Tales of Caltrans Tenants Buying Homes Far Below Market Rates Tell Only Part of the Story

Published : Tuesday, April 2, 2019 | 5:05 AM

Media reports about a court ruling which favors Caltrans tenants renting homes along the now-defunct 710 Freeway extension route by allowing them to buy the properties for hundreds of thousands less than market value are true, but misleading.

The former tenants-turned-owners could never “cash in” his or her purchased Caltrans home by selling it to reap a windfall profit, court papers also reveal.

Superior Court Judge Mitchell Beckloff ruled that although Caltrans should offer the homes to the tenants at the original acquisition price paid decades ago, he also said the covenants, conditions and restrictions severely limit equity to be gained from the sale of a home by a signatory to the deal offered by Caltrans.

Such restrictions, the court noted, are within Caltrans’ authority.

Beckloff cited statutory language in the Government Code requiring the agency to impose conditions which, “ensure that the housing will remain available to persons and families of low- or moderate-income households with incomes no greater than the incomes of the present occupants in proportion to the area median income.”

In others words: Bought low, must sell low.

The upshot is the homes will sell cheaper than normal for Southern California, but that on resale, they will sell cheap again to people with limited incomes.

Caltrans has filed an objection to the ruling, usually a sign that an appeal is on the way.

The case involves properties acquired by Caltrans between the 1960s and 1990s as part of the 710 Freeway expansion. The agency purchased as many as 480 residential properties over the period.

In Jan. 2018, with the 710 expansion nixed, Caltrans extended a “notice of Conditional Offer Prior to Sale” to the case’s four plaintiffs. It signaled their eligibility to purchase the homes they were renting under California’s Affordable Sales Program (ASP).

The lawsuit filed by attorney Chris Sutton on behalf of Angela Flores, Linda Krausen, Marysia Wojick, and Priscela Izquierdo challenged the formula by which the prices were calculated.

In a March 11 ruling, the court agreed to plaintiffs’ request for a court order that Caltrans cease the sale of properties according to the formula it used in the tender.

The agency first calculated the prices under a set of rules known as the Roberti Law obligating Caltrans to offer eligible low-and-moderate income tenants affordable prices, pegged to their income.

That resulted in prices that fell below what Caltrans originally paid for the properties. So, the agency decided to apply a formula that adjusted the original price of the home for inflation, rather than using the original acquisition price as allowed by the Roberti law. The Roberti law dictates the properties offered at the original acquisition price or 25% of the tenant’s income, whichever is higher.

Plaintiffs cried foul, saying it violated the Administrative Procedures Act because it didn’t follow the Roberti Law, also broken, they asserted.

The court agreed.

“Here Caltrans concedes the ASP Regulations do not “expressly” require adjusting the original acquisition price for inflation,” wrote State Superior Court Judge Mitchell Beckloff. “Nonetheless it has interpreted and implemented the Roberti Law in such a manner.”

And that was a misstep.

Plaintiffs also argued Caltrans could neither make them agree not to sue the agency as part of the transaction nor restrict their right to transfer the property to heirs, which they say certain of the covenants, conditions and restrictions (CC&R) in the agreement, in fact, do.

Here they did not prosper.

The court rejected the first argument saying there is nothing in the agreement requiring that plaintiffs waive their right to sue Caltrans.

Beckloff struck down the second argument as well. He cited language in Section 4.2(b) of the CC&Rs whereby the house can be transferred, upon death, to a co-owner, or by inheritance, if they have been approved by Caltrans.

There is, the court said, nothing in the Roberti Law prohibiting such preconditions to property sale.