Tenant action group sues HUD; accuses agency of violating renters’ affordable housing rights

Thursday, November 12, 2009
The Argonaut

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.

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.

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.”

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.

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.

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

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

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

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.

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.

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.

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

“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.”

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.

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.

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

“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.

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.”

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.

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 Mercury Housing, confirmed.

City Councilman Bill Rosendahl, who represents Venice, said that his sympathies lie with the tenants.

is outrageous,” Rosendahl said after learning of the lawsuit. “I don’t
understand how (Perlman) could get away with this. I find this

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.

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