Slum’s Alleged Cause: Fraud

Federal prosecutors charged two real estate speculators Thursday with fraud, alleging that the men engineered a mortgage scheme that ultimately created one of Orange County’s most notorious apartment slums.

The U.S. attorney’s office said the defendants’ actions caused the Haster Gardens apartment complex to default on $8.3 million in loans and go into foreclosure. That triggered its slide into a state of disrepair, according to court documents.

After numerous complaints by residents that the apartments were crumbling and swarming with rats, the city of Garden Grove declared the property a public nuisance and asked a court-appointed receiver to collect rents and make repairs.

New owners have since changed the name of the complex to Arroyo Vista and spent $2.5 million to make repairs and improvements.

Dale D. Marks, 48, and Neko K. Defterios, 62, both of Palos Verdes, appeared shackled in U.S. District Court in Santa Ana on Thursday, hours after their arrest by FBI agents. Neither man entered a plea. Family members said they intended to raise bail money by Monday.

Federal authorities allege that the two men carried out their scheme in 1996 and 1997, when they bought the 148-unit complex on Haster Street.

The pair then resold the property at an inflated price to a group of co-conspirators, officials said.

Marks and Defterios allegedly paid these “buyers” several thousand dollars each to apply for the loans needed to finance the purchase.

The defendants promised the buyers that they would keep up the mortgage payment and manage the apartments.

Instead, prosecutors claim, Marks and Defterios quickly defaulted on the loan payments and stopped maintaining the apartments.

Lenders responded by foreclosing on the properties. During this period, the units rapidly deteriorated.

“This scam resulted directly in the foreclosures,” Assistant U.S. Atty. David A. Hoffer said. “This is a fairly significant amount of money we’re talking about, and it was a fairly significant loss to the bank.”

A federal grand jury on Wednesday indicted both men on seven counts of bank fraud and three counts of money laundering.

If convicted, the maximum penalty for each offense of bank fraud is 30 years, and the maximum penalty for each offense of money laundering is 20 years.

Hoffer said that none of the “buyers” face charges in connection with the scheme.

Garden Grove city officials said it’s important that there is some type of accountability for the filthy conditions at the apartment.

“All these tenants [were] living in horrible, horrible conditions,” Mayor Bruce Broadwater said.

Broadwater said at its worst, Haster Gardens had overflowing toilets that leaked under walls and into adjoining apartments.

Mold seeped through ceilings and dripped onto tenants’ beds.

Much has changed however in the last two years. The new owners have provided major improvements, and the city pumped more than $600,000 in redevelopment funds into the property.

“It’s totally overhauled,” Broadwater said.