Scam Casts Doubt on City

Even as a flurry of guilty pleas, convictions and prison sentences flows from a condo-conversion scandal in Huntington Beach, questions remain about what went wrong.

Residents and others want to know why city officials -- including administrators, the city attorney, the planning director and elected officials -- knew there was a problem for months but seemingly did little to stop it until the FBI stepped in.

City officials say that they responded promptly, that the federal probe identified fraud, and that wrongdoers such as former Mayor Pam Julien Houchen face prison sentences. In all, eight people were indicted in federal court.

Houchen resigned and will be sentenced later this year.

But critics still wonder how such a scandal could emerge under the city’s nose.

“There’s culpability at the city level,” said condo owner Renee Tarnow, who complained to building officials in 2002 after discovering she had bought an illegal unit. Her concern turned to frustration as the city’s investigation stretched from months to more than a year.

“I can’t point my finger at any one person specifically,” she said, “but someone called off the dogs.”

Tarnow is a typical victim in the scam, which eventually roped in 122 units.

Thinking they were buying legal condominiums, people instead were buying apartments that hadn’t been properly converted. As a result, many owners still cannot sell or refinance their units, and face thousands of dollars in remodeling expenses to meet condo standards, including having separate utility systems.

In addition to the former mayor, the scandal has netted a prominent real estate agent who advertised himself as the go-to guy for the conversions. As housing prices surged in Orange County, many of those selling the condos in mostly triplexes and fourplexes in Huntington Beach scored huge profits.

Real estate agent Phil Benson was sentenced Friday to 70 months in federal prison on 24 fraud counts -- which his attorney called a death sentence. Benson, who lives in Idaho, has lung cancer and has been given six months to live.

Residents who bought some of the tainted units accused city officials of failing to take steps to protect them. Of 47 condo sales detailed in the federal indictment, 35 were illegally converted after a city building inspector sounded the alarm about improper work in May 2001.

City officials say no one within the city, other than Houchen, was responsible for the condo mess. They said city officials couldn’t have policed the conversions because they were done by private parties who falsified real estate documents and didn’t follow city rules.

The only rule change following the scandal came at the state level. Assemblyman Tom Harman (R-Huntington Beach) pushed through a bill requiring city approval before anyone could record new documents for converted condos with the county assessor.

City Administrator Penny Culbreth-Graft, who took charge in June 2004, after the scandal, said she had “no feeling either way” about whether City Hall should have been more vigilant.

But she has made personnel moves that some see as scandal-related, although she declined to discuss them, citing confidentiality restrictions.

Culbreth-Graft placed Howard Zelefsky, the city planning director, on paid leave while she reviewed his contract. He was allowed to return to his job after 30 days under civil-service rules.

Zelefsky declined to comment and his attorney, Cecil Ricks, didn’t return calls seeking comment.

Zelefsky’s supporters said he did all he could as it became clear that the scandal involved dozens of units and the city’s popular mayor.

Huntington Beach Police Chief Kenneth W. Small, who joined the city in October 2002, has defended his department’s investigation but declined to discuss it in detail.