Moving In When Owners Move Out

There was nothing Cari Magnan enjoyed more than reclining in the Jacuzzi bathtub with a glass of champagne while gazing at the Pacific through the picture window of the plush three-bedroom home.

The carpet was teal, the floors marble, and best of all for the unemployed Magnan, it was practically free.

The Dana Point house, like tens of thousands in California, was in the limbo that precedes foreclosure. The owner had walked away, the home was empty and the mortgage holder had not yet taken over.

Enter unwanted occupants like Magnan, who have been placed in hundreds of such homes throughout the Southland by a handful of self-described “property management” companies. The firms cite an obscure, centuries-old squatters’ law they say allows them to rent out vacant homes without permission.

The companies find most of the dwellings through public listings of foreclosures, check to make sure they’re empty and declare them “abandoned.” They then re-key the locks and put in rent-paying tenants as “housesitters.”

“We’re providing the service of cleaning the home up for the community, taking the homeless and near homeless off the street, and putting them in decent housing,” said Dennis Murphy, who heads Windsor Pacific Inc., described by law enforcement as the most active company now involved in such takeovers.

“There’s no victim here. We’ve got babies growing up in squalor, and thousands of homes sitting vacant.”

But authorities, including state regulators and police investigators from four Southland counties, say there indeed are victims: mortgage holders who find homes in disrepair and pay high legal costs to evict tenants; the tenants like Magnan, who eventually find themselves with nowhere to go, and the occasional homeowners who opt at the last minute to sell at a loss or delay foreclosure--only to find strangers in their homes.

Housing takeovers appear to be spreading in the Southland, where, despite the area’s slow emergence from recession, more than 46,000 homes were lost to foreclosure in 1995 and more than 90,000 homes entered the first stages.

“It’s definitely a new twist, and something that has come out of the California foreclosure market,” said San Diego County Deputy Dist. Atty. Jeffrey Brodrick, who runs the real estate fraud section. “It’s clearly an evolving area of the law, and prosecutors are struggling to get a handle on it.”

The self-proclaimed grandfather of the takeover method is Henry “Hank” Aguilar, 59, a charming silver-haired ex-convict.

A UCLA business graduate who once held a real estate sales license, Aguilar invokes the archaic doctrine of “adverse possession” to defend the practice. Carried over from English common law, it allowed the hostile takeover of someone else’s property, if doing so ensured that land wouldn’t sit idle.

“If I am a scam, America is a scam,” he said in a jailhouse interview. “I’m the Count of Monte Cristo with a breath of Robin Hood.”

Last week, Aguilar pleaded guilty to 11 felony charges related to takeovers, after sitting in the Orange County Men’s Jail since January, unable to post $1-million bail. The charges included filing false quitclaim deeds on upscale homes, allegedly to make it look like they were owned by his business or his associates and thus legitimately available for rent. He agreed to serve one more year in jail followed by three years’ probation.

Aguilar had faced a maximum of nine years in state prison. But Orange County Deputy Dist. Atty. Joe D’Agostino said the plea nevertheless would dissuade others.

“It sends a message that if you do this conduct, you’re going to go to jail and have felony convictions. It’s the first clear example that this theory of adverse possession is a crime, the way it was being done. . . . We’ve now got a conviction against the person who we thought was a kingpin on this.”

He said his office is building similar cases against others.

Some legal scholars say it’s ridiculous to apply the old law to contemporary real estate, but they admit that “adverse possession” is on the state books and that current statutes may need clarification.

D’Agostino is more blunt. He describes Aguilar’s reasoning as “intriguing” but “idiotic.”

“Adverse possession was basically for squatters in the Old West,” he said. “It’s not for suburban tract homes.”

Still, authorities worry that more homes will be taken over.

“One guy teaches another guy and then it just goes on from there,” said Randy Brendia, regional manager in charge of enforcement for the state Department of Real Estate in Los Angeles. “Until some D.A.’s actually start putting some people away, this is going to be a scam that will grow.”

For now, investigations by district attorneys’ offices in Orange, Los Angeles, San Diego and San Bernardino counties are focusing on Windsor Pacific Inc., a San Bernardino-based company with offices in Long Beach and Newport Beach.

Windsor Pacific also relies on adverse possession to take over homes. Investigators say the company has worked with former colleagues of Aguilar. Murphy denies any affiliation with Aguilar.

Prosecutors outside Orange County had waited eagerly to see what would happen to Aguilar, who has been known to law enforcement for more than a decade. He pleaded guilty in 1985 to grand theft for renting out foreclosed homes in Orange, Riverside and Los Angeles counties. A few years later, he served prison time for a Long Beach fraud that involved houses in foreclosure.

He was jailed in 1994 for practicing law without a license in Orange County. While serving time, he said, he pored over law books and discovered adverse possession.

According to the most recent charges against him, Aguilar recorded hundreds of quitclaim deeds, deeding nonexistent interest in the properties to himself, the company he ran for a time with Robert Irwin Greenberg, and his associates. Greenberg is awaiting trial in Riverside County on charges similar to Aguilar’s.

The “wild card” deeds cloud title on properties and cause headaches for lenders who have to wipe them off the books, according to investigators and legal experts.

Investigators allege Aguilar filed them fraudulently in order to deceive tenants and law enforcement. Aguilar counters that he did it to assert an “open and notorious claim” to the homes in accordance with the law of adverse possession.

By his own admission, Aguilar also persuaded some of his tenants to file for bankruptcy, then deeded the homes to them and used the automatic stay of foreclosure offered by the bankruptcy process.

The flurry of questionable bankruptcy filings has raised the suspicions of the U.S. Justice Department’s Office of the U.S. Trustee, which administers the bankruptcy system and serves as a watchdog over bankruptcy court proceedings.

“A lot of these bankruptcies are just bogus,” said Assistant U.S. Trustee Art Marquis. “They’re not people who are filing to clear their debts and get a new start. These are either bogus entities or people who are just using the bankruptcy for the automatic stay.”

Marquis said at least 17 such bankruptcies were filed in Orange County and 15 in Los Angeles County.

For many down-on-their-luck people, the property management companies seemed to be a godsend.

Magnan needed a place for herself, her children and pets when a neighbor introduced her to Aguilar. He found her a home in affluent Aliso Viejo, beginning a relationship that would last a year and a half.

Eventually, he let her pick a house from a list of addresses. She chose the ocean-view home, valued at $371,000.

Magnan, 48, had an agreement with Aguilar to live rent-free if she cleaned up similar homes for other tenants handled by his company. Now she says she should have suspected the deal was fishy; but then she had nothing but faith in what the company was doing.

The lien-holder--World Savings & Loan Assn. of Irvine--never bothered her, she said, but Aguilar eventually moved her to another home because an associate wanted the Dana Point digs for himself.

Magnan ultimately contacted sheriff’s deputies, partly because of a personal dispute with Aguilar and one of his partners. Now on public assistance, she lives in a modest two-room San Clemente apartment.

Authorities say many tenants are low-income families with credit problems who pay cheap rents to live in spacious homes. Often the tenants have residency for months before anyone moves to evict them. Then the property management companies relocate them to another house facing foreclosure.

Eight months ago, Lori Bishop was living in a rodent-infested Palmdale home with her husband and five children. She said she spotted an enticing newspaper advertisement for “Housesitters wanted” and was put in touch with an agent for Windsor Pacific.

Murphy said the company gives a lengthy explanation of its approach. “This program may appear to you as taking of another’s property,” reads a Windsor Pacific form for prospective tenants. “If you are concerned that this procedure is not formed in law perhaps it is not designed for you.”

Bishop said the company’s rationale seemed legitimate.

“They said we would have six months to a year and that they’d move us from one home to the next, providing we paid our rent,” she said. “I thought, ‘We understand. We’ll do this for a year, just to get on our feet.’ ”

Their stay in the first house lasted a few months before the lender put it up for sale and they had to leave. Their second residency lasted only days before the disgruntled owner appeared.

Windsor Pacific moved her to a third house. But with so many moves, she got suspicious and contacted the Los Angeles County Sheriff’s Department. An investigator advised her to quit paying rent.

The 34-year-old Bishop moved her family to a nearby motel after receiving an eviction notice from the Federal Home Loan Mortgage Corp., telling her to get out of the three-bedroom house that Windsor Pacific found for her.

“We’ve got no references,” said the unemployed Bishop, whose husband recently found work as a truck driver. “It’s hard to rent. We don’t have any money. I really don’t know how we’re even going to look around for places.”

The legal doctrine Windsor Pacific and Aguilar invoke was used in early California to break up 19th-century Spanish land grants and to stake mining claims.

In adverse possession, a property must be abandoned and the possessor must improve it and stay on it for five years, paying taxes during that full time before the claim is honored. If someone comes forward with a superior title, the possessor is out of luck.

“Real estate can be stolen,” reads a 1994 article on adverse possession in a monthly California real estate journal. The story warns owners to “regularly inspect their properties to make certain no one is trespassing in an attempt to take title through adverse possession.”

Modern uses of the law generally have been restricted to acquiring easements and paths to public beaches through private property, said Mark Halliwell Smith, a Century City real estate attorney.

“Much of our real estate law comes from English common law, and adverse possession is an example,” said Smith. “While it might have made a lot of sense 500 years ago for farmland, it makes a lot less sense for a condominium. But it does apply there.”

Most experts maintain that the law doesn’t apply to the situation that has sprung from the fertile landscape of foreclosures. For one, they say, firms like Windsor Pacific know the bank will come forward with a superior claim long before the required five years is up.

Murphy said his company tries to cooperate with lenders by giving up its claim to property as soon as the bank holds a trustee’s sale. But he hopes to get a five-year stay--and eventual ownership--out of a few properties that are not in foreclosure but appear to have been abandoned.

For some lenders, who have faced off with Aguilar in court or have paid cash to Windsor Pacific tenants to hand over keys and leave, it has been a costly irritant.

“There were times when we had already re-keyed the locks and then they went and re-keyed again and moved people in,” said Gregory Ruzicka, an attorney who represents several lending institutions.

Prosecutors nevertheless are proceeding gingerly, saying they want to be sure charges will stick.

A Riverside County effort to convict Greenberg, the former Aguilar associate, provides a cautionary tale.

A Superior Court judge held him over for trial in 1995 on 14 counts of filing false deeds--but the judge threw out 21 counts of rent skimming. (State law makes rent skimming a crime in an effort to keep homeowners facing foreclosure from taking rent from tenants and pocketing it rather than paying the lender.)

His lawyer argued that Greenberg could not have been rent skimming since he admits he didn’t own the properties, but was merely staking a claim to them. The judge agreed.

A frustrated Riverside County Deputy Dist. Atty. Ed Kotkin convened a criminal grand jury, which in September indicted Greenberg on charges of conspiracy to commit trespass with the intent to injure property rights, rent skimming and offering false deeds for recording. But some prosecutors say they doubt the rent-skimming charges truly apply.

To police investigators, the issue is simple.

“They enter a property they don’t own, illegally,” said San Bernardino County Sheriff’s Det. Tony Valencia. “They then rent the property they don’t own, and they don’t have claim to, to an unsuspecting person.”

He said that besides the 15 cases he’s investigating in Hesperia, Windsor Pacific agents have rented at least 25 homes in Victor Valley and 50 homes in Lancaster. That’s in addition to rentals in San Diego County, Inglewood, Torrance and Gardena.

Aguilar is believed to have taken over an estimated 270 homes in Orange County.

“It’s not a little scam,” Tom Kerr, the manager responsible for all foreclosed properties owned by World Savings & Loan Assn. in Irvine, said of the adverse possession takeovers. “They say, ‘Who suffers? Everyone wins.’ The damn bank doesn’t win.”