December 20, 2011

Challenge Of BMR Resale Restriction Misses By Two Months

Having purchased resale restricted BMR condominiums in San Francisco at below market rates, a group of BMR owners filed suit against the City in May 2009 claiming the right to resell their units at market rates and challenging a December 2008 ordinance which clarified "the City’s intent that the requirements of the BMR Program apply in perpetuity" versus for only 20 years.

The December 2008 ordinance also provided owners of BMR units a two-year window in which to buy their way out of the program if they wished.

Earlier this year it appeared as though the plaintiffs might actually prevail, but last week the First District Court of Appeal overturned an injunction which had suspended the aforementioned two-year window to exit the program.

In this interlocutory appeal, the City claims the court erred in issuing a preliminary injunction to maintain the status quo while plaintiffs’ claims were being litigated. Among other arguments, the City claims that plaintiffs did not have a reasonable probability of prevailing at the trial––one of the requirements for issuing a preliminary injunction––because all of plaintiffs’ causes of action were time-barred.
We agree with the City that…the statute of limitations governing any subdivision-related decision under the SMA, required plaintiffs’ facial challenge to the Ordinance to be filed within 90 days of the enactment of the Ordinance. Because plaintiffs’ claims were not filed within the 90-day timeframe, plaintiffs have not shown a likelihood of success on the merits. For this reason, we reverse the preliminary injunction, and remand the case to the trial court for further proceedings.

We'll keep you posted and plugged-in.

Aiuto v. City and County of San Francisco Appellate Opinion [ca.gov]

First Published: December 20, 2011 10:30 AM

Comments from "Plugged In" Readers

I am glad the court ruled the way it did but the BMR program is inefficient and needs to be abolished.

Posted by: Michael at December 20, 2011 1:56 PM

It should have been overturned not because they failed to file in time, but because, y'know, it *specified what the restrictions were at the point of purchase*. Who were these folks? Did they purchase at BMR, and then suddenly decide to act as if the rules did not apply to them, and that they were "entitled" to what would essentially have been free profit (if the market was cooperating at the time)?

Posted by: The Chief (tm) at December 20, 2011 3:42 PM

You can't tell from the published decision, but my understanding (from the poorly drafted complaint) is that these are people who bought BMR units more than 20 years ago. They contend that the original rules said the units revert to market rate after 20 years but SF changed the statutes to extend that forever.

I'm not going to dig through the statutory history. But if the statutory change is as they assert, then it does seem like they played by the rules but got screwed by a rule change, and they lose only because they failed to sue under a very short limitations period.

Posted by: A.T. at December 20, 2011 3:54 PM

@ A.T. -- I (obviously) hadn't put it all together like you did, but now I see what you mean.

Posted by: The Chief (tm) at December 20, 2011 4:05 PM

This is an unfortunate ruling for anyone who believes in property rights. The S.F. BMR program was originally established with the idea that the units would revert to market rate after 20 years. One gentleman who helped set up the original program has testified to this fact. The homeowners who purchased their units 20+ years ago were told that their units would revert to market rate after 20 years (early BMR literature included this information), and they made their purchase decision based on this information.

When a new director was appointed to the Mayor's Office of Housing (MOH) around 2007, he decided to try to fix what was an organizational mess--a commendable idea. However, under the guise of "fixing" the program, the property rights of the exisiting homeowners were tossed in the trash. In addition to changing the program rules from a 20-year BMR period to "in perpetuity", the MOH also took away homeowners' rights to rent their units, and took away the right of homeowners to sell their unit and purchase a larger unit within the BMR program as had been allowed under previous MOH administrations.

The MOH has put up quite a fight because they know their actions were illegal and immoral. Knowing that they wouldn't win on the merits of the case, the MOH has instead used the extremely short statute of limitations to effectively silence the unfortunate homeowners whose property rights were taken from them by selfish bureaucrats with no sense of common decency.

Posted by: BMR Blues at December 20, 2011 4:21 PM

I have no idea whether these claims have any merit or not as the focus of the opinion was solely on the time-to-sue issue. I agree with Michael that the whole BMR program is bureaucracy-laden silliness, but what do you do about the existing BMR owners? Give them a big windfall? Maybe split any windfall with the city upon sale?

Posted by: A.T. at December 20, 2011 4:23 PM

By the way, blowing a statute of limitations quite often gives rise to a legal malpractice claim, so these BMR owners may get their windfall yet!

Posted by: A.T. at December 20, 2011 4:28 PM

Lesson: don't trust local government wrt housing "assistance" in this nutty city.

Very unfortunate situation.

Posted by: 47yo hipster at December 21, 2011 11:19 AM

BMR housing is not an investment in real estate, it's an investment in having a varied population which can support the working class of the city.It is supposed to allow people who do not make a ton of money - like those in the service industry - to buy a home and invest their resources and time in this expensive city. The idea is to keep families and the elderly as part of the lifesblood of this town. To qualify for these BMR units buyers have to have a low income,a job, good credit and they have to have taken a series of courses on financial management.

BMR is not a government bailout designed to set people up to profit from taxpayers investment. As a participant you can't profit from the subsidy and the lower than average loan rate you get as a participant. You can't rent out the units because if you have enough money to buy something else, you no longer qualify for the BMR.

Yes, you can, if you have a larger family, qualify for an larger BMR unit, but as part of your agreement you return the portion of your sale equal to the percentage below market your unit was when you bought it. In other words, if your unit was 10% below market rate, then you have to return that 10% to the city.

Remember that these units are built as part of a larger strategy, one where the builders got tax breaks, were granted variances and all sorts of other benefits. This often translated as building the BMRs in less desirable areas in exchange for building oversize homes or multi-unit buildings in the better parts of town. Builders are the first to scram about property rights, because it makes it easy to ignore reasons other than for the profit that people might want to buy a home.

Allowing the units to have market value takes them out of the range of lower income residents which the program is designed to serve. Plus, it gives the profit from the investment, not to the city, which required the buildings be made available in the first place, which negotiated lower loan rates as part a package deal with various banks, and which educated the BMR owners on how to retain and maintain homes, but to the people who got the home int he first place because of those policies and subsidies.

Posted by: MM2 at December 22, 2011 1:30 AM

Does the ruling apply to current BMR units that came with a 30-year window or are they supposed to still revert to normal after that time period?

Posted by: Michael at December 22, 2011 7:37 AM

Michael, the decision did not get into the merits at all. It simply held that the plaintiffs filed their lawsuit too late and missed the statute of limitations. One might reasonably conclude that any other person seeking to file such a lawsuit has also now missed the short limitations period and thus cannot sue, so the merits really don't matter anymore (obviously talk to a lawyer if you want real advice on this).

Posted by: A.T. at December 22, 2011 7:45 AM

MM2, regardless of my opinion or your opinion about whether renting should be allowed, or whether it is appropriate for the units to revert to market rate after some period of time, the fact is that these people entered into a contract that allowed them to rent, and they were informed that the units would revert to market rate. They based a very important decision on the rules of the program, and they lived up to their end of the bargain. As soon as the MOH changed the rules of the program and forced the owners already in the program to abide by the new rules, the property rights of the owners were trashed. There's just no way to spin this in a way that doesn't yield the same result: by changing the rules of the BMR program and applying them retroactively, the bureaucrats at the MOH took away the property rights of these unfortunate owners.

Posted by: BMR Blues at December 22, 2011 11:40 AM

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