with the owners as a group. One of the lawyers even suggested each owner might want to retain an attorney, rather than using the condo association’s legal counsel.

“When we bought this property, we agreed to work together as a group,” one woman exclaimed. “Now you’re suggesting we all go out and retain counsel? Many people here don’t have the advantage of being able to hire high-priced attorneys.”

Attorney David Hershorin said North American might work out a payment plan for some of its mortgagees. Another option those owners would have is to turn over the deed to their unit to North American in lieu of foreclosure, perhaps in exchange for some money.

“They’re trying to stall,” said Daniel Perwich, a lawyer whose San Diego-based firm represents the Sherman Court owners and several other condo associations.

As he reads the legal documents governing both Sherman Court’s owners and its lenders, 75% of the individual unit holders with voting power must vote before July 17 whether to rebuild, Perwich said. Otherwise, the condo owners can sell the quake-scarred complex just as it is, he said.

Not surprisingly, North American’s lawyers disagree.

They took a lot of abuse from the 80 or so Sherman Court residents at last week’s meeting. Several residents booed and hissed at what they said, or tried to shout them down.

“You’re trying to force us into rebuilding whether we want to or not and we don’t have the money,” one condo owner charged.

“We’re saying we’re going into court to see what our rights are,” Hershorin’s associate Lori Carver Praed said, though she could barely be heard for the catcalls.

As if headaches with their biggest lender weren’t enough, the condo owners already had another legal fight on their hands before the quake. In December, they filed suit against their developer and the investment partnership that put up the money to build the complex. The complaint: shoddy construction.

Many condo owners now believe those alleged defects contributed to the quake damage at Sherman Court, a charge the defendants deny. It’s unclear how or when this legal battle, or the one pitting the owners against North American, will be resolved.