Bent Over Rent
Historic $618,000 out-of-court settlement was money well-spent for owners of a government-subsidized Stanton apartment complex
It’s easy to see why Stanton’s powers-that-be granted a low-interest, half-million-dollar loan to the Beverly Hills-based owners of Plaza Court Apartments. The 104-unit complex, populated mostly by low-income Latinos, now has an attractive, cement-and-iron, sorta-Spanish-style façade, while Court Street, which used to be a typical vehicular thoroughfare fronting rentals, is now more like a paved path gently winding visitors into the sales offices of Brandywine Homes’ Sienna at Renaissance Plaza single-family houses (“luxury that’s affordable”) and Taylor Woodrow’s Palazzo townhomes (“innovative, artful use of space”).
Perhaps in a zeal to be good neighbors to Renaissance Plaza builders and future homeowners, apartment managers apparently went too far, fining or evicting tenants if their children were caught alone outdoors at any time of the day. That eventually led to a class-action discrimination lawsuit that the state’s fair housing agency on Aug. 15 announced had been settled out of court for a whopping $618,000, the largest settlement of its kind in California history.
“This latest case evidences the department’s commitment to ensuring that families with children are afforded full and equal use of housing accommodations in California,” says Rosario Marin, Arnold Schwarzenegger’s secretary of consumer services.
“We hope this settlement sends a clear message that all housing discrimination, and especially discrimination targeted to families with children, is a serious violation of fair housing laws and comes with very serious consequences,” says Denise Y. Cato, chief operating officer of the Fair Housing Council of Orange County, which filed the original complaint that led to the lawsuit and ultimately the settlement.
But lost amid all the talk of landlords mistreating families with children were very serious charges of fraud against federal taxpayers. Penalties totaling millions from the IRS would have dwarfed the amount of the landmark settlement.
The lawsuit alleged some tenants were unlawfully charged rents in excess of those allowed under the U.S. Housing and Urban Development (HUD) Low-Income Housing Tax Credit Program, which Congress enacted in 1986 to prod private investment into affordable rental housing. One family claimed the Plaza Court Apartments manager requested an additional fee of $300 to reduce their rent to an amount that would make the unit qualify for federal tax-credit status.
Plaza Patria Court Ltd., the partnership that owns the apartment complex, has received these tax credits over the years as a participant in the federal program.
Shantae Goodloe, a HUD spokeswoman, told the Weekly that tax-fraud violations could jeopardize a landlord’s tax-credit status, as could discrimination violations like the ones cited in the lawsuit, because they conflict with federal fair-housing law, with which program participants must fully comply to receive such credits.
But the alleged tax-credit violations were resolved in the settlement, according to Annmarie Billotti, legislative counsel with California Department of Fair Employment and Housing (DFEH), which brought the suit. In an e-mail to the Weekly, she wrote, “In particular, per the settlement agreement, ‘settled claims’ expressly include: ‘Charging rents in excess of those allowed under the federal low-income-housing tax-credit program set forth in section 42 of the Internal Revenue Code of 1986, or any violation of the Tax Credit Requirements related to familial status at the Plaza Patria Court Apartments.’”
Tax credits are dollar-for-dollar reductions in a landlord’s tax liability and much more beneficial than simple deductions. For example, a $1,000 deduction in a 15 percent tax bracket reduces taxable income by $1,000, thereby reducing tax liability by $150. But a $1,000 credit in the same bracket reduces tax liability by $1,000.
A state-allocation oversight committee, which polices the tax-credit funding, cuts checks annually to qualified recipients for 10 years, based on the first-year determination. So if a landlord received tax credits totalling $1 million the first year, $10 million would be guaranteed over the next decade, so long as the property remained in compliance.
“Obviously the developers don’t want to lose the credits,” said Joe DeAnda, a spokesman for the state treasurer. “It is a vital piece of financing.”
Developers sell the credits to investors to raise capital for their projects, which reduces the debt the developer would otherwise have to borrow. Because the debt is lower, a tax-credit property is in turn supposed to offer lower, more affordable rents.
The complaint against Plaza Court Apartments triggered an investigation by the oversight committee, which ordered the landlords to correct the tax-credit infractions or face the wrath of the IRS, DeAnda said. Compliance was met, and Plaza Court is now back in good standing with the committee, he added.
Plaza Court was used to investigations by then. After being contacted in 2002 by several residents who complained they were receiving unreasonable fines and eviction notices when their children played outside, the county’s Fair Housing Council launched its two-year probe. The council concluded it had enough evidence to file a formal complaint with the DFEH. The DFEH conducted its own two-year investigation before filing the lawsuit, which the Fair Housing Council and nine tenant families joined, in Orange County Superior Court in 2005.
The suit alleged Plaza Patria Court, JDC Management Co. (which shares the same Beverly Hills address and suite number as Plaza Patria Court) and former onsite manager Catherine Gomez engaged in unfair business practices, fraud, breach of contract, negligence and discrimination.
Fining or threatening tenant families with eviction if their children were discovered in the community pool after 6 p.m. or alone outside, taking out the trash or stepping on the grass any time are breaches of state fair-housing law, the suit alleged. These “House Rules and Regulations” were also not included in the lease agreements tenants signed, according to the court filing.
Restaurant worker Margarito Bahena, who was repeatedly fined $100 after his then-8- and 3-year-old children set foot on the lawn unsupervised, joined the suit and was happy with the settlement. “It delivered justice for the children . . . because this was happening to many families,” said Bahena, who may now move out of Plaza Court.
By settling the lawsuit, the owners and managers admitted no liability. But they agreed to revise Plaza Court Apartments’ rules to ensure they conform with fair-housing laws, develop a written policy prohibiting familial-status discrimination, inform all tenants of the new rules and ensure each staff member has detailed information about to whom to report suspected discrimination. They must also conduct fair-housing training sessions annually for the next five years.
A guilty verdict could also have jeopardized assistance Plaza Patria Court receives from the city of Stanton, confirmed City Manager Jake Wager. Eight months after buying the apartment complex for $3.8 million, the partnership in November 1996 received the $500,000 loan from the Stanton City Council, acting as the Redevelopment Agency.
Borrowers must agree to abide by state and local laws or risk default. Wager does not foresee that happening with Plaza Patria Court. “They have suffered sanctions,” he says. “They have indicated they will correct their behavior. I’m not sure any additional effort needs to be undertaken.”
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Council members offered the loan to spruce up properties adjacent to their prized $2.5 million Renaissance Plaza redevelopment area. They are apparently in no hurry to get paid back. Again acting as the Redevelopment Agency, the council on June 26, 2007, forgave an undisclosed portion of the loan with Plaza Patria Court and extended payments far into the future.
The apartment owners can use the breathing room. The $618,000 settlement
with DFEH includes $216,000 set aside to compensate other residents of the
complex who filed claims before June 2 of this year.
Gray Beltran contributed to this report.