After years of battling over a bank loan which has been complicated by the Civic Center septic prohibition, Malibu resident Rosemary Williams is on the verge of losing 10 acres of property in Serra Retreat because of an $18.8-million foreclosure.
When Williams, 73, bought her original three-acre home at Serra Retreat 35 years ago, she envisioned staying for good. She had found a place where she could raise her three children and live peacefully well after the three boys grew up and moved out.
“It was their home forever. They still feel it’s their home,” Williams said.
Now anchored down by a loss in property value, Williams is locked in a tense court battle with First Citizens Bank. First Citizens, based in North Carolina, took over the home loan after Williams’ original bank, First Regional Bank, based in Los Angeles, went under during the 2008 housing market meltdown.
The land and loan battle trajectory began in September 2007, when Williams decided to purchase two parcels of neighboring property totaling seven acres and expand upon the place she had called home for several decades. A neighbor she had been close to had passed away, leaving behind two parcels, one vacant and one with a home on it.
First Regional Bank approved the initial $11.7-million loan for Williams to make the purchase. Instead of placing a $4-million down payment on the property to take out the loan, Williams says the bank asked her to use her original three-acre home as collateral. She agreed and made the purchase through her LLC, The Vineyard at Serra Retreat.
The loan situation first took a turn toward foreclosure when First Regional went under in early 2010 and First Citizens took over Williams’ loan portfolio.
Several months earlier, in November 2009, the Los Angeles Regional Water Quality Control Board (RWQCB) had instituted a prohibition on the permitting of septic systems in the commercial areas of the Civic Center and certain nearby residences, due to its contention that runoff from septic systems was causing contamination in the Malibu Lagoon and the near shore ocean. The ban was approved and ratified in September 2010 by the State Water Resources Control Board.
The prohibition area included commercial properties in the Civic Center, as well as residential areas such as Serra Canyon, the Malibu Colony, the Malibu Knolls and condo complexes along Civic Center Way.
The City of Malibu argued that studies it funded showed human waste was not responsible for contamination in the watershed, and property owners protested that the prohibition would make vacant land impossible to develop with no ability to either get a septic system approved and no sewer to hook up to. A centralized sewer is scheduled to be built by 2015 for commercial use and expanded for connections with residential neighborhoods in Serra Canyon, Malibu Colony and other areas by 2019, but must still clear several hurdles, including assessment district votes to fund it.
Citing the prohibition, First Citizens Bank in 2010 reassessed Williams’ property and demanded she pay back the loan immediately, according to John Hall, Williams’ husband of three years and a five-percent stakeholder in the LLC. The bank reasoned that the property value had decreased because of what was a de facto ban on development, making the original loan amount less valuable as well, Hall said.
“The sewer moratorium now has just put a damper on everything,” Williams said. “Nothing’s selling.”
When contacted by The Malibu Times for comment, a representative from First Citizens Bank said the bank could not comment on specific cases.
According to Paul Grisanti, a Coldwell Banker real estate broker in Malibu, the prohibition’s effect on property value has resonated heavily throughout the Civic Center.
Grisanti said a de facto seven-year ban on development has made buyers skeptical, especially since the city’s plans for a sewer system are yet to be set in stone. People are afraid of buying land they cannot build or improve upon.
“What the water moratorium has done is added a great deal of uncertainty to the equation that buyers tend to look at,” Grisanti said.
Hall also blamed the moratorium for the bank’s refusal to compromise on a federal loss-share program designed to heavily reimburse banks on foreclosed property loans. He and Williams said the bank has repeatedly turned down offers to buy the property back at a lowered appraisal rate. The bank currently stands to get a 95 percent reimbursement from the federal government if the property forecloses, according to Hall.
“The bank wants its federal reimbursement,” Hall said.
Williams, a retired shop owner, has not made a payment on the loan since May 2010 and filed for Ch. 11 bankruptcy protection in June 2011. She is also awaiting the outcome of litigation against the bank. First Citizens has set the foreclosure auction for Sept. 6 in Pomona.
Including interest, the value of Williams’ original estate, the initial $11.7 million loan and an automatic foreclosure fee, the final figure has reached $18.8 million, believed to be one of the larger foreclosures in Malibu in recent memory.
Williams and Hall’s attorney, Farhad Novian of Novian and Novian, LLP, declined comment on the ongoing litigation or the moratorium’s impact on the case.
Williams and Hall have yet to explore alternatives should they lose in litigation. One option would be cutting a deal similar to the one the owners of the BeauRivage Restaurant reached with Pepperdine University earlier this year.
Under the deal, called a charitable remainder trust, the donor gives property to the institution as a donation, and receives a charitable deduction on taxes. The donor also receives monthly payments on a tax annuity for several years. When the annuity concludes, the university receives the remainderment, or what is left over from the sale of the property.
Stephanie Buckley, the associate vice chancellor at Pepperdine’s Center for Estate and Gift Planning, said property owners usually approach the school first for these types of agreements. Then Pepperdine assesses whether a charitable remainder trust is possible, but it’s always a case-by-case analysis.
“Sometimes the debt is too high,” Buckley said.
Hall and Williams are planning on reaching out to Pepperdine this week.
“It’s emotionally draining to me to have to think that I will not be able to stay in Serra Retreat,” Williams said. “My son still says, ‘Mom, I can’t imagine not being able to come in there ever again.’”