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May 30, 2006

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Cambrdige Friends

I can tell you what happened in my town right across the street from you guys. The cast of characters is the same: legal services lawyers and local tenant activists.
After they lost an important weapon when Massachusetts voters repealed rent control in 1994, they first tried to restore rent control with their own initiative petition — the Community Empowerment Act — and failed badly.
Then they tried to get Just-Cause Eviction through another initiative petition and failed even worse, filing only 17 official signatures on the petition.
Now they are “turning local” and proposing a Condo Conversion Ordinance for the city of Cambridge.
Why regulate condo conversion far more tightly than the long-standing statewide condo conversion law? Because tight regulation of condo conversion on four-unit-and-larger rental properties will subject them to just-cause eviction and rent control — all through the back door of tenant “protections” when owners condo. If they succeed in Cambridge, they will surely move on to other cities and towns.

It all starts with owners’ ’intent’
The trick lies in one major change — among many — that the proposed Cambridge ordinance would make to the tenant protections in the state’s existing condo law.
The state condo law kicks in when a master deed is filed to convert apartments to condominiums that can be sold to individual owner-occupants.
The proposed Cambridge ordinance pushes the starting point much further back in time, to the moment that an owner has any “intent to convert.” Just-cause eviction and rent control begin at that early point.
For any property owner, that “intent to condo” is treacherous terrain. “Intent” is ultimately “thought,” something private, something invisible, something impossible to prove or disprove.
So while the state law defines “intent to condo” as filing a master deed, the proposed Cambridge ordinance lists no fewer than 11 signs of “intent to condo.”
There are the obvious signs of condoing: filing a master deed, advertising a unit for sale, preparing a purchase-and-sale agreement, or applying for a condo-conversion permit. But the ordinance lists, in addition, seven other ambiguous and vague activities which supposedly show “intent to condo,” including “but not limited to”:

* Showing any rental unit to someone who can be considered a prospective buyer
* Surveying the land or having architectural plans drawn up
* Measuring or inspecting any rental unit with the idea of condoing
* Evicting an “excessive” number of tenants
* Allowing “excessive” vacant units
* Saying anything in writing or orally to anyone that indicates an intent to condo

And last but not least:

* Giving a rent increase exceeding 10% a year !!!

Bingo! Rent control!
Any rent increase over 10% a year is considered clear evidence, by itself, of “intent to condo.” And if an owner intends to condo, he or she cannot raise rents more than 10% on sitting tenants. Thus, all sitting tenants in all 4-unit-or-larger buildings can challenge any increase above 10%, get an immediate refund, and stop any eviction, simply because such an increase automatically means the owner “intends to condo.”
Major capital improvements to rental property are thus stopped. An owner would have to prove with “clear and convincing evidence” that a capital improvement is only to fix up his or her rental property and not part of an intent to condo. Before a tenant-sympathetic hearing board, it won’t ever happen. It’s the old rent control thing.
Where tenants don’t get rent increases over 10%, they can still get just-cause eviction “protections” simply by asserting any other vague sign of “intent to condo.” The mere assertion, true or false, stops an eviction for at least as long as it takes to decide if the owner really intends to condo. And that can surely take a long, long time!

Who decides “intent to condo”?
Another city bureaucracy, just like the old rent control one, but this time located in the Cambridge Community Development Department, would determine if an owner “intends to condo.” A “guilty” owner faces a $1,000 fine or 60 days in jail for “each violation of any provision of the ordinance.”
The proposed ordinance is 25 pages long and filled with a seemingly infinite and draconian number of highly technical requirements. They entrap not just rental owners with no intent to condo, but any owner who might seriously consider condoing.
An owner can very easily and inadvertently violate one or more of the ordinance’s complicated provisions. They include:

* Filing an extensive condo-conversion application.
* Giving at least six sets of notices to tenants and the city.
* Giving four separate options to purchase before the property can be sold to the public, two to the tenants and two to the city.
* Giving all tenants two years to move out, four years if they are low- or moderate-income, elderly or disabled.
* Paying all tenants $1,000 to move, $2,000 if low/mod, eld, dis.
* Providing “housing search assistance” for low/mod, eld, dis.
* Avoiding all rent increases, non-just-cause evictions, vacancies, or other actions that would violate tenant protections.

Last straw: affordable housing set-aside
Besides all that, the most incomprehensible and Kafkaesque section of the ordinance would require any owner who condoes to set-aside either 15% of the units or one unit (whichever is larger) as housing affordable to low-income people. What were they smoking or drinking when they wrote this law? Can you imagine a 4-family homeowner deciding to condo and setting aside one unit — that’s 25% of his units as affordable housing? It will never happen.
v Does anyone want to condo anymore?

Consequences
For owners who ever might have condoed, the effect of the ordinance is to stop them completely or run their costs up astronomically. For small property owners, converting to condos becomes impossible.
v For all owners staying in the rental business, the ordinance, at best, creates stumbling blocks to eviction, rent increases and capital improvements. At worst, it creates a rent-control-style bureaucracy which, once in place, will expand its powers into full-blown rent control.
Whatever else happens, the condo market is royally messed up.

Zip condo conversion
The Cambridge Assessors Office reports the number of condo conversions as: 268 units in 1995, 147 in 1996, and 200 in 1997. The average is 205 units a year, or less than 1% of the 21,000+ units of rental housing stock. “Almost all” of this conversion, however, was in 2- and 3-family buildings. With one notable exception (Oxford Ct. in 1995), there has been almost no conversion in 4+-unit buildings. The properties to be affected by the proposed “emergency” ordinance are simply not condoing.

Affected groups
Property owners obviously, but the impact of the proposed ordinance goes well beyond rental property owners.
Condo owners. Mortgage lenders will avoid a complexified condo market. The ordinance is written to defend tenants, not owners, and depends on stigmatizing condos. Once in place, a bureaucracy would expand its powers, just like the old rent control bureaucracy. Remember “ordinanced condos,” occupiable only by tenants, not owners? One ordinance author said she would like to empower those tenants who moved out without getting their rights — empower against whom?
Tenants who would someday like to buy condos. The ordinance adds huge costs to the condo conversion process, pushing up the price of newly converted condos and older condos as well. If the ordinance effectively stops condo conversion, the price of condos will still go up, because supply has been restricted.
All tenants, because rents will rise, for two reasons. First, owners’ legal costs will escalate, and those costs are transferred to other tenants whenever possible. Second, the natural limit on rents is the point at which it becomes better financially to buy than to rent. As the price of condos (the cheapest form of homeownership) goes up, so does the rent ceiling, allowing all rents to rise.
Specially protected tenants (low- and moderate-income, elderly, disabled). Just as the lead law causes discrimination against families with children, so will this law, giving extra protection to certain groups, lead to discrimination against them, by owners trying to reduce their risks and costs.

What’s it really all about?
Tenant organizing and non-profit housing.
Virtually no condo conversion is going on in Cambridge’s four-unit-and-larger buildings. Despite pages of emergency preambles, the ordinance would stop nothing that’s happening.
It’s purpose is something else — to acquire a new tool for tenant organizing that can feed besieged rental properties at cheap prices into tax-funded, non-profit agencies.
Rent control’s repeal removed a valuable activist tool. In buildings with artificially suppressed rents, organizers could target one building at a time and easily get tenants to oppose much-needed rent increases at the rent board. Distressed owners would have little option but to sell cheap, often to these non-profit affordable housing development corporations owned or controlled by the city of Cambridge.
We are certain that organizers tipped off non-profit developers where they were working.
Rent withholding for code violations is now the only tool available which, when used in rent-strike fashion by all the tenants in one building, can force an owner, similarly, to sell cheap to non-profit developers. A recent example is 59 Norfolk Street, which was sold, after a rent strike, to Cambridge’s Just-A-Start Corporation.
Unchecked rent withholding, however, is under attack and likely to be removed as a useful tenant-organizing tool by mandatory rent escrowing.
The proposed condo conversion ordinance is thus a potential new organizing tool, giving activists powerful weapons — heavy fines and obstruction devices against evictions, rent increases and capital improvements — which can be targeted against any ordinary rental property owner with no real intent to convert to condominiums. All the tenants in a building can be swept up into an hysteria that the owner is about to do that dreaded, awful thing — condo.
At a recent meeting in one of those local nonprofit corporations, the following remark was overheard: “Tenant organizing and affordable housing development are one and the same thing.” That’s what it’s all about.

Be aware & beware!
The cover letter submitting the 25-page radical condo conversion ordinance for Cambridge shows legal services using charity and public funds for a political agenda.
The letterhead identifies “Cambridge and Somerville Legal Services” (CASLS) as the source. The “Eviction Free Zone” is their named client. The name says it all. It’s a political group, not individual clients.
At the bottom of the letter is the proud acknowledgement: “CASLS is a United Way agency.” Yes, the nation’s largest, most respected multi-charity agency is giving major funding for one political group to help another political group. Also at the bottom of the letter: the United Way symbol, a hand cupping a person under a rainbow. CASLS is using the United Way to legitimate its political agenda. We have asked United Way to tell us exactly how much of their funding goes to legal services groups compared to other recipient agencies. They have not sent us the information.
Finally, also at the bottom of the letter: “Funded by the Commonwealth of Massachusetts.” Yes, taxpayer dollars as well are being used for political lobbying activity. Not mentioned, however, is IOLTA funding. Like all legal services in the nation, this agency also receives thousands from the hidden tax system on lawyers called IOLTA.

Ron Newman

To The Somerville News: Thanks for posting the ordinance text.

To 'Cambridge Friends': Your long screed is against a proposed Cambridge ordinance. How does the proposed Somerville ordinance compare with the Cambridge one?

Concerned

Well, well, well!!! Now we get the "Rest of the Story".

Not sure which side of the fence this paper is taking, if any at all. Seems there are no editorials stemming from the article. Maybe they don’t need to do an editorial on the subject matter, at least not yet.

Some interesting items contained in the full report shows the Mayor can now name five (5) new bodies of his friends to the new committee. Finding this all under the excerpt below might even stipulate it is a paying position. I will leave that elucidation up to others, but here is what it says:

b) Vacancies/Removal/Compensation: The Mayor shall appoint the members of
the Board, subject to confirmation by the Board of Aldermen. Vacancies on the Board shall be filled for the balance of any unexpired term. Failure to reside in Somerville will automatically terminate membership on the Board. A Board Member may be removed by the appointing authority prior to the expiration of such Board Member’s term for good cause shown. Members of the board shall receive such annual compensation as the Board of Aldermen shall approve.

d) Special Municipal Employees: The Board Members shall be deemed special municipal employees for purposes of G.L. c. 268A.


All raise your hands to apply and if you’ve given enough contributions too whomever, you will be chosen.

So what about the posting by the civil judge? Does his credence hold water? Let’s see what comes close to the mark:

c) Right to Extend Term of Rental Agreement. If the Notice period referred to in (b)
above exceeds the term of the tenancy in the Rental Agreement, the term of the tenancy shall be extended to coincide with the expiration of the Notice period. There shall be no other changes in the provisions of the Rental Agreement, except that the Landlord may increase the rent at the original expiration date of the Rental Agreement and annually thereafter, not to exceed the lesser of 10% or the increase in the CPI-U for the Boston Metropolitan Area for the preceding twelve-month period. The Landlord shall also be permitted to recover pro-rata increases in real estate taxes authorized under a valid tax escalation clause in the Tenant’s Rental Agreement.

This has some validity in its analysis. You, as the landlord, would have to encounter the courts assistance in obtaining more than a 10% increase in rental fees. Now we all know with the Re-evaluation process and the ever rising cost to the MWRA piggy bank, this will exceed the 10 % threshold. Toss in the cost to insure your home and all the other taxes, the landlords will be lined up outside the Somerville District Courts as well as in Middlesex Courts.

I truly believe we need to nip this in the bud and for all landlords to contact their Alderman and at Large Alderman and express our dissatisfaction on this proposal. Those that will on the BOA will stand tall. The ones in that boat will be White, Provost, and Gewirtz maybe Pero. All the others are sitting back waiting to see. Plus, if you check the other Alderman, you will see how many LLC’s, developers and attorneys for developers have given campaign contributions to their coffers. Not saying that is wrong, but where are the checks and balances for this type of conflict of interest? There aren’t any. Who would have thought?

So I ask you again, do you want to be restricted in your rights as a landlord? Do you want to fall to this type of “bully” armed tactics? Make all the phones calls you can and generate all the emails possible. Go to the City web site and click on government and get those emails going now. The longer we wait, the easily the wool comes down over our eyes….

To Ron

To Ron -- Thank you for being you, you are a very special person never forget that. On this long journey we call life your postings, comments and corrections are often all I have to keep me going. Thank you

Ron Newman

The Condominium Review Board already exists; this ordinance does not create a new one.

James Norton

I would imagine we will be making our opinions known soon enough. Most of the regulars on here know I think this stupid stupid ordinance is rubbish. And before I get the comments about "greedy real estate scum" give me a friggin break. That has NOTHING to do with my opinion on this matter. If anything else, my experience in the business should lend some credibility to the matter. My family's business depends on renters and buyers and sellers all the samne as far as business goes.

It has nothing to do with "tenants" rights when you get right down to the nitty gritty of the matter. It has to do with limiting homeowners rights.

I'll agree to stipulate that it is not a "right" to own property, as someone earlier on this weblog pointed out. It is however a risk, it is a liability and it is something which everyone and everything including mother nature try to take away from you from day one.

There are a certain "bundle of rights" that come along with property ownership. In its purest form, it leans toward the private ownership of anything - from a can of Coke to a vehicle - the idea is you bought it, you own it, you can do whatever the hell you want to do with it.

The government at multiple levels all retain their owns rights, such as condemnation popularly known as eminent domain. They also retain the rights to various regulatory rights which include zoning/building codes and environmental regulations.

For me, personally, that's enough power the government needs to have over something that is privately bought and paid for - anything more is borderline socialism. But hey, maybe that's just what some of these wackos want.

And look, I know I haven't posted "JN's Rules of the Weblog" on here yet, and my opinion of links to other sources is not favorable, but Ron's link to the CRB is definitely appropriate for the topic at hand and quick thinking on his part.

I get a kick out of some off you who like to infer that we play to a certain agenda here at this newspaper, when in fact we have gone out of our way to play everything straight down the middle when it comes to reporting the news locally. Stop confusing personal commentary with paper policy, because that's another silly-ass notion that needs to be put away and forgotten about.

Chew on that.

JN

I would be for it

I don't think you guys think things through at all. After all, it only takes a little common sense. I would be for it except that this law unfavorably gives a huge advantage to any new developments that will surely be a partnership between our elected officials and their developer friends. The lack of supply of affordable condos this law will generate will surely increase profits of any bran new developments. What price will the new developers pay for this huge market advantage? We can’t just hands this to them. This has the potential to unfairly benefit a select group of people at the expensive of a lot of the current owner occupied residents. If we are going to do this we need to equalize this unfair advantage right from the start. We need to examine what new developments are coming into the market and tax them accordingly. I don't want to see our officials and select inside developers get richer while the poor and now the MIDDLE CLASS too suffer. A lot of people have invested in two - family homes after the Enron scandal, and pensions and savings dwindled. Now we are just looking for another way to screw them all again.

Equalize the Law with huge local taxes without subsidies to developers of new condos and affordable housing units and you have my Support! In fact use that money to pay or their moving expenses.

Fred Sullivan Mahoney jr.

Are the people getting kicked out of Assembly square getting two months rent, moving expensess, and having someone find suitable arangements for them too? It is the least the new developers can do for these poor guys...

Concerned

Great news about not putting more friends on these committees.

I took a peek at the current CRB and find it very interesting. The Mayor's has it all filled with the appropriate personnel already.

WM and EM, his mother, are of some interest. I can remember when WM got lucky on the affordable housing market a few years back. Funny how things tend to swing your way when you’re a part of the process. Just as the Ex- Superintendent of Inspectional Services, Foley, son was when HE was the luck recipient of affordable housing.

I bet if I go further down the list, we will find the rest on someone’s campaign finance reports for sure. Keep up the great work Joe.

To Answer Butters

You are a good kid so here it is, This is the future of somerville:


USA - SANTA ANA - Former Huntington Beach Mayor Pamela Houchen pleaded guilty Thursday to eight counts of mail and wire fraud and faces up to 40 years in prison for her role in a scheme to illegally convert apartments to condominiums.

Flanked by her two lawyers and standing before Judge David O. Carter in U.S. District Court, Houchen admitted to knowingly depriving the residents of Huntington Beach of honest services, a form of public corruption. She also admitted to participating in the real-estate scam with the knowledge that it involved falsifying documents.

She reaped about $500,000 in profits from the sales of the illegal condominiums. Houchen, 48, will be sentenced Feb. 6 along with real-estate agents Thomas Bagshaw and Michael Cherney, who also entered guilty pleas for fraud and lying to authorities, respectively. Bagshaw faces up to 10 years in prison and Cherney up to five years.

"She's very sorry that she was ever involved in this and is trying to move on with her life," said John Barnett, Houchen's attorney. "With these problems in addition to her youngsters, it's very difficult." Barnett said he advised his client, a mother of 3 1/2-year- old triplets, to plead guilty "because of the facts in this case and all the facts surrounding her life and family ... and the evidence."

Houchen resigned from the City Council one year ago, about three months before the end of her term. She is the second Huntington Beach official to plead guilty to a felony.

In 2002, former Mayor Dave Garofalo pleaded guilty to conflict-of-interest charges.

Thursday's guilty pleas were part of agreements struck earlier this month between five defendants and the U.S. Attorney's Office. Real-estate broker Phil Benson, accused of being the mastermind behind the condo conversions, is expected to enter a guilty plea Thursday. And former Stewart Title officer Harvey DuBose will probably also appear that day, U.S. Attorney Andrew Stolper said.

The real-estate professionals were among eight people indicted in December by a federal grand jury for roles in converting apartments to condos without city permits. The conversions left dozens of homeowners unable to sell or refinance their properties until the city stepped in and brokered a settlement with the title firms.
Houchen faced additional charges for using a straw buyer to hide her purchase of property in a city redevelopment area, a violation of state law.

Three investors - Jeffrey Crandall, Howard Richey and Michael McDonnell - will go to trial on fraud charges Oct. 4. Houchen and those pleading guilty will probably be called to testify in the trial in hopes of receiving reduced sentences for cooperating in the prosecution. Barnett said he would seek an "appropriate" sentence for his client, but he did not provide details. Houchen, who is no longer working as an agent, could lose her real-estate license.


FORMER HUNTINGTON BEACH MAYOR, SEVEN OTHERS CHARGED IN CONDOMINIUM-CONVERSION SCAM

December 1, 2004

A federal grand jury in Santa Ana today indicted eight defendants in a complex scheme in which they fraudulently converted Huntington Beach apartments to condominiums, which allowed them to sell the properties at substantial profits. In addition to the real estate scheme, the indictment charges four of the defendants, including former Huntington Beach Mayor Pamela Houchen, with corruption for fraudulently concealing Houchen's ownership of an apartment building in a redevelopment district where she was prohibited from owning property.

The 74-count indictment charges:

- Philip Benson, 72, the alleged architect of the scheme and a real estate broker at Pier Realty in Huntington Beach;
- Harvey Du Bose, 63, the supervising title officer at Stewart Title of California in Irvine;
- Pamela Houchen, 47, who was a member of the Huntington Beach City Council until September and who worked with Benson at Pier Realty;
- Michael McDonnell, 38, an investor who acted as a "straw buyer" for Houchen properties and converted several other properties;
- Thomas Bagshaw Jr., 55, a real estate agent and notary public who also worked with Benson at Pier Realty;
- Howard C. Richey, 78, an investor and client of Benson;
- Jeffrey Crandall, 44, an investor and client of Benson; and
- Michael Cherney, 57, a real estate agent and client of Benson.

All of the defendants are Huntington Beach residents with the exception of Benson, who formerly lived in the city but now lives in Hayden, Idaho; Richey, another former resident of Huntington Beach, who now resides in Hemet; and DuBose, a resident of Santa Ana.

The 41-page indictment alleges three distinct fraudulent schemes: a scheme to defraud the people of Huntington Beach out of the honest services of Houchen; a scheme to obtain money from the purchasers of condominiums through false statements; and a scheme to defraud Stewart Title out of its right to the honest services of Du Bose.

In the first scheme, four defendants were charged with mail fraud and wire fraud for depriving the citizens of Huntington Beach of Houchen's honest services as an elected official. The indictment alleges that Houchen used McDonnell as a straw buyer to purchase property that was within a redevelopment zone in Huntington Beach. Pursuant to a written agreement between the two, McDonnell purchased the property on behalf of Houchen, who then renovated the property and sold apartment units as condominiums. Bagshaw later stepped in for McDonnell, signed McDonnell's name on documents and notarized his own forgeries so the condominiums could be sold. Houchen realized profits of approximately $229,000 from the sale of four condominiums. During the time Houchen owned the properties, she failed to disclose her ownership to the people of Huntington Beach through the California Fair Political Practices Commission, and she continued to participate in the activities of the redevelopment agency that affected her secretly held property.

In the second scheme, the grand jury charged all eight defendants with obtaining money from condominium purchasers by making false statements to real estate buyers. Huntington Beach, like most cities, has an ordinance that prohibits the conversion of apartments to condominiums without first obtaining a permit from the city. In Huntington Beach there was an exception to this rule that allowed a building held as a stock-cooperative prior to 1980 to be converted to condominiums without a permit. As part of the scheme, defendant apartment owners Houchen, Cherney, Crandall, Richey and McDonnell fabricated backdated documents to take advantage of the exception for stock-cooperatives. Working with Benson and Du Bose, they filed backdated documents with the Orange County Recorder that claimed their apartment buildings were held as condominiums from the 1980s. They paid Benson and Du Bose "conversion fees" of up to $25,000 to effect the fraudulent conversions from apartments to condominiums, and, once the fraudulent conversions were completed, the apartment owners sold the condominiums. Du Bose wrote title insurance on behalf of Stewart Title that falsely assured the buyer and lender that the transactions involved condominiums. Bagshaw assisted Benson in selling the fraudulently converted condominiums.

In the third scheme, all of the defendants except Cherney are charged with scheming to defraud Stewart Title out its right to the honest services of Du Bose. Part of the conversion fee was directed to Du Bose to get him to write title insurance policies that Stewart Title would never have approved if it had known about the fraudulent nature of the apartment-to-condominium conversions.

In total, Benson and Du Bose are charged with converting at least 15 apartment buildings into condominiums. In these buildings, at least 45 apartment units were sold as condominiums, generating more than $11 million in sales. Benson is charged with 50 counts of mail fraud and 24 counts of wire fraud. Du Bose is charged with 47 counts of mail fraud and 23 counts of wire fraud.

Houchen is charged with selling at least eight condominiums she knew were fraudulently converted. The sales grossed more than $1.7 million. Houchen is charged with 11 counts of mail fraud and seven counts of wire fraud.

Bagshaw is charged with assisting in the sale of at least nine condominiums he knew were fraudulently converted. Those nine condominiums sold for more than $2.3 million. Bagshaw is charged with 11 counts of mail fraud and one count of wire fraud.

McDonnell is charged with selling at least 19 condominiums he knew were fraudulently converted. The condo sales grossed more than $3.9 million. McDonnell is charged with 22 counts of mail fraud and eight counts of wire fraud.

Richey is charged with selling eight condominiums he knew were fraudulently converted, generating more than $2.4 million in sales. Richey is charged with eight counts of mail fraud and six counts of wire fraud.

Crandall is charged with selling seven condominiums he knew were fraudulently converted. Those properties were sold for more than $1.9 million. Crandall has been charged with seven counts of mail fraud and four counts of wire fraud.

Cherney is charged with selling two condominiums he knew were fraudulently converted, grossing $874,000. Cherney has been charged with two counts of mail fraud.

All eight defendants will be summoned to appear for arraignment in United States District Court in Santa Ana later this month.

An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty.

Each count in the indictment carries a maximum possible penalty of five years in federal prison.

This case is the product of an ongoing investigation being jointly conducted by the Federal Bureau of Investigation and the Huntington Beach Police Department.

Councilwoman quits amid allegations

By ZAHEERA WAHID and TONY SAAVEDRA
The Orange County Register
HUNTINGTON BEACH - Councilwoman Pam Julien Houchen resigned late Wednesday from the City Council amid a federal probe into her role in converting apartments into condos without city permits.

Houchen's brief resignation letter, received by the City Clerk's Office at 5:39 p.m., read: "Effective Sept. 2, I am resigning my position as a Huntington Beach City Council member due to personal reasons." Houchen did not respond to three messages Wednesday.

The real estate agent is one of several professionals under investigation for converting 120 apartments into condominiums without permits and selling them at a large profit.

On Wednesday, The Orange County Register reported new allegations by a former associate who accused Houchen of using a straw buyer to illegally buy property in a city redevelopment area. A former client also accused Houchen of charging $26,000 to help convert a condo without permits.

It was unclear Wednesday how Houchen's resignation would affect the criminal investigation. Prosecutors and FBI officials could not be reached for comment. News that Houchen had stepped down was met with surprise, delight and sadness.

"It's kind of a shockeroo," Councilman Gil Coerper said. "I thought she would go ahead and stick it out."

The City Council is obligated, under the city charter, to appoint someone to Houchen's position or call a special election within 60 days, City Attorney Jennifer McGrath said. Since the Nov. 2 election is in 61 days, McGrath said she will ask the council to decide how to proceed.

Mayor Cathy Green could barely find words to express her surprise. "I'm dumbfounded," Green said.

Vince Periolat, who purchased one of the condos in question from Houchen and faces as much as $22,000 in unpaid fees, had no trouble finding words. "Excellent," Periolat said. "It's about damn time. The very least of what she was doing was unethical. It's just a disgrace, in my opinion."

Houchen is the second Huntington Beach council member to resign in three years amid allegations of misconduct and the second city official to step down because of alleged involvement in illegally converting condominiums.

Former Mayor Dave Garofalo resigned after pleading guilty in 2001 to conflict-of-interest charges.

In May, Jan Shomaker, citing the condominium issue, resigned from her seat on the Planning Commission.

The string of conflicts has residents frustrated with the actions of elected officials.

"I just went for an eye appointment, and the first thing the doctor said to me was, 'You're one of the few (Huntington Beach) mayors who isn't going to jail,'" Green said. "People are very upset and, yes, we are getting e-mails."

Former Mayor Ralph Bauer said of the allegations against Houchen: "The sad part about it is it now paints everybody else with the same brush. ... It besmirches the dignity of the office in general."

Houchen joined local politics in the early 1990s, championing development on the Bolsa Chica mesa. Her pro- growth platform - boosted by support from the police union - helped her get elected to the council in 1996 and in 2000. But Houchen was embroiled in controversy from the start.
During her 1996 campaign, Houchen put then police Chief Ron Lowenberg's picture on her campaign fliers without his permission.

And in 2003, Houchen earned $5,000 by leasing a downtown office to the National Professional Paintball League while approving a change in city law that benefited the league. In each case, Houchen has denied any wrongdoing.

"People are saying what a shame, she's got three little children," Bauer said. "There's a degree of sympathy as there always is in cases like this. But if you did wrong, you've got to pay the price."

Politics, business sour mix for Mayor and Councilwoman

September 1st 2004

The Orange County Register
HUNTINGTON BEACH - Pam Julien Houchen's position as mayor and councilwoman added credibility to her real-estate practice. Clients said they felt more secure knowing the mayor was handling their property transactions.

Now that mix of politics and business has landed her in trouble. Houchen is among several Huntington Beach real-estate professionals under investigation by federal and local authorities for converting more than 120 apartments into condominiums without city permits.

People who bought those condos are on the hook for $22,000 apiece in unpaid permit fees.

In one widely reported case, Houchen bought and converted a complex on Green Street - without permits. She sold the four resulting condos for what she said was nearly $300,000 more than she paid for them.

Clients and associates have since come forward with details about two other deals involving the ex-mayor.

One former client, Judith Hendler, accused Houchen of charging $26,000 to guide her through the conversion of apartments to condominiums by sidestepping city rules. Houchen did the work. But the city later declared the conversion illegal, and Hendler got stuck with at least $5,000 in bills to change the condos back to apartments.

In another case, an associate, Michael McDonnell, alleged that Houchen bought apartments illegally in a city redevelopment zone, using McDonnell as a straw buyer to keep Houchen's name off sales documents. McDonnell, who made the allegation in an interview with The Orange County Register, later recanted as the investigation widened. The violation is punishable by removal from the council.

Houchen declined repeated interview requests for this story. Her criminal-defense lawyer, John Barnett, also would not comment.

First elected in 1996, Houchen has missed two recent council meetings when the condo conversion issue was on the agenda, drawing dozens of angry condominium owners to City Hall.

The controversy involves a city ordinance adopted in 1984 regulating the conversion of apartments into condominiums.

The ordinance requires builders to upgrade properties and obtain permits. But while passing the law, the city did not create a way to make sure that developers were complying.

Authorities are looking at every agent, notary, and title and escrow officer involved in the 120 transactions. They are focusing much of their attention on Houchen and her former associate Phil Benson, who initiated many of the conversion deals. The two worked at Pier Realty, owned by Jan Shomaker.

The conversions were based on the theory that with the right documentation, properties could become exempt from the city's permit requirement.

Properties that were changed from apartments to condos could be sold, on average, for $100,000 more per unit, depending on the area, according to one real-estate expert. And owners could save at least $3,000 per unit by sidestepping the permit requirement and upgrades.

According to real-estate documents, Benson had owners deed their properties to companies that were formed before the law was passed. The properties were then converted to co-ops or condos and then deeded back to the client.

The city attorney has said this process is illegal.

Houchen found herself in trouble after the city learned that she was one of several people who in the past 20 years promoted the process to convert apartments to condominiums without permits, primarily through Pier Realty.

Hendler, a local property owner, said she got a false sense of security because of Houchen's standing in the city.

Hendler remembered first meeting Houchen's husband, contractor Bryan Houchen, at a Home Depot in 2001. The contractor helped Hendler find a part for her sink and gave her his card. She later hired him to install a shower.

While chatting on Hendler's back porch, Bryan Houchen mentioned his wife, the mayor, who was pregnant with triplets at the time.

"Eventually, I met Pam and she said, you should purchase the rights to make this (apartment complex) a condo. That grandfathers them in, and you don't have to bring them up to code," Hendler said. "Pam came to me selling me the Brooklyn Bridge."

Hendler plopped down $26,000 and signed a series of documents Houchen presented - some of them notarized by Pier Realty's Shomaker.

But when problems arose this year with other conversions, Hendler contacted the city attorney and learned that she still needed permits.

The city attorney directed her to contact police, Hendler said, adding that she has met twice with investigators and told them about her dealings with Houchen. She said she has given them the deeds and documents related to her conversion. Investigators are trying to determine whether Hendler was defrauded.

At the same time, Hendler said, she talked with Houchen, who told her, "Just get on with it and sell the properties."

Hendler did sell the building, but first converted it back into apartments.

"This whole thing had me very upset, very concerned," Hendler said. "If you can't trust the mayor of the city, who can you trust?"

Perhaps none of Houchen's deals is more tangled than the one involving a complex at 17031 Ash St., a once run- down apartment building in a city redevelopment zone. Houchen and McDonnell, a local investor, spent weeks this summer wrangling over the $228,000 raised in the conversion and resale of the complex.

McDonnell alleged in an April 21 interview that Houchen enlisted him to pose as the buyer on the Ash Street property in 2000. McDonnell said Houchen was the real buyer, but city officials are prohibited by state law from investing in redevelopment property because of the potential for conflicts of interest.

Houchen's relationship with McDonnell began in the late 1990s, when he started doing deals with Pier Realty. A former Border Patrol officer, McDonnell began snatching up small apartment complexes, converting them to condos and reselling at a profit. Houchen was his agent on some of the sales.

"Pam sold one of my Fir Street units, and she saw how well I was doing and wanted to do her own (conversion)," McDonnell said.

The Ash Street property was a perfect candidate for rehabilitation. It was frequented by gang members and in need of repair, according to neighbors. There was one problem - the complex was in the longstanding Oak View redevelopment area. The California Community Redevelopment Code prohibits members of the redevelopment agency - meaning the City Council - from investing in redevelopment land.

Violations are considered "misconduct in office" and are punishable by removal from the redevelopment agency. Besides potentially losing her seat on the City Council and redevelopment agency, Houchen also could lose her real-estate license if it is determined she engaged in deceptive practices.

McDonnell said Houchen got around the law by using him as the buyer and, later, as the seller.

City and county documents show that the property was remodeled by Houchen's husband and then resold as condos over an eight-month period at prices from $152,000 to $163,000 per unit.

When Bryan Houchen obtained building permits from the city of Huntington Beach, he listed "McDonald" as the owner but put the Houchens' Pine Street address as McDonnell's residence, records show.

During the interview, McDonnell said he didn't receive a dime from the conversion.

"She took all the money," McDonnell said of Pam Houchen. "I didn't get reimbursed at all for that."

McDonnell's neighbor Richard Lujan said McDonnell told him the same story about Houchen in mid-2002.

Lujan remembered asking McDonnell why he would pose as a buyer to help Houchen.

The response, recalled Lujan: "Because you never know if you need to call in a favor."

In fact, Huntington Beach Building Director Ross Cranmer said Houchen telephoned at least two times to inquire about approvals needed for McDonnell's properties. But Cranmer said Houchen never exerted any pressure on his staff and seemed to be acting in her capacity as a councilwoman responding to a constituent's concerns.

Soon after talking with the Register, McDonnell refused any further interviews and asked if the Register could prove that he made the "straw buyer" allegation.

"Did you tape it?" he asked of the interview, which was not recorded.

Through his lawyer, Neal Swensen, McDonnell later said that he never told the Register he was a straw buyer for Houchen. He said he was the real buyer and Houchen was his agent.

In July, three years after the property was resold, McDonnell directed his attorney to demand the proceeds from the Ash Street conversion from Sea Wind Escrow - the company that gave the proceeds of the sales to Houchen. Joyce Rollings, the owner of Sea Wind Escrow, declined to comment.

Whether Houchen was the actual investor in the property or just the real-estate agent remains a question.

"According to the documents I reviewed, (McDonnell) was the purchaser of the property, he took title to the properties, he did sell the properties, whether he did knowingly or approvingly is up in the air," Swensen said.

However, this week, the case took another twist when Swensen said he no longer represents McDonnell.

Now, McDonnell is referring calls to federal public defender Leon Peterson in Santa Ana.

somerspeak

The articles posted by "To Answer Butters" should be sent to all our elected officials that have recently appeared before the Condo Conversion Board with their own applications for converting Somerville properties.

Care to guess if your Alderman recently made the trip in front of the Condo Board?

And thank you Somerville News for posting the ordinance.

Should make for a lively time tonight.

JN Tells It How It Is

I love when JN says "chew on that". I gotta give it too him. He tells it how it is. He knows who this is.

Bryan Murphy

What kind of backwards solution is this supposes to be? What bunch of idiotic lobbyist authored this one?

You are proposing to solve affordable housing issues by making home ownership more burdensome and less affordable to most of the people who work hard in our community. Look at this way, both sides of your sink are connected in the middle. You can’t take water out of one side, the dump it in the other side and expect one or both sides to go down. The water will level itself off but it won’t ever get any lower.

If this law passes a lot of new home buyers are going to stay clear of this city. Maybe that is the goal. This is some xenophobes attempt at keeping new people out.

tonto

This is not directed at anyone in this board. Its to the leaders in the city and of course whomever they are listening to with this foolish proposal.

Does anyone know what they really want???

Has anyone figured out if the city wants rental housing or not? One minute they make it very difficult on landlords and then they want to make it difficult for us to sell out and create home ownership.? Sure this is government and all BUT am I the only one that sees them constantly making new rules and regulations that make rental property ownership less desirable?

No where in this proposal do I see any mention of assisting in "landlord's rights"?

I think that this might be about creating govt jobs, to increase the need for more highly paid city employees, to increase prop taxes. I would like to see them wait for 2 or 4 years to retire. I would like to see them have to pay money to retire (the proposal says up to 2k allocated for moving expenses). I would like to see the city employees retirement funds invested in multi fam housing within the city.

I also see no mention of elderly landlords. Some of us are elderly and want to retire to other climates.

The scales of justice in this proposal are way out of balance. It would be interesting to see what the people are paid per year who wrote this. And what their benefits are.

The condo board would be 5 members. Two homeowners, 2 tenants, and an elderly or handicaped person. Ah what about a few landlords in the mix? Are we that low that our inputs are not wanted or allowed? Is that a fair balanced system? I certainly don't think so! How about non owner occupied landlords being allowed to grant pay raises for city employees? I would like that. I assure you that prop taxes would go down. Reading the list of all the highly paid employees every year is startling info. Its too bad EVERY city doesn't publish names and salaries AND benefits that all of us are funding.

What would happen in this if a 2 fam Philly owner wanted to convert to a single? Would he also have to payoff existing tenants?

This proposal is certainly NOT a DEMOCRATIC thing to do. Its bordering on the taking of private property.

Our tenants keep asking us to condo as they want to buy their units. So would we have to pay them to move out and in? So we could just increase the price more to offset the foolishness of this proposal.

Kemosabe

I agree, if they were concerned with human rights and qualitiy of life issues for these folks they would'nt have to do this. They would simply need to enforce the noise ordinance when landlords are converting. The health department could enforce garbage and rat ordinances when the landlords are creating slums or construction sites where people are trying to live. And if a landlord treats a tenant badly, don't we already have laws for this? Why unfairly push this burden onto owners of rental propertie only
? What about a fund to provide moving expenses paid for by all the taxpayers? Paid for by the single familly owners and businesses in this community? Paid by higher taxes to them for not providing the rental serice that we are. Equal taxation to fund your moving costs benitits is what we need. The bottom line is that if the rest of you and our government would have done your duty and provided affordable housing this would not be an issue. Where is the affordable housing? We need a new government are will be paying for these mistakes and more for a long time to come.

Affordable housing

How about a fund paid for the people who want the handout? As a homeowner I have to face the reality of rising taxes water and sewer bills, insurance and a host of other bills that come with property ownership. The problem with your thinking is any one who owns property is rich. Many tenants have a higher income than the landlords who rent to them. It's time for people to stop expecting a handout when life gets tough.

Perry Mason

Correct me if I'm wrong, but doesn't state law already allow for a 30-day notice (by either party - tenant or landlord) when the unit is to be vacated? This is the law for a tenant-at-will (no lease). How can they write a condo conversion bill which would effectively supersede the existing law? I'm not sure this ordinance would pass a legal challenge.

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