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Friday, May 4, 2007 | Housing developer Carter Reese & Associates appears to have breached the terms of its loan agreement with the city of San Diego in 2000 by failing to provide a required number of affordable homes, according to a report by the City Attorney’s Office.

The report says the city agency handling the project, the Southeastern Economic Development Corp., also failed to hold the developer accountable by not enforcing the terms of the contract, which required the developer to place restrictions on the homes’ deeds to ensure they stayed in the hands of low- and moderate-income residents for 10 years.

Additionally, the report found the appearance of favoritism in Carter Reese’s awarding of an affordable unit in 2002 to an SEDC contractor, Angela Harris.

“There is no record that SEDC, the Developer, or the Housing Commission analyzed Ms. Harris’ financial eligibility to purchase income restricted housing,” the report states.

The city attorney report, however, said no evidence of intentional misconduct or misuse of public funds had been encountered based on the facts and circumstances reviewed to date. The report, released last week, was requested by two City Council members following an October investigation by voiceofsandiego.org, which found that the lines of SEDC’s affordable housing program had been stretched, and at times crossed, by homeowners, Carter Reese and the contractor.

The investigation found that SEDC and the developer had failed to file the proper paperwork to empower the agency’s monitoring of the homes, allowing them to be sold repeatedly for sizable profits in the midst of a sizzling housing market. If the paperwork had been filed, SEDC would’ve been able to ensure that any future buyers for the next 10 years qualified for low- and moderate-income housing.

The investigation also revealed that Carter Reese had been allowed to sell a number of homes for at least $10,000 more than was authorized by the City Council in the 2000 Village at Euclid development.

The city attorney’s report, requested by Council members Tony Young and Donna Frye, noted that opportunities existed for both the developer and SEDC to rectify the affordable housing problems.

“Perhaps the most troubling aspect of the Village at Euclid is the fact that both the Developer and SEDC were aware of the recordation problem in July 2000,” it states. The report says Carter Reese’s mishandling of the documentation “appeared to be almost cavalier, with little real effort to remedy shortcomings, even after brought to the Developer’s attention.”

The report points out that SEDC President Carolyn Smith recommended moving the agency’s affordable housing oversight to the San Diego Housing Commission following the publication of the article.

“Although the proper recordation of restrictive documents and an impartial selection process for affordable home buyers are important fundamentals,” the city attorney report states, “it would be an overstatement to conclude or imply that SEDC has failed in its overall goal of developing affordable housing in southeast San Diego, based on these particular errors.”

The report also comes with a host of policy recommendations to prevent these troubles from recurring. They include:

  • Requiring all affordable units to be sold through a lottery to avoid the possible appearance of impropriety. The Housing Commission already uses such a lottery.
  • Strengthening agencies’ position to guard public funds used in housing developments by allowing them to levy sanctions or penalties if a contract is breached.

“The Developers (sic) limited liability status has precluded subsequent enforcement on the contract, such as requiring Carter Reese to purchase a unit at market price (if and when one becomes available) and resell the unit at an affordable price with deed restrictions,” the report states.

  • Forcing any developer receiving public funds to maintain and disclose all records relating to the project for review by the city. The report found occasions in which it was impossible to come to a conclusion on an issue because of the lack of access or documentation.
  • Requiring developers to retain knowledgeable and competent staff.

A young, inexperienced sales representative named Darryl Forte handled the closings in Village at Euclid and was apparently unaware of the documentation requirements, according to the report.

His supervisor, Percy Williams, had complaints filed against her in 1997, 1998 and 1999 with the Department of Real Estate for failing to adequately supervise her employees, the report states.

Both Smith and Harris, the consultant, have said Harris received no special treatment in the awarding of the affordable home. Attempts to reach SEDC and City Attorney Mike Aguirre to comment for this story were unsuccessful. Carter Reese declines to comment to voiceofsandiego.org.

Please contact Andrew Donohue directly with your thoughts, ideas, personal stories or tips. Or send a letter to the editor.

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