A legal dispute over the ownership of a Morgan Hill home that is part of the City’s heavily restricted affordable home program threatens to undermine the effort to provide a stable supply of housing for lower-income buyers.
Meanwhile, neighbors are becoming increasingly annoyed by the deteriorating appearance of the abandoned house that has attracted mischievous teens looking for a place to illicitly hang out.
The gray-green, four-bedroom, two-bath home at 397 Calle Atavio in northeast Morgan Hill was built in 1994 and sold to Kimberly and Gary Hawkins, who took out a $140,000 mortgage to buy the house, according to a “RealistReport” of the property.
The single-story home is part of the City’s below-market-rate housing program, which ensures there are enough affordable homes in town by giving developers incentives to set aside a portion of the units they build for lower-income buyers, according to City staff. The BMR program is enforced by restrictive covenants written into the properties’ deeds.
About 250 housing units have been developed for purchase in Morgan Hill since the BMR program was implemented. There are an additional 774 affordable rental units in Morgan Hill, according to the city’s website.
So when Kimberly Hawkins sought and gained a refinance loan from Citicorp in 2003 for $272,000, she not only borrowed more than the home was worth, but she and the bank did so in violation of the City’s BMR program and the restrictions on the property, according to a complaint filed in Santa Clara County Superior Court by the City against the current property’s owner, Consumer Solutions, LLC. That complaint is a response to a foreclosure notice filed by Consumer Solutions and Citicorp.
In fact, the City has spent “years” negotiating with banks to avoid numerous attempts to foreclose on the property, according to Assistant City Manager Leslie Little.
It’s the first time the deed restrictions on any of the hundreds of BMR units in the City have been challenged – intentionally or not – and the outcome of the City’s lawsuit is crucial to the integrity of the BMR program. Allowing a BMR homeowner to “cash out” with a refinanced loan, for example, would defeat the purpose of the program, according to the City’s complaint.
The next hearing is Sept. 10, where the City will ask the court to return the property and also seek other damages.
“If we lose (the lawsuit), this lender will foreclose on the property and remove our restrictions, and that means (the owner) could sell it at market rate,” Little said. “We want to keep that home in our pool of affordable homes so we can resell it as an affordable home.”
When Hawkins applied for the Citicorp loan in 2003, neither she nor the bank gave prior notice to the City – a requirement for any kind of transaction on any BMR home, according to the complaint.
“For whatever the reason, the bank ignored the deed restrictions and gave her a loan far exceeding the value of the home,” Little said.
Hawkins then stopped paying on the Citicorp loan in 2005, and presumably abandoned the home about that time.
The City exercised its option to acquire the property – also written into the deed – in 2006, and the Hawkins’ transferred the property to the City in April 2010.
Thinking it had possession of the property and to avoid foreclosure, the City paid off the back payments on the Citicorp loan and continued making monthly payments from July 2006 to April 2010, the complaint said.
These payments amounted to about $140,000, but in retrospect the City shouldn’t have paid any of that loan since it is now in dispute, Little said.
The City is also seeking reimbursement of those payments, which originally came from the Redevelopment Agency, according to the complaint.
After the City stopped paying Citicorp in 2010, the bank sold the property to Consumer Solutions LLC, which is now trying to complete the foreclosure process. Consumer Solutions LLC is a debt collection company based in Georgia that also offers financial services. The company did not return a phone call requesting comment.
Unlike regular market sales, BMR home prices are determined by the annually set income levels for whatever earning range to which the home is restricted – for example, moderate or low income.
The online real estate directory Zillow.com estimated the home’s value at about $456,000, which is higher than every other home on the block, by about $2,000 to $16,000. The website says the home is not for sale.
But that’s the “market value,” and Little said Zillow.com’s estimate does not consider the BMR deed restrictions.
Neighbors noted the home’s front landscaping – a brown patch of unkempt vegetation among a neighborhood of green and manicured plants – is disheveled and unattractive.
Local police have used the home for training exercises, according to neighbors.
If the home was used for police training, Little said it would likely have been for more passive exercises, and not for firearms training or anything that would damage the home’s interior.
Local teenagers have broken into the home a few times over the years to party and cause mischief, according to neighbor Stephanie Short.
“The last time was about eight months ago, when they finally put a lock on the door,” said Short, who owns a market-rate home on Calle Atavio.
Short, who termed the property a “blight,” said she has called the City numerous times since 2006 to find out if it is ever going to be occupied.
“You’ve got people on a list who would love to live in it,” Short said. “It seems a shame if the house is just sitting there.”
The last time Short called the City to ask about the house – a couple weeks ago – a landscaping crew showed up at 397 Calle Atavio to clean it up just a few days later, she said.
If the City regains control of the home, it would clean up the landscaping, paint the house and repair whatever is broken before trying to sell it, Little said.
“We’re sorry the house looks like it does,” Little said. “At one point we did send in a landscape crew, but it’s difficult to maintain if it’s not yours.”
The City used to finance almost all of its affordable housing activities through the RDA, but that agency closed in 2012. Now the city works with nonprofit Neighborhood Housing Services to acquire financing for affordable housing and keep BMR buyers’ options open.
• $156,000: Sale price of home at 397 Calle Atavio, 1994
• $272,000: Loan acquired by homeowner to refinance the same home, 2003
Source: Realist
