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Screwed 

A lawsuit against the city highlights an affordable-housing program's decades of mismanagement — and the middle-class homeowners who lost out as a result.

Wednesday, Nov 25 2009
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Doug Shoemaker, director of the Mayor's Office of Housing, accounts for this supposed lack of buyers by pointing to periodic downturns in the real-estate market, particularly in the years after 1989, when the Loma Prieta earthquake caused extensive property damage across the city. During such periods, he said, the BMR condos were less desirable when compared to other properties without restrictions that could be bought at low prices.

Yet records of sales transactions on the condos that were released tell a more complex story. A sampling of such records reviewed by SF Weekly reveals that some units were flipped at much higher prices than would have been allowed under the city's resale guidelines, in some cases only months after they were released.

In June 1990, for example, a below-market-rate condo on 16th Street in the Mission District was let go after a four-month period in which the owner had reportedly been unable to find a buyer at the $88,000 price the city had established. Two months later, city property records show, the same unit was sold on the open market for $130,000. Likewise, in April 1990, a condo on 15th Street near Corona Heights Park with a city-set resale price of $116,000 was released, only to be sold a year later at a market value of $212,000. In one particularly striking case, a condo with a below-market price of $86,000 was released in April 1989 — and then sold for $229,000 in June.

Prior to their units being released from the program, these owners had to provide the city with documentation to prove that they were working in good faith to find a low- or middle-income buyer for the property. It's also worth noting that the city's income requirements forced sellers to deal with a smaller pool of potential buyers with fewer financial resources. (Today, the equivalent annual income of qualifying purchasers would range from $54,000 to $81,000.) But records provided by the Mayor's Office on released condos show there was no consistent protocol for marketing procedures or oversight by city officials. In some cases, Xeroxed newspaper real-estate listings were accepted as evidence.

Given the obvious financial incentive for owners to underadvertise their units in the hope of selling them at full value — and the speed with which some units sold immediately after release from the program — the city's failure to take a more direct role in the process was a serious mistake, according to the lawsuit against the city in federal court that characterizes the BMR program as "a badly broken government program ... which has for years been plagued by mismanagement, incompetence, secret rules and policies, unevenly and unequally applied."

In some cases, improper sales of BMR condos simply escaped city officials' notice. In 2006, Jennifer Wilson, an FBI criminal lawyer, sued the seller and brokers from whom she had bought a Nob Hill condominium two years earlier for $473,000. It turned out that the condo was actually enrolled in the program, and should not have been sold for more than $180,000. Timothy Flaherty, Wilson's lawyer in that case, said the parties eventually negotiated a confidential settlement.

According to Leslie Johnson, one of the lawyers representing condo owners in the current lawsuit against the city, several of her clients also unknowingly bought BMR condos at full market prices. She has this to say about her foray into the history of the program's administration: "It's like being in Alice in Wonderland."


For disgruntled affordable-condo owners, the steady trickle of other below-market units out of the program over the years is a telling sign of mismanagement. But their main gripe is more personal. Despite city officials' protestations that the condos were intended to be preserved as permanently affordable housing, owners say they were repeatedly misled to believe that the resale restrictions on their homes would one day vanish — and, as a result, made financial plans for old age and retirement counting a full-market-value home among their assets.

"They always had the expectation that if they got in a jam, they could sell or refinance and get a decent return on their investment," said Jay Oakman, a retired Coast Guard officer who bought his unit at Goldmine Hill in 1987 believing that resale restrictions would only last for 20 years. "The city has totally squashed any effort to do that."

In a series of 2008 hearings on the BMR condo program, the Board of Supervisors listened to dozens who told more or less the same story as Oakman: They knew about resale restrictions on their homes, but were under the impression that they lasted only 20 years from the time of purchase. While that number is nowhere enshrined in city law, the concept of such a limit was clearly prevalent, with varying degrees of certainty, among real-estate professionals and even city officials from the very beginning.

David Cincotta, who from 1972 to 1980 was deputy director in charge of housing at the Mayor's Office of Community Development (precursor to today's Mayor's Office of Housing) and helped create the BMR condo program, said he and other officials had in mind that the units' affordable status would be rescinded after two decades, thus nurturing the original batch of low-to-moderate-income buyers onto the open market.

Such a 20-year sunset clause on affordability guidelines had parallels at the time in federal and state housing programs, Cincotta said. But given the initiative's primary focus on preventing evictions, he said, the details of the condos' future weren't hammered out.

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Peter Jamison

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