Title Firms to Cover Costs of Condos’ Illegal Status

Five title companies that insured the sales of about 100 Huntington Beach condominiums that were illegally converted from apartments have agreed to pay the costs to legalize them, including a hefty affordable-housing fee, city officials announced Wednesday.

The companies are Stewart Title, First American Title, Fidelity Title, Land America/Commonwealth Title and United Title.

Condo owners whose sales were insured by the companies -- and who had loudly protested when told of the fees they would have to pay the city because of the conversions -- can now have those fees paid by them, said City Atty. Jennifer McGrath.

Under the agreement, the companies will pay the costs of legalizing the units, including obtaining permits and paying an affordable-housing fee of $10,000 to compensate the city for the loss of each unit as a rental. The homeowner would be required to release the city, but not the title company, from further liability, McGrath said.

The City Council, which must approve the cleared units, will hold a public hearing on the issue Nov. 29.

“I’m thrilled from the city’s perspective and the citizens’ perspective that so many units can be taken care of in one fell swoop,” McGrath said.

The conversion scandal erupted in April when city officials acknowledged that as many as 120 condominiums had been converted from apartments without the proper permits or modifications. The city was alerted to the problem by owners who discovered they were unable to sell or refinance their homes because the units didn’t comply with city codes.

The situation prompted continuing investigations by Huntington Beach police, the Orange County district attorney’s office and the local office of the FBI. Among the conversions being probed is the purchase and resale of four units by Councilwoman Pam Julien Houchen, who resigned from the council Sept. 1. She acted as the real estate agent on the transaction but has denied wrongdoing.

One couple, Scott and Renee Tarnow, won a $450,000 judgment Monday in their lawsuit against Phil Benson, the real estate broker they said fraudulently sold them an illegally converted condo. The award included $300,000 in punitive damages.

Benson, who is ailing with cancer, was the broker on several of the suspect transactions and has declined to comment from his home in Idaho. He didn’t appear to Orange County Superior Court to present a defense.

So far, the owners of 59 units in 15 fourplexes and triplexes have contacted their title companies about legalizing their units. They will be the first to be offered the settlement, McGrath said.

An additional 12 to 16 units were converted to condos but weren’t sold, so they will be redesignated as apartments. The remaining homeowners haven’t responded to contacts by the city, McGrath said, but also will be eligible for the settlement.

As with any agreement, however, there is fine print.

One caveat is that the owner of each unit in a building must agree to the settlement before the costs would be covered.

The agreement also doesn’t apply to sales not covered by title insurance. But if at least one owner in a building was insured, the whole building could be covered and the units legalized. The uninsured owners would be required to record a lien promising to pay the $10,000 affordable-housing fee when the unit was sold or refinanced.

Other uninsured owners or those who decline the settlement would have to pay a generally larger affordable-housing fee, which the City Council is expected to set Monday at $15 per square foot.