A public interest law firm representing a group of Venice Section 8 renters has brought legal action against the U.S. Department of Housing and Urban Development (HUD), alleging that the federal agency’s recent actions could lead to the displacement of longtime residents from their affordable housing complex.
The lawsuit stems from the housing agency’s decision in March to allow GH Capital, a real estate investment company that owns the 246-unit Breezes Del Mar apartment complex in Venice, formerly known as Holiday Venice, to prepay its HUD-owned mortgages before their maturation date in 2011.
In court documents, HUD Secretary Shaun Donovan and four entities, New Venice Partners I-IV are named in the lawsuit. The New Venice entities are limited partnerships that are owned by GH Capital, according to the California Secretary of State’s Web site.
“In violation of federal law, HUD has recently authorized the owners of Holiday Venice to prepay the subsidized mortgages,” the complaint alleges.
“Prepayment effectively terminates contract protections keeping Holiday Venice affordable on terms at least as advantageous to existing and future tenants as the terms required under the Section 236 program. Prepayment by the owners is also a direct violation of the California state affordable housing laws, with which the owners have not complied.”
Brandon Weiss, an attorney from the Public Counsel-Community Development Project representing the Breezes del Mar tenants, said he filed the legal action against HUD on June 1st when some of the renters at the complex learned that Gregory Perlman, the principal owner and operating partner of GH Capital, had been allowed to prepay his mortgages on the properties with the federal housing agency’s permission.
By paying off the mortgages before they mature, Weiss contends, GH Capital is released from its agreements from the HUD 236 Program, which covers Breezes Del Mar, and the renters could also lose any rights pertaining to affordable housing that are attached to the mortgages.
“HUD has violated the law that says that there can be no prepayments of mortgages as long as there is a need for affordable housing,” Weiss alleges.
The 236 program, enacted in 1968, provides a subsidy to reduce mortgage interest payments. As an incentive to attract developers to the program, according to HUD 236 documents, participants were given the right to prepay their subsidized mortgages after 20 years.
Under HUD 236, owners of HUD-owned properties are required, among other things, to earn rent at an authorized level, earn a limited dividend and accord tenants certain rights, which include the right to continued occupancy, unless the owners have good cause for eviction.
Section 8 is affordable housing based on the use of government subsidies, the amount of which is geared to the tenant’s ability to pay.
GH Capital, which has owned the apartments since 1999, applied to HUD in 2001 to prepay its mortgages and was denied.
Two state lawmakers, Rep. Jane Harman, who represents Venice, and Sen. Barbara Boxer sent a joint letter to former HUD Secretary Steven Preston last December after they were informed of Perlman’s latest attempt to pay his mortgages prior to their maturity dates.
“The owners had previously sought prepayment of the mortgages in 2001 and (in 2008). Both proposals were denied and in the 2001 decision, HUD acknowledged that prepayment would violate the owner’s contractual agreement and rightfully rejected the owner’s request,” Boxer’s and Harman’s letter states. “We see nothing new right now that should change that decision.
“As a matter of fact, given the terrible recession, such a move could be extremely hurtful,” the lawmakers added.
Weiss said that the tenants at Breezes Del Mar are in potential jeopardy of losing their Section 8 status due to the way that the mortgages are structured.
“Their rights are attached to the mortgages under the 236 program,” the attorney explained. “By allowing (GH Capital) the opportunity to prepay the mortgages, it is releasing the regulatory agreements that are part of the program.”
GH Capital’s attorney, Michael Taitelman of Freedman and Taitelman, in court papers answered virtually all of the allegations made by the plaintiffs, with the exception that the company owns the New Venice entities, with the following statements: “Defendants lack knowledge and information sufficient to form a belief as the truth or falsity of the allegations contained therein, and based on that lack of knowledge and information, generally and specifically deny each and every allegation.”
Larry Bush, a senior public affairs officer at the regional HUD office in San Francisco, said in March that even if GH Capital is allowed to prepay its mortgages, the tenants currently living at the complex would not lose their Section 8 status.
“All existing tenants would be converted to a Section 8 housing voucher,” Bush explained. “They could remain under Section 8 at the apartment complex or they could move to another location that accepts (federal assistance vouchers.)”
However, newcomers to Breezes Del Mar might not qualify for the federal assistance if the owner pays the mortgages before 2011.
In an interview prior to receiving permission from HUD to pay off his mortgages, Perlman indicated that he would like to maintain the Section 8 requirements, but could not guarantee it if he were not able to liquidate the mortgages soon.
“I want to keep affordable housing in Venice, but if the tenants continue to try to stop the progress that I’m making with HUD, then those 246 units will become market rate housing in 2011,” Perlman asserted in March.
HUD officials are aware of the lawsuit but said that they could not answer questions about the case.
“Due to pending litigation, we have no comment at this time,” Jerry Brown, a HUD spokesman in Washington D.C., told The Argonaut.
Weiss said that he was taken aback that federal housing officials chose to grant permission for GH Capital to liquidate its mortgages nearly two years ahead of schedule and despite requests from Boxer and Harman not to do so.
“I find it very surprising that they would ignore these lawmakers’ strong positions,” the attorney said.
Marc Saltzberg, an outreach officer with the Venice Neighborhood Council, was also surprised to hear about HUD’s actions.
“I’m deeply disappointed in the Department of Urban Housing for allowing this,” he said. “Not only from the perspective of a Venice resident, but as someone who thought that we would see a different focus on affordable housing with a new administration in Washington, D.C.”
The Venice Housing Corporation is also named as a plaintiff in the lawsuit, as well as Violeta Hudson, who has lived at Breezes Del Mar for approximately 25 years.
“We are very concerned about the possible loss of affordable housing in our community, and that’s why we decided to join this lawsuit,” said Steve Clare, the housing corporation’s executive director.
Breezes Del Mar tenants have also indicated that they would like to purchase the buildings where they live. A group of renters called the Holiday Tenant Action Committee said that they are working with a nonprofit that will assist them in buying the properties if Perlman is willing to sell them.
“We have been working for several years now with tenants at Breezes Del Mar to help them to acquire the properties,” Gail Bransittier, communications manager for Mercy Housing, confirmed.
City Councilman Bill Rosendahl, who represents Venice, said that his sympathies lie with the tenants.
“This is outrageous,” Rosendahl said after learning of the lawsuit. “I don’t understand how (Perlman) could get away with this. I find this disgusting.”
Weiss said that he will also be seeking an injunction to prevent GH Capital from liquidating the mortgages.
“We want to see this affordable housing preserved for the long run,” he said.
Taitelman was not available for comment, and Perlman did not respond to phone calls for comment.