Owners Claim Dream House Has Become a Nightmare : Real estate: They want San Juan Capistrano to buy back the home, citing numerous defects. City had bought dwelling in a controversial deal with ex-city manager.

Nearly four years ago, Richard and Meg Hassett bought what they thought was the house of their dreams.

Today, that purchase has come back to haunt them--and the city of San Juan Capistrano.

The Hassetts are now locked in a lawsuit over the home with its former owners, the city, which bought the house in a controversial deal in 1987 with former City Manager Stephen B. Julian.

The Hassetts say they discovered a variety of problems with the house after they bought it and their suit is an attempt to force the city to buy the dwelling back.

“The home of their dreams has turned into the nightmare of their dreams,” said the Hassetts’ attorney, James Slominski.

The lawsuit over the split-level, four-bedroom and two-bath, 2,650-square-foot house in the 28000 block of Calle San Remo is a reminder of an old dispute involving the financial relationship between the city and its onetime city manager, Julian, who is now the city manager of Dana Point.

In July, 1981, the city loaned Julian $250,000 to buy the home. According to city officials, Julian paid $207,500 for the home and the remainder of the money was placed in a bank account for future improvements.

Before Julian repaid the loan, however, the city in November, 1987, bought the home from him for $280,000. The city’s loans to Julian became the source of a bitter local debate that led to a failed recall attempt against some city officials and charges of misuse of public funds.

The controversy cooled in November, 1991, when the Hassetts bought the home from the city for $308,000, outbidding four other buyers for the property. By January, 1992, however, the Hassetts had contacted an attorney because of its reported defects and later filed a suit which goes to an arbitration hearing soon.

The Hassetts say the walls of the home are cracked, the foundation and floors are buckled and the hillside is threatening to collapse into the back yard.

When it rains, water drains right through the living room, Meg Hassett said.

“Two days after we closed escrow, it was like someone took a hose and just turned it on in our living room. It was incredible,” said Meg Hassett, who appeared at a recent City Council meeting and invited council members to tour the home but got no takers.

“Had they told us what the problems were, we never would have purchased this house,” she said.

City Atty. Richard K. Denhalter said the Hassetts have made changes in the home that affected the drainage and they had “an extensive walk through when they bought it.”

Denhalter and other city officials maintain that all the transactions with the Hassetts were proper and the city welcomes an arbitration hearing on the matter scheduled for Sept. 25.