A well-intentioned mess

An examination of meridian Court, Mammoth’s first affordable housing development.

Back in 2003, the Town of Mammoth Lakes set up Mammoth Lakes Housing (MLH) as a non-profit housing authority to comply with state regulations for affordable housing in a time when the real estate market was booming and locals were hard-pressed to find available, let alone, affordable places to either rent or buy.

“When I was hired the Town Council just said, ‘do something,’” said Andrea Roope (formerly Clark) the first Executive Director of MLH. Roope’s first project was developing the Meridian Court complex on the corner of Mono Street and Meridian Boulevard.

“I don’t even know how to describe the real estate mood at the time but it was just crazy,” Roope said. MLH was competing with market rate developers for the Meridian Court land, situated in a prime location that was deemed politically expedient, not deep within the Sierra Valley Sites (better known as the ghetto) because workforce housing was supposed to be for everyone, not just confined to particular neighborhoods. It was also located next to public transit routes and close to essential amenities, such as Vons.

The slightly less-than-one acre of land cost nearly $1 million, although the general sense was it would be worth $1.5 million in no time, Roope said. Town Council told her to “buy it and put in as many units as possible on that land,” she remembered.

“There was this tremendous crunch that we needed housing [and] a big push to take advantage of State legislation that allowed you to go forward with that kind of development,” said Kirk Stapp, who is currently on the MLH Board and was a Town Council member at the time.

In July 2004, Mammoth’s Planning Commission approved the project of 24 units—more than doubling the zoned density for the space (affordable housing was eligible for a 100% density bonus) while allowing parking and setback concessions consistent with affordable housing policy. As part of the approval, the units were designated to certain income brackets based on each owner’s percentage of Area Median Income (AMI) as designated by the Federal Department of Housing and Urban Development and the entire property was deed restricted in order to preserve the affordability of the complex indefinitely.

After acquiring the necessary permits from the Town, MLH received a construction loan and hired local contractor, Neubaur-Jennison, to build the complex, with construction costs of roughly $4.7 million.

By mid-2006, the complex was complete and MLH began selling the Meridian Court units to locals who qualified for affordable housing, granting most buyers down payment assistance (DPA) as well. Less than a year later, MLH had sold all the units, paid off the construction loan, and already begun work on the Aspen Village rental units on Old Mammoth Road. “The people that originally bought in at the time, were very thankful that they had a place to begin developing equity,” Stapp said.

Now, almost nine years after the first owners moved in, only 54 percent (13) of the units are still deed restricted and designated as affordable housing, four units went into foreclosure, which an investor from Mexico City quickly bought and now rents presumably at fair market value, if not more, and the Homeowners Association (HOA) just settled three years of litigation with Neubauer-Jennison and MLH over design and maintenance issues.

“We would never make the decisions today that we made then,” Roope concluded. Stapp went further: “When I look back at it, the density is way too high. It was a mistake.”

So what exactly went wrong?

The obvious answer is the real estate market crash and the great recession, “which did not discriminate whether you had a deed restriction or not. It was ruthless. That’s really the beast in the room, honestly,” said Jennifer Halferty, the current Executive Director of MLH.

Although current HOA Board President Kiara Raazi said the market crash was obviously beyond the control of MLH, “What wasn’t beyond their control was a general attitude of ‘sorry there is nothing we can do for you,’” he said. “They financially stretched themselves [and were] too ambitious.”

In his estimation, MLH went from being advocates for the workforce to damage control, trying to protect their own reputation. He pled no “malicious intent” in talking about the issues at Meridian Court saying, “There’s always two sides of the story but we’re just trying to express what it’s been like for us.”

Halferty was more than gracious to sit with The Sheet several times over the last few months in the one-room MLH office on Old Mammoth to answer questions and respond to accusations.

“It’s just a mean vicious cycle over there and I feel bad,” she said at our last meeting. “But we just can’t do everything so we’re doing our best to just keep chipping away at the issues.”

She did admit “Meridian Court is where we’ve learned a lot of lessons—” most notably flaws in the original deed restrictions.

Developed by Roope and a Sacramento-based consultant, the restrictions required the owners to fulfill the specific income eligibility requirements, live in the home at least nine months of the year as their primary residence, and restricted leasing the units. If the owner wished to sell the unit, MLH and the Town were given 30 days to buy back the unit at a restricted price based on AMI increases. If, however as it happened through the real estate crash, the value of the unit dropped below the restricted price MLH was only required to offer the lower of the two values.

By late 2008, before the reality of the market had really sunk in, MLH had already re-purchased two units at Meridian Court. Sheet owner, Ted Carleton was one of the first to buy at Meridian Court and the first HOA president. After meeting his wife, who already owned a condo in town at Mountain Shadows, he asked MLH to buy back his unit, closing escrow in the summer of 2008. He paid $360,000 for his unit in 2006. MLH bought it back for $381,600.

MLH also bought back Brooke Bauman’s unit around the same time for $286,500, or $16,500 more than she paid two years prior. Just two months later MLH sold it for $185,214, losing approx. $100,000.

Only one other owner was able to sell in 2008, but to another MLH applicant and not the organization itself. Then the economy went south and Meridian Court owners were left with few options.

For owners who used down-payment assistance, there are specific contingencies that don’t allow short sales so the alternatives were either to stay at Meridian Court, waiting for the market to turn around, or foreclose.

As owners were foreclosed upon, they weren’t required to pay back the DPA, and most of the state or federal grant programs funded by taxpayer dollars didn’t require MLH to reimburse the lost funds either. “There’s one that is an obligation and if those funds were involved that was a hit. Most of the funds are just a write-off.” Halferty said. The loss of funds paid for by taxpayer dollars was “just part of what our nation went through,” Halferty said. “I don’t think we did anything intentionally or maliciously. We were just victims like everybody else.”

As more and more Meridian Court owners found themselves under water and unable to refinance, MLH received multiple requests for buy backs. But since the organization couldn’t and didn’t exercise their option within 30 days,  the resale restrictions were lifted on these units. “It was that black and white,” Halferty said. “30 days is a lot of financial pressure on MLH and the Town to do that within such a short period of time.”

As the value of the Meridian Court properties continued to dive, paying off the banks for more than the units were worth “just wasn’t a sound business decision… We don’t have that kind of capital,” Halferty said.

“We just couldn’t come up with enough money to buy all those back even at the outstanding loan costs,” MLH Board member Bill Taylor said. “We tried to do everything we could to hang onto as many units as possible. Compared to some of our peers and communities that were hit even harder by the housing crash we actually did pretty well.”

At the same time the Meridian Court owners wanted MLH to buy back their units,MLH was busy trying to finish the Aspen Village Project. “That was a really stressful time,” Halferty said. “We only had so many dollars to spend and we had to do what was best in the long term for the organization so that we can keep being here to help people today.”

Monica Prelle and Jon Carlton were the last of the original owners to buy at Meridian Court in 2007. A self-described ski-bum, Prelle said her unit is “better than the shack we used to live in,” and at the time, her mortgage was comparable to rents around town, so “it kind of seemed like a no brainer.”

Prelle called Meridian Court “a great opportunity” but a “failed system” given the foreclosures and lifting of deed restrictions. “They weren’t able to buy back the units like we were led to believe,” she said.

Periodically looking into different options— refinancing or selling to MLH— Prelle said nothing has really worked for her and Carlton. Either because of the deed restriction or the lawsuit, they’ve always been denied better financing and she’s stuck in a mortgage with a 7.25 percent interest rate. “It was difficult to get a loan in the first place because of being low-income. Who’s going to give me a loan now?” Prelle, a freelance writer, said.

Angela Tonetti McFall, another original owner, said, “We are stuck, we are totally stuck.” She hasn’t been able to refinance with her husband and the fair market value of their unit is so low, that they’ve been told it would be better to foreclose than try to sell.

Plus, she noted, the investor from Mexico owns more than 10 percent of the complex with four units, which only muddies their chances of refinancing. Halferty explained that within the last few months, an appraiser re-worked the ownership percentages so that the investor’s ownership won’t be an issue for financing moving forward, although she didn’t provide any specifics.

Owner Scott Meunier said he has been denied refinancing because of the deed restriction and when he offered to sell it back to MLH, they offered him the market value appraisal price, rather than the AMI price he expected. “It’s just not worth it,” he said. “We are stuck with an appraised value that is substantially lower than the AMI so I think it’s forcing a lot of us to just sit tight.”

Halferty dismissed owner concerns that the deed restrictions prevent refinancing of the units and said MLH is more than willing to “subordinate” to lenders to help people get better interest rates.

She said MLH has helped people refinance recently in other projects with deed restrictions and DPA and one owner at Meridian Court was able to refinance. Any issues owners have had regarding financing Halferty chalked up to the “unpredictability of the lending institutions. It’s not black and white. Some do some things and others can’t do it.  What can you do?”

She continued: “I would think that if someone wanted to refinance and the bank was giving them a hard time, we could all sit down and talk about it. I’d like to think that we could all work around it, but I haven’t seen a lot of people asking for that.”

Owner Adam Floyd was able to refinance before the lawsuit was filed and although he acknowledged hearing other owners’ issues he seemed satisfied with his experience. “For me it worked out really well,” he said. “I don’t know if I would still be in Mammoth if I hadn’t bought this place at the time I did.”

In contrast, another owner, who eventually foreclosed, declined to comment for the story, saying, “Our experience with the Meridian Court affordable housing project was horrible. We walked away and have not looked back.”

While some of the deed restrictions were lost to foreclosures, others were simply lost after MLH didn’t exercise their option to buy. Currently, four of the original owners still live in the complex without the affordable housing deed restriction.

Still other owners work out of town and lease their respective units, under a hardship clause in the resale restriction with the approval of MLH. “It keeps the deed restriction in place and maintains the home until they can reasonably sell it,” Halferty said. MLH does this with the units they own as well.

However, renters have added to the issues at Meridian Court, compounding the shortage of parking spaces and in some cases changing the local, family feel of the complex.

“All of the current renters are good and respectful but the shift was noticeable” Prelle said. In the past, she described late night parties and such a variety of people coming and going that she wasn’t even sure who actually lived in certain units.

McFall has had belonging stolen out of her shared garage with a unit that has had a variety of different renters over the years. “This is supposed to be a family, full-time, condo complex where you can get away from what the normal renter experiences in Mammoth,” McFall said. “The renters now aren’t bad but we’ve had some particularly bad renters and it’s upsetting for those of us who are following the program.”

And with a shortage of parking spaces, both covered and uncovered, in the first place, the renters have brought more cars to the complex, making it difficult for owners, let alone their guests, to park. Inadequate parking is normal in affordable housing projects “because there’s this conception that the people don’t have as many cars or can’t afford cars,” Halferty said. “With [Meridian Court] being the first project, I think there’s a lot of lessons there. We have to be cognizant in all Mammoth developments that we’re isolated so people come with cars.”

Then there is lawsuit the HOA filed against Neubauer-Jennison and MLH, as the developer.

Most owners that spoke with the Sheet admitted small quality issues within their units, but were ignorant about the details of the litigation. A few said they had fixtures falling off the walls or breaking easily, and one former owner, Zach Schneider, described a hole in one kitchen cabinet where “you could see to the outside.” Apparently, the hole was originally intended for the oven exhaust, but was left when the oven, which remained unvented, was moved to another part of the kitchen.

“They’re cheaply made. I guess that’s what you get when you pay that price,” Prelle said. “The towel racks lasted about a week.”

But Taylor disagreed, saying that with affordable housing “You build the best quality you can—building a durable structure out of high quality materials so that you minimize your maintenance costs long term. Workforce housing should be designed as strong and durable. It shouldn’t just be cheap. You actually undermine your own efforts if you do that.”

McFall said the quality of construction “could definitely be better” but blames that more on quick building, as was common at the time, than inferior oversight or products. She also said one bonus of the complex is the energy efficient appliances that were installed during construction, which keeps her utility bills low.

“Some of the contractors did really great work,” Meunier said. “But I think some corners were cut by putting in cheap doors, cheap windows, cheap fixtures, and all the way down the road.”

Halferty responded: “I think we would be doing a disservice to the taxpayers if we were putting in lavish amenities. If that’s cutting corners then yes we do cut corners because it does have to be affordable all the way around.”

Meunier cited inadequate attic ventilation that caused mold, “quite a bit of architectural problems,” leaking roofs, bad siding, and “a broad brush of other issues” as the reason for the lawsuit. Or as Raazi put it: “Significant defects in construction that are leading to increased maintenance.”

“At some point in the project whatever ideals were there had to be pushed away to get it done, keep it within budget and shortcuts were allowed. And the Town was complicit,” Raazi continued. He speculated about “backdoor handshaking” between MLH, Town inspectors and Neubauer-Jennison calling it “shady practices and unethical conduct.”

“Those buildings go through the same inspections from the Town as anyone else,” Halferty said. “I think it’s a slap in the face to everyone to say there were corners cut. What are we saying? That the building inspector was looking the other way?”

Halferty wasn’t really involved in the lawsuit, as the wrap insurance policy MLH purchased (at $500,000) for the complex litigated on the behalf of the organization and Neubauer-Jennison.

“We’ve been building for over 40 years and we’ve never been sued,” John Neubauer co-owner of Neubauer-Jennison said, visibly frustrated by the situation at Meridian Court.

His company has worked on a variety of other affordable housing projects in Mammoth and Neubauer said they bid the Meridian Court job “not only because we wanted work, but we felt we were helping the Town and we were helping people who couldn’t afford housing.”

“The building inspectors looked at it. The people who are buying it looked at. And everybody was happy,” Neubauer continued. “Our clients have always been important so we have a reputation of going back and fixing things. There’s no project where there’s not a problem.We did everything in good faith from the beginning to end, we tried to satisfy everybody and they didn’t give us the chance,” Neubauer concluded.

The settlement, just under $500,000 paid by the insurance company, is “nothing fantastic but it will at least fix some of our problems” Meunier said.

Learning from the experience at Meridian Court, MLH has developed a few new policies—from building much less-dense projects, according to Stapp, to a much more complicated but “superior,” resale restriction agreement, Halferty continued.

The new agreement gives MLH twice the amount of time to exercise their option and requires the owner to market their unit with the resale restriction in place for at least 60 days if MLH doesn’t make an offer. If, after all that, the owners still want to sell, they can market the unit at fair market value and the deed restriction is lifted at the time of transfer, not before. Any profit over the deed restricted value “comes back to Mammoth Lakes Housing so that we can reinvest it in the community since we lost that unit,” Halferty said.

And since March of 2013, the MLH Board “has taken a pro-active approach to retaining deed restrictions as much as we can through exercising our option,” Halferty said. No deed restrictions in Meridian Court have been lost since that time, due in large part to a $300,000 revolving loan fund from the Town.

This is in addition to the $27,432.54 MLH receives each month from Measure A (generated from Transient Occupancy Tax or T.O.T.). These monies are generally used for administration costs of MLH, while grant funds coming in for subsidized housing are earmarked and the in-lieu fees collected from developers are set aside for specific provisional housing.

Taylor said affordable housing isn’t “a money making game. It is a business. You do have to break even but it’s not about making a profit. It’s about providing a service.”

“It’s important to look at workforce housing in Mammoth as essential infrastructure,” he continued. “It’s strengthening the social fabric because you have people living here who are contributing to the community. You’re strengthening the economic component because you actually have consumers who are patronizing businesses in the off seasons. And you’re strengthening the environmental component because you’re shortening the commutes.”

Halferty described these basic principles behind affordable housing as “lofty but real—MLH’s mission is to cause the creation of affordable housing for a viable and sustainable community,” she said. “We just want to see a community retained.”

Despite her few complaints, Prelle said she has no regrets about working with MLH and buying her unit at Meridian Court. “It’s worked for us but it’s failed for a lot of people, which is disappointing because it was a great idea, with a great motivation. I don’t know enough to say that they haven’t managed it well but it seems like there have always been issues.”

McFall, on the other hand, said in retrospect, she wouldn’t buy in Meridian Court. “If Mammoth Lakes Housing had stuck to what it was supposed to be— I would do it again in a heartbeat,” she said. “I believe in everything that [affordable housing] stands for but … the integrity of the project has diminished and that’s too bad because a lot of people could really benefit from it.”

Raazi went as far as suggesting the Meridian Court project was a failure. “We get it, this was [MLH’s] first try. It just didn’t go as well and was not done with the interests of the homeowners in mind,” he said.

“The project is doing exactly what it’s supposed to do,” Taylor indirectly rebutted. “It’s providing decent housing for people who can’t afford to get into the housing market.”