San Francisco tenants who are supposed to be protected by city and state laws are now facing eviction as a result of real estate speculators working hand-in-hand with banks in a scheme that has been implicitly endorsed by federal regulators and the courts.
Kaushik Dattani, whose company owns multiple properties throughout San Francisco, won a summary judgment to use the Ellis Act to evict four families from their rent-controlled apartment. Judge Charlotte Woolard's April 21 ruling, denying the low-income Mission District families a jury trial, could leave the 12 longtime residents seniors, disabled, single mothers, and children homeless within a couple of weeks.
In August 2007, court records show Dattani secured an 18-month, interest-only $1.3 million loan from Circle Bank of Marin to buy the Victorian building at 19th and Lexington streets. The loan included an agreement that he would pull the units from the rental market using the Ellis Act, renovate the building, and sell the five Victorian units as tenants-in-common (TICs).
Traditionally banks haven't offered loans to individual TIC owners, but Circle Bank of Marin was one of the first banks to start offering such "fractional" loans in 2005, a practice that created a strong market for TICs, loan officer Mark Skolnick (who says he's an independent contractor and not a bank employee) told the Guardian.
In making the loan to Dattani, court documents show Skolnick predicted a 42 percent profit, which would require all five TIC units to be sold for $3.3 million. But according to Tenderloin Housing Clinic attorney Steve Collier, Dattani has not yet paid off the balloon payment due April 1 putting the building at risk of getting handed over to the bank, emptied of residents.
Kevin Stein, associate director of the California Reinvestment Coalition, said the lending scheme is contrary to the federal Community Reinvestment Act, which encourages banks to meet the credit needs of the low-income communities. "It's within the Federal Deposit Insurance Corp.'s power to say these kinds of loans that result in the displacement of low and moderate income tenants are not helping to meet the community's credit needs," he said, noting that the FDIC has refused to get involved.
Others argue the importance of creating home ownership opportunities in a city where about two-thirds of residents rent.
"Here we have what looks like a condo, feels like a condo, but it's a TIC. It's a way of creating affordable housing," Skolnick said. "Some people lose their home, some people gain a home. The TIC platform is proving to be a very affordable option for this different subset of people."
But for the subset of people being displaced using the Ellis Act a state law intended to allow existing landlords to get out of the rental business, not to encourage real estate speculation the affect can be devastating in a city where little new rental or affordable housing is being built.
"They just come in out of nowhere and they see this place, buy it and kick everyone out. There's no soul there," said Luise Vorsatz, who lived in the house for 30 years before being evicted.
This is not Dattani's first Ellis Act eviction (when the Guardian contacted Dattani for comment, he hung up on us). In 2000, he hired infamous antitenant lawyers Wiegel & Fried to evict senior Alma Augueles from her flower shop in the Mission. In 2007, he evicted a group of tenants living above Revolution Café on 22nd and Bartlett streets. That building has sat empty for over a year, something that could also happen with his new property given the slumping real estate market.
Under the Ellis Act, if the unit go back on the rental market within five years, the evicted tenants have first priority at their old rent level, but that's up to the tenants to enforce.