News


After covering mortgage payments, city takes possession of below-market-rate condo

 

An unusual case in which the city of Menlo Park paid mortgage installments and homeowners association fees on a below-market-rate condominium unit for over two years ended with the city's finally obtaining the property through a court ruling on Dec. 1.

While the city occasionally has to step in to modify loans or resell properties when below-market-rate homeowners fall into default, this is the first time in the city's history that it was forced to resort to the legal system to obtain the title to a home, according to city attorney Bill McClure.

Through the below-market-rate housing program, land developers either build or pay for the construction of below-market-rate units, which are then sold to people on a waiting list who meet income requirements.

The payments the city made on the home came through that fund, rather than the city's general operating fund, according to Mr. McClure.

Ning Docena bought a condominium in the Menlo Square development near the train station in February 2004. The city first learned that she had defaulted on a loan in September 2007, according to a complaint filed in San Mateo County Superior Court.

While the city paid off loans, it also worked to prevent a handful of lenders, as well as the homeowners association, from foreclosing on the property and trying to sell it. The city eventually asked the court to declare that Menlo Park had first right of refusal to buy the property, a request that the court granted.

The city covers mortgage payments when a below-market-rate homeowner defaults in order to keep the unit in the below-market-rate program, with a set resale value, according to Mr. McClure.

Now that the city owns the unit, it will offer to sell it to another applicant for below-market-rate housing.

Throughout the process, Ms. Docena did not respond to any of the city's letters or notices, according to Mr. McClure. He said he believes she is still living in the unit.

The Almanac was unable to contact her.

"It's very unfortunate," Mr. McClure said. "Generally we try to work with property owners to get them engaged and involved, and to provide assistance."

"This is not the first time the city has covered mortgage payments," he continued. "There have been situations where the city has stepped in, provided financial assistance, cured default, and worked out something with the homeowner -- a loan-modification agreement, to allow somebody to stay in their home."

Mr. McClure said he hadn't worked out the total cost to the city in payments and legal fees, though the court found that, by the time it signed the property over to the city, Ms. Docena's equity had been wiped out. Court documents reveal that the city made a $10,607 payment to one lender in December 2007, and a $7,464 payment in August 2008.

Mr. McClure said he doesn't think the case signals a need for the city to rework its below-market-rate housing policy.

"This is the first time we've ever had to do this," he said. "You don't necessarily change a whole system because of one circumstance."

Comments

Like this comment
Posted by Joseph E. Davis
a resident of Woodside: Emerald Hills
on Jan 2, 2010 at 11:12 pm

Why is the city involved in this at all? In this era of limited resources, I suggest that this program be terminated forthwith, and all associated government employees be fired, to save money.

We no longer have taxes to waste on futile efforts to interfere with the housing market that in fact do nothing but damage.


Like this comment
Posted by pull the plug
a resident of Menlo Park: Downtown
on Jan 3, 2010 at 9:32 am

Whenever you introduce distortions into the market - as the BMR program does -- you risk unintended consequences. Now our city is in the real estate business! Crazy.

The BMR program has proven itself to be a costly joke, given that it's used primarily as a negotiating tool for developers and has yet to introduce diversity to Menlo Park, allow teachers/firefighter to live here, or in any other way enrich our community. Whatever noble ideals may have prompted its creation have not achieved fruition. Time to get out of the BMR business.


Like this comment
Posted by rock lobster
a resident of Menlo Park: Downtown
on Jan 3, 2010 at 10:06 pm

I think if you look at the fruition, fruit face a BMR purchase for some is a chance for the less fortunate (income wise) to have a investment that could really prove meaning full down the road for some just trying to get ahead in this OVER-PRICED area (yes I did read about Florida being the #1 over priced area in the U.S. two weeks ago)So I would presume you are a homeowner or worst yet a real estate agent as for you Emerald hills next time you take a bath and your water isn't up to par work or your street light isn't working don't call the City you live in to complain FIX it your self because your government employee could give a crap


Like this comment
Posted by Sweet Deal
a resident of Atherton: Lindenwood
on Jan 4, 2010 at 12:49 am

Sweet deal if you can get it. Docena got to live in this condo for two years rent free/mortgage free. What a deal. Everything was paid for by the tax payer. I love it. When this squatter is eventually kicked out of the condo, how much do you want to bet that the city will attempt to and will in fact recover ZERO dollars from Ms Docena.


Like this comment
Posted by POGO
a resident of Woodside: other
on Jan 4, 2010 at 8:30 am

This is precisely what I meant when I referred (in another post) to our local propensity for supporting measures that make people feel good instead of insisting our elected officials control our city finances, maintain our infrastructure, manage our police and fire departments efficiently and adopt policies that support our local business community. This isn't limited to Menlo Park.

Our elected officials ignore their fundamental responsibilities and think nothing of spending your money to pay someone else's mortgage.

This incident is Exhibit A. Unfortunately, there'll be many more.


Like this comment
Posted by Sean Howell
Almanac staff writer
on Jan 4, 2010 at 10:57 am

Sean Howell is a registered user.

One point of clarification: The money that goes toward building below-market-rate units -- and that in this case went toward the homeowners' mortgage payments -- is *not* "taxpayer money." It comes from developers, who are required to pay into the BMR fund. We mentioned that in this story, and try to mention it in every story we run on this topic.


Like this comment
Posted by Old Indian
a resident of Menlo Park: Central Menlo Park
on Jan 4, 2010 at 12:26 pm

Dear Sean Howell,
It was money "taken" from the developers and paid to the city. It may not have "tax" written on it, but it is a tax or levy or fee, paid to the city. Therefore, public monies were used to subsidize Docena's two years of free living, at our expense. The City of Menlo Park has no business being in the housing business- get our streets paved and our property protected. None of the "feel good" folderol.


Like this comment
Posted by POGO
a resident of Woodside: other
on Jan 4, 2010 at 12:38 pm

Yes, but the point of the story is that the purchaser defaulted on her payments just SEVEN months after the closing and the government of Menlo Park took over all of the payments for more than the next two years.

And the purchaser apparently still lives in her unit to this day. I don't think the city should be in that business, but I don't live in MP either.


Like this comment
Posted by Jordi Argente
a resident of Menlo Park: Central Menlo Park
on Jan 4, 2010 at 12:54 pm

I believe the city should stay out of the property market in general. Other priorities are more crucial for Menlo Park,in my view, such as infrastructure projects (street lighting, elimination of visible wiring in the streets, which are subject to falling in storms, etc.)


Like this comment
Posted by Kate Forrest
a resident of Portola Valley: Ladera
on Jan 4, 2010 at 1:05 pm

I think it's a plus for our community to have a range of home prices, including those for people of limited income. This is not bad for local businesses--in fact, many employ people who are willing and able to live on modest incomes. It's also good for children to learn that not everyone is rich (which you pretty much have to be to live in full-price houses around here). So, since I see benefits for the community, I think it's a plus for the community of Menlo Park to have a BMR program. And it's reasonable for developers to have to pay a BMR fee for building in Menlo Park, as the average development here will sell for a lot more than a comparable structure in other parts of the state or country.

However, I wonder why Ms. Docena was allowed to continue living in the unit, and still does, if she is not making payments. Most landlords, once tenants default on rental payments, evict them. Property sellers who have taken back mortgages (funded the purchase themselves) reclaim the property if the purchaser stops making payments. It seems to me that the city would have been within its rights to evict Ms. Docena within a month or two after she stopped making her payments. The city could then have sold the property to someone else, or at least rented it out until the legal issues were clarified.


Like this comment
Posted by Downtowner
a resident of Menlo Park: Central Menlo Park
on Jan 4, 2010 at 2:02 pm

Ms. Forrest expresses a lovely sentiment about BMR housing allowing those with modest incomes to "live in our community." Menlo Park is an incorporated dity & does not include Ms. Forrest's community, located in unincorporated San Mateo County.

It's easy to support a costly mistake for supposedly generous social principles when one lives outside that community. Perhaps she could persuade Ladera residents to rent their homes at BMR rates, thus helping people enjoy her community.

I do agree that MP was irresponsible in allowing Ms. Docena to squat in the property for such a very long time. Mr. McClure was asleep at the switch.

BMR housing does not help communities in any way. BMR rents attract people who can't afford to sustain themselves once they get here. How many of the people who want City subsidies for day care & school lunches are firefighters or teachers? None, I'd bet. How many of them live in housing subsidized by either the City or SM County's sec. 8 rentals? Wonderful. The rest of us get to absorb the deficits.


Like this comment
Posted by Limited Govt. Advocate
a resident of Menlo Park: Central Menlo Park
on Jan 4, 2010 at 2:14 pm

The City of Menlo Park, the State of California, and indeed NO governmental entity should be involved in the housing market in any manner. There is a sad legacy of economic distortions and disasters everywhere it has been tried. This situation is yet another example of that time-tested reality. Let the market set the price for housing. If it is "unaffordable", the price will fall. If it is affordable for someone to buy or rent, you have your answer.


Like this comment
Posted by state mandate?
a resident of Menlo Park: Allied Arts/Stanford Park
on Jan 4, 2010 at 2:57 pm

Isn't there a state mandate to provide BMR housing? In fact, isn't the state telling cities they must add housing, whether they are already built out or not?
What are the penalties for not complying?
Bear in mind that BMR housing is by no means "affordable."


Like this comment
Posted by Scholar
a resident of Menlo Park: Sharon Heights
on Jan 4, 2010 at 3:03 pm

The altruistic spirit of the holidays is ended and replaced by stingy cold-hearted laissez-faire citizens who oppose subsidized housing but don't mention noblesse oblige consideration of the recipients.


Like this comment
Posted by Taylor
a resident of Menlo Park: South of Seminary/Vintage Oaks
on Jan 4, 2010 at 3:07 pm

I know of at least one local teacher who lives in a BMR unit.


Like this comment
Posted by elmtreemike
a resident of Menlo Park: Linfield Oaks
on Jan 4, 2010 at 3:57 pm

The BMR programs around this country are a opportunity ... pure and simple a fact all the FAT CATS take for granted ... and like life if you get that chance ..BE RESPONSIBLE!


Like this comment
Posted by POGO
a resident of Woodside: other
on Jan 4, 2010 at 4:43 pm

There is a mandate from the state for communities to provide low cost housing. Not an issue.

And no one seems to take issue with requiring a developer to set aside some of their units for Below Market Rate housing. As with any tax or fee, they'll simply build it into their cost structure and charge their buyers accordingly. Builders can easily make other units a bit more expensive - and even non-economists recognize that is hardly going to make housing MORE affordable!

The issue is having our government (Menlo Park in this case) then pay the mortgage payments when a borrower defaults! That's the issue... and our elected officials appeared to have made this decision on their own.

Finally, given the compensation for our fire and police (and they deserve every cent), I'm not sure would qualify for or even want below market rate housing. I know a few Menlo Park policemen who live in very nice homes in Menlo Park.


Like this comment
Posted by Steve
a resident of Menlo Park: Central Menlo Park
on Jan 4, 2010 at 5:12 pm

Not sure what the fuss is. Menlo Park's had a BMR policy for over 20 years, presumably enabling many very low and low income families to live in Menlo Park who otherwise wouldn't have been able to. During that time, some BMR units have gone into default and been handled routinely.
Apparently this is the first time a default of a BMR unit has required the city to cover the cost of the defaulted loans while the person continued to live there - all for reasons not made very clear in the article. Clearly, the lack of the cooperation by the owner of the BMR unit has contributed to this confusing result.
However, to throw out an otherwise well-performing program because of one screwup, as some have suggested, is a bit of an over-reaction.


Like this comment
Posted by pull the plug
a resident of Menlo Park: Downtown
on Jan 4, 2010 at 5:32 pm

The BMR program has many problems. This incident is the most egregious, but the Weekly did a big story a few months ago about the inherent shortcomings. BMR owners do not truly own their house, as there are restrictions imposed by the program, and owners cannot partake of the profits their homes would have accrued had they been market priced. Retrospectively, many BMR owners realized that it would have made more sense for them to have bought a house they could afford rather than a BMR.

Asking everyone to abide by free market economic principles is kind, not cold-hearted. No one is suggesting that people be put out on the street, and there is no shame in living in the East Bay if you can't afford peninsula prices. Hey, I'd like 10 acres in Atherton too, but I wouldn't call the town of Atherton cold-hearted for refusing to give me a choice plot on the west side.

In Belle Haven, Menlo Park has some of the least expensive housing on the peninsula. People who want to live in Menlo Park can live in a pleasant and very affordable family neighborhood as long as they are willing to cross 101 to do so. Since there is no BMR housing in the more expensive MP neighborhoods, the physical burden of BMRs in MP has always fallen on the other end of the economic spectrum. We all do pay for it, though.


Like this comment
Posted by econ 101
a resident of Menlo Park: Central Menlo Park
on Jan 4, 2010 at 10:41 pm

Mr. Howell,

While it is true that the BMR funds did come from "developers", the developers got it from the new owners of the non-BMR units. It is very much a tax on the people. A developer, like any sensible business, determines his required return on invested capital. If it's possible to earn this return, even with a BMR tax, he will consider investing in the project. If the BMR tax is high enough, the project doesn't happen and the city loses the property tax, the possibility of new citizens and new vitality to the community. for a few in this town who are against building of any kind, that is a good thing. For those who believe that the city needs natural growth or re-development, that is a bad thing.


Like this comment
Posted by bmr??
a resident of Menlo Park: University Heights
on Jan 4, 2010 at 10:53 pm

It's worth noting that historically, people of moderate income did not own homes but rented apartments or homes instead. Because of several decades of government policies that favor ownership, both the quality and availability of high quality rental stock has declined. This is particularly true in areas of the country (the coasts) that are in high demand, often with unfortunate consequences.

It should also be noted that aspiring communities push high density housing into adjacent communities, i.e. in zoning and development restrictions that favor low density single family homes and therefore those that already have homes. Look carefully at the apartment blocks outside Menlo Park's downtown core. These were all built in the 40s' and 50's. They've been downzone years ago and any attempt to remodel or refurbish them will trigger very onerous zoning and building regulations.

It's easy to blame greedy developers for the high cost of housing and easy to force them to pay for a few extra units, but the authors of the shortage can be found in ourselves. WE chose not to sacrifice a little to bring in the teachers/social workers/etc.


Like this comment
Posted by state mandate?
a resident of Menlo Park: Allied Arts/Stanford Park
on Jan 5, 2010 at 11:06 am

Before anyone feels sorry for developers, please note that they are allowed a density bonus for providing BMR units. And yes, they can charge whatever the market will bear for all of the non-BMR units, including the extra ones. I would be very surprised if they generally come up short on such deals.


Like this comment
Posted by POGO
a resident of Woodside: other
on Jan 5, 2010 at 11:35 am

Dear state mandate? -

You're "surprised if they (developers) generally come up short on such deals?" First you say we shouldn't feel sorry for developers then you say they are probably so bad at their business that they can't calculate their costs when they set their sales price. A brilliant analysis.

Most of the developers who plan these large, multi-unit structures are big and experienced. I suspect they know where every dollar will be spent and carefully calculate their projected return on investment before they ever even discuss the first permit. If their return doesn't meet their hurdle rate, they won't even consider the project.

Selling BMR units in the same complex means the non-BMR units in that complex will have higher selling prices than they would under normal circumstances. Econ 101 - this will RAISE the housing prices in the overall market not lower them... making a bad situation even worse.

Beware of unintended consequences.


Like this comment
Posted by state mandate?
a resident of Menlo Park: Allied Arts/Stanford Park
on Jan 5, 2010 at 1:23 pm

POGO - re-read my note. I agree that developers are very savvy and will make at least as much profit with or without BMR units; the density bonus ensures that.
A few units might be less expensive than the others ("below market"), but the overall average price keeps going up (and less "affordable").


Like this comment
Posted by Nina Wouk
a resident of Menlo Park: Belle Haven
on Jan 5, 2010 at 1:27 pm

I have nothing against the city subsidizing BMR housing when it can afford to, especially if the housing is within walking distance of the Caltrain station and other useful places. But I wonder why it took so long to get rid of an irresponsible and uncooperative resident - I can't bring myself to call her 'owner' - who wasted city money for two years. This is not a responsible use of our hard-earned money - which is sadly typical of Menlo Park, as is the 'hurry up and wait' tradition of getting anything at all done.
PS - Yes, there is a state mandate for BMR housing. The city keeps trying to fulfill it in largely impractical ways in already-crowded Belle Haven. The downtown development remains a happy exception.


Like this comment
Posted by Dawn
a resident of Menlo Park: Belle Haven
on Jan 5, 2010 at 2:45 pm

As a teacher and proud owner of a Menlo Park BMR home, I have to finally chime into this forum I've watched somewhat appallingly for two years. I'm shocked at the ignorant mischaracterization in this forum of folks who purchase BMR properties. I live in a neighborhood with several - and I'll tell you that most of the houses with weeds growing in the front yard aren't BMR properties. Perhaps before you dismiss us all as good-for-nothing freeloaders you might take just a second to thing of something larger than yourself. I'll resist the temptation to make similar blanket assumptions about those previous critics of the program. One crazy story in 20 years and numerous properties does not a failed program make. And as a Menlo Park resident, I intentionally spend many of my retail dollars to support the local businesses that make this such a great place to live.


Like this comment
Posted by POGO
a resident of Woodside: other
on Jan 5, 2010 at 4:30 pm

Just to be clear (and speaking only for myself, of course), I have NOTHING against the BMR housing program. Requiring builders to set aside some housing units for BMR housing is wonderful.

This blog isn't about the pluses or minuses of BMR housing. It's about our local government intervening in a defaulted mortgage. Where did THAT come from? That intervention is a very long way from our officials requiring a builder to allocate some BMR homes in their project and it's truly an incredible development.

Besides the specific issue just noted, I also assert that BMR allocations do nothing to reduce the cost of housing in the overall market. In fact, because the non-BMR units are MORE expensive (to make up for the discounted BMR units), it probably does just the opposite and the price escalation continues. The policy helps a very small group of people - all worthy, no doubt - at the cost of everyone else paying higher prices for their homes.

Finally, I have no doubt that BMR owners are every bit as good or bad maintaining their properties as other owners and, in that regard, Dawn is correct that this incident is just one bad episode. But it is a VERY bad one...


Like this comment
Posted by Downtowner
a resident of Menlo Park: Central Menlo Park
on Jan 5, 2010 at 7:01 pm

Remember the BMR units on the left side of the Menlo Ave. cul-de-sac? There are 4, which were finished in lower quality materials than the units inside the wall. 2 of those 4 units were purchased by people who already owned homes, one in Sharon Heights, who despite what they said to "qualify" never intended to move in & used them for years as rentals. That's 50% failure rate, if the purpose of BMR is as stated. There was never any restriction or qualifying income limit on resales of those units. Menlo Park should not be requiring a program they so woefully mismanage or ignore. Most lenders would foreclose & evict in a lot less than 2 years, especially when guided by a City Attorney who advertises Real Estate Law as one of his specialties.

Sure, the state "mandates" lots of stuff - doesn't mean much, except to avaricious cities wanting to qualify for State & Fed.(both broke & in debt) handouts in return for meeting the "mandates". Portola Valley, Woodside, Atherton, Hillsborough, Los Altos Hills, to name some, seem to do quite well without any handouts from CA for meeting BMR housing "mandates".


Like this comment
Posted by pull the plug
a resident of Menlo Park: Downtown
on Jan 5, 2010 at 8:29 pm

After this development was built, the city council voted to acquire two of the three BMR units. The problem was that the people who could qualify for the units by dint of their income could not qualify for mortgages once the monthly condo fee was factored in! So the seeds of this failure (I'm not sure which unit was in default -- one of the two or the third one) were sowed at the time the complex opened.

Dawn seems to misunderstand the tenor of the comments. No one has said that BMR owners neglect their property. Rather, the existence of the BMR program distorts the market and, in the long run, is not a good deal for the owner. See, for example, some of the pieces the Weekly ran about the BMR experience. Web Link and Web Link

Menlo Park has always had plenty of inexpensive housing. Administering the BMR program wastes city resources that should be serving the general population rather than a select few.


Like this comment
Posted by yes virginia there is a Santa Claus
a resident of Menlo Park: other
on Jan 5, 2010 at 10:09 pm

Almanac censorship of our post for some MP BMR history of favoritism in BMR assignments to politically connected insiders. for no legitimate reason Almanac deleted it this a.m.


Like this comment
Posted by Dawn
a resident of Menlo Park: Belle Haven
on Jan 7, 2010 at 10:04 am

So, I'm confused about this market distortion. It seems to me that the market pays what the market pays. If you charge over market price for the property you are selling (in order to cover these BMR costs) then your property will languish on the market. If properties are selling, then they are priced at market costs. There are lots of choices available for people to buy houses, the vast majority not connected to BMR in any way. BMR costs are just one of many factors a developer considers when decided to build units. Menlo Park does not seem to be suffering from a lack of development, so I can only assume those costs are more than outweighed by the profit margins. I'm sure one of the kind helpful forum posters will help me with this perplexing issue. Econ 101 tells me that the developer chooses a market price and calculates all costs to see if the project is worthwhile. But then the Econ 101 class was only offered at 8am and the instructor threw erasers at anyone who nodded off in his class. I skipped it.
While I appreciate the thoughtfulness of those who think purchasing a property for below market value only sets me up for failure, two years in, I'm still pretty certain you're wrong about that.


Like this comment
Posted by I Just Spit Milk Thru My Nose Over That One!
a resident of Menlo Park: other
on Jan 7, 2010 at 1:31 pm

Pull the Plug:
"Menlo Park has always had plenty of inexpensive housing."

LOL,LOL,LOL,LOL,LOL,LOL,LOL,LOL,LOL,LOL


Like this comment
Posted by missK
a resident of another community
on Feb 27, 2010 at 4:57 pm

To Pull The Plug,

I am a teacher and I live in a BMR home. Am I a costly joke as an educator for children? I do add diversity and I also like to think that I enrich this community...just not you perhaps.

Thanks.


Like this comment
Posted by pull the plug
a resident of Menlo Park: Central Menlo Park
on Feb 27, 2010 at 10:02 pm

The program is a costly joke. Not the people who participate in the program.

I hope that my children are being taught by someone with better reading comprehension skills.


Sorry, but further commenting on this topic has been closed.

Couples: Philosophy of Love
By Chandrama Anderson | 0 comments | 1,420 views

Trials of My Grandmother
By Aldis Petriceks | 1 comment | 958 views

Lakes and Larders (part 2)
By Laura Stec | 0 comments | 373 views