HUD Sold Quake-Damaged Condos

In the six years following the devastating Northridge earthquake, the U.S. Department of Housing and Urban Development sold 18 units in a 50-unit condominium complex so badly damaged in the shaker that two private engineering reports called for much of the development to be torn down and rebuilt.

Some of the homes in the Nordhoff Townhomes complex were sold to investors, who were hoping to snap up properties at bargain-basement prices. Others were sold to buyers who said they were never told about the condition of the property.

“I was shocked that the federal government would allow property to be sold and not think about the consequences,” said Myron Mikkelson, a 50-year-old decorated Vietnam War veteran. “You have a government selling you property that’s not worth the money you paid for it.”

Top HUD officials say the agency, like some of the homeowners, was in the dark on questions raised about the structural integrity of the complex.

The agency took ownership of the units at 9047 Langdon Ave. when the owners defaulted on HUD-backed mortgages. HUD officials said they didn’t learn of the engineering reports--written in 1995 and 1999--until last month.

“This is of concern to us,” said William Apgar, federal housing commissioner with HUD in Washington. “We were not aware of the damage. . . . We had no indication.

“Now that we’re aware, we will not be putting more people in this building.”

Some attorneys and quake assistance groups say the problem goes beyond HUD-owned homes, extending to properties throughout the Valley.

“One of the things we’ve seen over and over again is all kinds of sales being made in which no one pulled up the carpet to check to see that the slab was cracked,” said George Kehrer, executive director of CARE, a nonprofit group that has assisted quake victims. “You’ve started seeing the tip of the iceberg now.”

HUD’s own policies clearly state the agency, which has helped millions of low-income and minority renters become homeowners by guaranteeing mortgages, will not accept damaged goods. After a borrower defaults on a HUD-backed loan, the lender (typically a bank or mortgage company) is required to correct any known defects before transferring ownership to HUD.

HUD officials said lenders continued to issue mortgages for units in the complex--for both HUD-backed and other units--throughout the last six years.

Beyond that, HUD officials insist the agency has disclosed any problems it knows about.

Appraisers, who work under contract for HUD or the lender, are required to report “any defects identified or observed to us and to the buyer,” Apgar said. “They’re also supposed to check any records to see if there are any actions.”

The Nordhoff Townhomes Homeowners Assn. filed a lawsuit in 1998 against an affiliate of Farmers Insurance Group, seeking money to rebuild the complex and detailing the structural problems. But HUD officials say their appraisers do not check court records for civil suits, and that it is not standard practice to do so.

They say if a property is beyond redemption, it is taken off the market--as the North Hills complex was last month.

“Now that we’re aware of this, we are making sure that no [additional] sales would be made, which has been our policy all along,” Apgar said.

Some homeowners said they were amazed HUD could have been ignorant of the problems with the complex--built in 1979--saying there were many distress signals.

The property was green-tagged as safe to occupy immediately after the earthquake, according to the Los Angeles Department of Building and Safety. But city officials at the time were racing to inspect buildings, and in the months after the quake, more problems surfaced.

One key area of concern was the cement roof of the subterranean garage, which served as the foundation for 24 units in two buildings of the complex.

The homeowners association commissioned a report that recommended the cement roof and supporting columns “be removed and replaced.” The report was issued in December 1995 by the civil engineering firm, Carmichael & Associates.

A second report, issued Sept. 21 by a Santa Monica civil engineering company, declared the “elevated concrete slab of the parking garage for buildings A & B suffered permanent structural damage as a result of . . . the Northridge earthquake.”

An association board member said the group would have been happy to share both reports with any property owner, including HUD.

“The records were readily available,” board member Harry Underwood said. “All they had to do was ask.”

HUD also was unaware of the lawsuit against the Farmers Insurance affiliate until last month, when a Los Angeles Superior Court jury awarded the association $3.98 million in compensatory damages so the project could be razed and rebuilt.

Farmers settled the case for $20 million before it moved into the penalty phase.

Homeowners say HUD appraisers also should have been aware of the extensive repairs underway at the complex.

Wooden shoring bolstering the roof of the garage was clearly visible between 1995 and 1998, according to Underwood. While the shoring was in place, at least 11 of the HUD units were sold.

According to the building and safety department, the shoring stayed up so long that on Sept. 5, 1997, it prompted a complaint (identities are kept confidential).

“I can’t understand how HUD can say they didn’t know what was going on here,” Underwood said. “They had to have known. There was so much construction going on here. What did they think that shoring was in the garage?”

But according to HUD officials, seeing repair work in progress would not automatically trigger a concern over structural safety.

Homeowners such as Mikkelson said they saw the repairs and assumed the problems were being corrected.

In February 1998, when Mikkelson and his wife, Elena, first looked at the two-bedroom, two-bath townhome they would eventually buy, they had to step around work crews and talk over the sounds of construction.

“They said they were repairing damage from the earthquake,” said Mikkelson, who now serves as president of the homeowner association board. “I could see they were patching the walls.”

“I really didn’t think anything more about it,” added Mikkelson, who used money from a disability payment to purchase the unit for $41,000. “When they had the crew there working, I figured they were fixing it.”

Other buyers, such as Susan Violin, saw past the construction to the potential the units might have to grow in value.

“I felt it was a good investment because, even if they tore the building down, the land was worth $21,000,” she said, referring to her purchase price.

HUD’s Apgar wondered why the city never stepped in despite the two engineering reports detailing problems with the building.

“If our building was unsafe, and would need to be torn down, we would expect that the city would be aware of that and apparently they were not,” Apgar said.

Bob Steinbach, Los Angeles chief building inspector for residential properties, said engineering reports alone do not cause the city to act.

“Typically, you can take a dozen engineers and you’ll get six different recommendations,” said Steinbach, adding that an engineer’s recommendation is just that, a recommendation.

“What one engineer wants is not necessarily what another engineer wants,” he said.

And neither report would be presented officially to the city until the association is ready to begin requesting construction permits for the redevelopment project, Steinbach said.

Although a jury sided with the association, and approved money for reconstruction, the complex still is not ready for the jackhammers. Association attorneys are now trying to resolve complicated tax questions regarding the Farmers Insurance settlement.

Meanwhile, homeowners such as Mikkelson say they feel trapped: nervous about staying, but lacking the resources to leave.

“We spent $17,500 of our own money to do repairs inside our condo,” Mikkelson said. “What did I waste my money for?

“We’re committed now,” he added. “We have to stay, we have too much invested. We have no choice.”

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Times Research Librarian Ron Weaver and staff writer Edgar Sandoval contributed to this story.