Report Cites Abuses in O.C. Low-Cost Condo Program

Orange County is one of the nation’s most expensive housing markets, but several hundred condominiums priced so that low- and moderate-income people could buy them were lost in 1987 under a program run by the California Coastal Commission, according to a report obtained by The Times.

Among those who apparently benefited from what the report says was a poorly run affordable-housing program were a prominent San Diego builder and an aide to an Orange County supervisor.

The investigative study, commissioned by state Sen. David A. Roberti, a Los Angeles Democrat, also found that some owners of the affordable condominiums in Orange County built under the program are “illegally renting� their units or have attempted “sham sales� to reap “windfall profits.�

The report was prepared by the Fair Housing Council of Orange County Inc., a nonprofit watchdog group that monitors housing discrimination. The council declined to discuss the study. “The report speaks for itself,� said David T. Quezada, executive director.

The commission, while acknowledging many of the points in the report, blames the problems on its shrinking budget. The agency says it has neither the administrative resources nor the money to enforce the Orange County program. The commission is now disseminating the report to nonprofit organizations with a request for proposals to run the program.

Roberti helped persuade the legislature in the 1970s to empower the Coastal Commission to require affordable housing in new developments along the coast. A Roberti staff aide said Friday the study was prompted both by complaints from owners of the affordable homes--who say they’re trapped, prevented from selling by Coastal Commission red tape--and from advocates of low-income housing who complained of abuses.

The report concluded the program had become a bureaucratic stepchild. Administered at first but then abandoned by Orange County and later a nonprofit organization, the program was dumped back into the lap of the Coastal Commission, where the operating budget has been shrinking for years.

“We have some empathy for the Coastal Commission,� said Christine Minnehan, a Roberti aide. “The commission’s budget has been so decimated under the Deukmejian Administration that there are a lot of things they’re charged to do and empowered to do but just don’t have the people to do it.�

The critical report comes at a time when both local government officials and businesses are growing concerned about the lack of affordable housing for Orange County residents and its potential impact on the county’s growing economy.

The Orange County housing program dates back to the 1970s, when the Coastal Commission required that as many as 25% of new homes built on or near the coast be affordable to purchasers of low or moderate income. In return the commission gave the builders incentives, such as allowing them to build more units than would ordinarily be the case or requiring them to set aside fewer parking spaces.

To ensure the program’s continuance, buyers of affordable homes got deeds that required them to sell their homes to other low- or moderate-income buyers at a calculated price that left the seller only a portion of the profits from the sale. If the homes couldn’t be sold within a certain time--ordinarily two or three months--the houses could then be sold on the open market. Some of the deeds had even more restrictive provisions that required the sellers to pay most of their profits to the program no matter whom they sold to.

All the affordable condominiums are in Laguna Niguel, Dana Point and San Clemente near the coast in southern Orange County.

Among the program’s problems:

The Coastal Commission in 1987--contrary to the recommendations of its staff--declined to require San Diego builder R.B. McComic Inc. to build hundreds of affordable condominiums on land the builder owned in Dana Point, the report said. The commission had stipulated that the previous owner build as many as 429 affordable condominiums on the land, the report states, but dropped that requirement after McComic bought the land and appeared before the commission.

Instead, the commission said, it would let Orange County enforce its own, more lenient affordable-housing rules on McComic’s development.

McComic strongly disputes the report’s figures and conclusions. It has subsequently sold some of the land to another builder, McComic says, who has built 125 affordable apartments at a complex called Monarch Hills, but who has not built for-sale housing.

Despite the contentions of the report, McComic says it was never required to build for-sale housing under either the Coastal Commission or the county regulations, nor was the firm required to build as many as 429 units.

The company is well on the way toward meeting the county requirement, which McComic says is 292 units, or 25% of the 1,169 units planned for construction on the land.

“It’s important to understand we weren’t in any way trying to avoid building affordable housing,� said James W. Smith, a McComic senior vice president. “But we believed it should be part of a local plan.�

* The report said that of 1,195 affordable condominiums the commission required developers to build in Orange County--including the 429 that were never built--350 have been resold and 416 remain in the program. The 350 were presumably resold under the provisions of the housing program, but a handful of sellers were allowed to reap the full profits of the sale, it was learned separately.

The commission in February, 1988, permitted 13 owners of affordable condominiums--including Mark Goodman, a top aide to Orange County Supervisor Thomas F. Riley--to sell condos they had bought at affordable prices and keep the profits, the commission confirmed. The owners said they had tried to sell the properties under the affordable housing guidelines but couldn’t and were stuck in their condos.

Goodman sold his Niguel Beach Terrace condo in Laguna Niguel in June, 1988, for $133,000, $57,000 more than he paid for it in 1983, according to county property records.

The profits of Goodman’s sale and the 12 others were lost to the affordable housing program. Goodman is not mentioned by name in the report.

Goodman said Thursday he actually “lost money on that sale.� He said he sued the commission to win approval to sell his house fairly under the program. He contended there were so many bureaucratic hassles that he couldn’t sell to another person of moderate means. By the time the Coastal Commission in February, 1988, finally let him sell the house on the open market, he had spent $5,000 on legal fees and the prices of the houses he wanted to buy had gone through the roof. Hence the loss, he said.

“It never started out to be my intent to get a profit,� said Goodman, 36, who was a county planner when he bought the house but joined Riley’s office in 1987. “But when people started cheating me, I had to act.�

Says John Bowers, the commission’s counsel: “These people were pressing on the commission, saying, ‘You can’t keep us in limbo.’ The releases were granted at a time the commission thought it could do that.� A subsequent attorney general’s ruling now casts doubt on whether the commission acted properly in releasing individual homeowners from the provisions for the program.

* The program is so poorly enforced that “attempts at sham sales have occurred� as homeowners tried to avoid having to pay their profits to the Coastal Commission--profits that would keep the affordable housing program going.

In other cases, some homeowners try to reap “a windfall profit� by doing “all in their power to discourage� other people of moderate means from buying the units, the report said, “including the defacing of their own units.� Under the program, if some of the homes can’t be sold at a set price within 60 or 90 days to low- or moderate-income people, the owners may sell them for a higher price on the open market and keep the profits.

“I don’t know� whether sham sales have been attempted by owners, Bowers said, but “there’s a possibility� they could have occurred.

* Unable to run a viable enforcement program, the commission wanted to let the remaining 400 homeowners also sell and reap the market profits of their homes. But an attorney general’s formal ruling in 1988 said that releasing all the homeowners from the resale requirements would be an unconstitutional gift of public funds. The commission stopped releasing homeowners from the requirements, but it was still stuck with the affordable housing program. (The Legislature had already said in 1982 that the commission no longer had to require builders to build affordable units.) The commission asked the attorney general for a ruling in the midst of the dispute over the resale requirements.

* There is “clear and substantial evidence of illegal renting� of the affordable condominiums, which are supposed to be only for homeowners. As many as 30% of the 400 affordable condos may be rented, the Fair Housing Council found, based on “For Rent� signs observed outside the condos and other evidence.

“We’ve been aware for some time of the problem of illegal rentals,� said Bowers, the commission’s counsel, who affirmed the problem “is likely to be fairly widespread.�

Meanwhile, some of the remaining owners of the affordable units are suing the commission, alleging that its resale regulations are unnecessarily cumbersome and cause long delays.

What’s more, the Fair Housing Council estimates in its report that the public has a stake of nearly $15 million in the remaining 400 affordable units because the units have appreciated since being purchased. But the Coastal Commission didn’t even know how many affordable condominiums were in the program when the study was done, according to the report. The commission denies that.

The resale program’s problems stem from the fact that the commission, which has had to administer it since 1987, doesn’t have the resources to spend much time on it, the report said. The program’s administration was abandoned first by Orange County when it backed away from affordable housing programs in 1983 and later by a nonprofit organization called Community Housing Enterprises that said in 1987 it was quitting because of a “lack of sufficient resources, lack of Coastal Commission support and harassment from hostile affordable-unit homeowners.�

The commission points to its shrinking budget during the 1980s and says it has neither the administrative resources nor the money to enforce the Orange County program. It doesn’t even have an office in the county.

The Coastal Commission has set up affordable-housing programs in other counties with far fewer problems, including a big one in San Diego County, because local groups and agencies have been more helpful than in Orange County, Bowers said.

“We have a level of cooperation from county agencies in San Diego that is higher than the level we received in Orange County,� he said.

AFFORDABLE HOUSING ON ORANGE COUNTY’S COAST The California Coastal Commission approved plans for eight housing projects in Orange County on condition that the developers build 1,195 units affordable to moderate-and low-income buyers. But 779 of the units were never built, were released from the resale restrictions or were dropped from the program after being resold, according to a report by the Fair Housing Council of Orange County. Only 416 affordable units remain under the resale controls of the commission, and some of those are being rented in violation of state regulations. Affordable Housing Inventory

Original required Remaining affordable units affordable units 1. B.H. Mortgage/ 429 0 McComic 2. Niguel Beach 286 241 Terrace 3. Aliso 248 7 Meadows 4. Spinnaker 84 52 Run 5. Beacon Hill 56 33 6. Seawatch 40 38 7. Pacific 40 36 Terrace 8. Cyprus 12 9 West