Bill Would Target Condo Conversions

An Orange County legislator said Monday he would propose legislation to tighten restrictions on conversion of apartments into condominiums.

Spurred by a scandal over illegal conversion of about 120 apartments in Huntington Beach, Assemblyman Tom Harman (R-Huntington Beach) said he would introduce a bill after he was sworn in for a second term Dec. 6 that would require owners of certain condominiums to prove they complied with local conversion laws before selling the units.

“This would create a firewall to stop this scam,” he said. “Right now, there’s nothing to stop an innocent purchaser from being burned” by buying an illegal unit.

Huntington Beach officials announced this year that about 35 apartment buildings were converted to condominiums and the units sold without the owners obtaining permits or paying fees. The owners converted the properties without notifying the city, despite a 1984 ordinance restricting how apartments could be sold as condos.

An investigation by the FBI should conclude next month, City Atty. Jennifer McGrath said.

Among the transactions being probed is the purchase and conversion of a four-unit complex by former Councilwoman Pam Julien Houchen, a real estate agent who resigned from the council in September. Houchen made about $500,000 in profit when she sold the units.

Harman’s bill would apply statewide only to apartment buildings with four or fewer units, which currently are exempt from subdivision laws that provide similar protections for buyers of condominiums in larger buildings. His bill would require owners preparing to convert the apartments to record a “certificate of compliance” from the city or county indicating that they complied with local conversion laws.

In Huntington Beach, for example, the city requires apartment owners to file parcel maps, pay application fees and contribute as much as $20,000 per building toward a fund intended to replenish the city’s rental housing, which makes up much of its low-income housing stock. If the rental stock dwindles too much, the city can refuse the conversion.

The compliance certificate would be recorded with other paperwork before the assessor’s office could issue new parcel numbers for the separated units, Harman said. Without the parcel numbers, the owners couldn’t get title insurance or sell.

The bill would add an “element of prevention,” Orange County Assessor Webster J. Guillory said Monday.

McGrath this month announced a settlement agreement with five title companies responsible for insuring most of the illegal condo sales. The companies -- Stewart Title, First American Title, Fidelity Title, Land America/Commonwealth Title and United Title -- agreed to pay city charges and a $10,000 affordable-housing fee.

The announcement came as a relief to many condo owners who had been caught in limbo with illegal units that they were unable to sell or refinance. They attended several city meetings to discuss the problem, insisting that they shouldn’t be responsible for paying to bring their units into compliance.

As of Monday, 65 unit owners in 15 buildings had agreed to the settlement. The City Council, which must approve the cleared units, will hold a public hearing on the issue Monday.

Among all 35 buildings, six were converted in the early 1990s through a misunderstanding of the law, McGrath said. Another six were converted, but the units were never sold so the properties will convert back to apartments.

The rest of the apartment buildings were sold as condos by owners who were aware of the city’s restrictions but failed to comply with them, McGrath said. She stopped short of characterizing Houchen’s transaction but said it was among the later conversions.