ENCINITAS — A federal discrimination lawsuit alleging unlawful housing practices in Encinitas has expanded to include more defendants and allegations related to the controversial sales of at least two designated affordable single-family homes to wealthy investors, according to court documents filed last week.
The amended complaint, filed on Nov. 22 in the U.S. District Court for the Southern District of California, alleges the city approved the sales of two affordable homes — 1317 Portola Road and 1412 Mackinnon Avenue — to pre-determined, non-qualified investors instead of qualified, very-low-income applicants in violation of federal and state anti-discrimination fair housing laws.
In addition to the City of Encinitas, developer Woodbridge Pacific Group, New Pointe Investment and “shell” companies WPG Desert Rose, Scramark and Santiara, the complaint also names as defendants commercial real estate brokers David Santistevan and Ciara Layne-Trujillo, both of Colliers International, and Finance of America Mortgage lenders Kenneth Reed and Victor Spayde.
Escondido-based attorney Anna Hysell, who represents four low-income home buyers as plaintiffs in the lawsuit, told The Coast News her ongoing investigation has shown the City of Encinitas has repeatedly neglected its statutory duty to affirmatively further fair housing, allowing “the unlawful discrimination against some of its most vulnerable residents.”
“We have learned a lot through our investigation and what we have found is troubling,” Hysell said. “The city has failed its residents and the protected class citizens. Most disturbing is the city has concocted this vehicle to allow discrimination and fraud within the city’s limits. We are looking forward to getting to the discovery process to get an even clearer picture of what has happened. My clients are just devastated over what we have learned.”
Specifically, the amended complaint claims the City of Encinitas devised an affordable housing “regulatory agreement scheme” under California’s density bonus laws allowing “developers to sell affordable homes to their investor friends rather than low-income families.”
“The City of Encinitas has not only had full knowledge that these developers have been selling the designated affordable homes to private wealthy investors, blatantly discriminating against selling to these protected classes, but the City themselves worked with the developers to create the vehicle for these developers to do so the way they crafted their affordable housing regulatory agreements,” the complaint reads.
In an email response, a city spokesperson issued the following statement in response to the amended complaint: “The Plaintiffs describe a narrative of how they perceive affordable housing laws should be applied. However, their narrative is inconsistent with Density Bonus laws for the State of California. The complaint fails to state a cause of action against the City of Encinitas and cannot point to any allegation where the City has not complied with state law or affordable housing agreements with the developers. Accordingly, the City believes the complaint is without merit.”
When previously asked about its role in the approval of these affordable homes to developers rather than low-income families, the complaint states the city tried to minimize its role and “spin” its investor buyer scheme under the color of state law.
After The Coast News first reported the sale of the two affordable homes in September, Julie Taber, the city’s public information officer, defended the city’s approval of the sales by suggesting the city had no choice but to approve the developer’s decision under state law.
“In the case of the Desert Rose project, the Developer chose to sell the unit to a non-income qualified buyer,” Taber wrote. “The City’s only role in approving the sale of the Desert Rose unit, under existing State law, was to verify the sales price met the restrictions of the unit and the proposed rental amount met the requirements of the State mandated low-income requirements.”
When The Coast News asked what particular state law the city was referencing, Taber cited California’s Density Bonus Law (Cal. Gov’t Code Sec. 65915).
In a September interview with The Coast News, Roy Sapa’u, the city’s director of development services, further claimed that under state law, the developer of the low-income property has three choices — the owner can keep it themselves and rent to a low-income family; sell the unit to a low-income household, or sell to a non-qualified investor who then must rent the unit to a low-income household for a period of at least 55 years.
But Hysell, a former federal prosecutor, argues there is no legal requirement “mandating the City to allow a developer to sell an affordable home to a non-qualified investor over qualified low-income households.”
“There is no state law requiring them to sell to investors,” Hysell said. “They chose to do so and there is a big question as to why. The affordable housing program in Encinitas is a mess. The city has mismanaged the program. The statistics speak for themselves and it is disturbing.”
Housing by the Numbers
In September, the Biden administration issued a fact sheet on affordable housing in the United States. The statement warned that large investors have started buying more single-family homes to convert them into rental properties, driving low-cost home prices out of reach for most first-time home buyers.
A Redfin report found that large investors bought a record $48.5 billion worth of homes in the U.S. during the second quarter of 2021, which amounts to roughly one of every six home purchases. In the San Diego metro area, the number of homes purchased by investors was 18.5% of all home sales during the same period, according to Redfin.
In Encinitas, the number of investor-owned affordable homes is 73%, nearly four times higher than the national average for market-rate homes.
According to a public records request provided to The Coast News, the city reported 22 single-family affordable homes were built under the density bonus law in the city of Encinitas. Of those homes, just six of them (27%) were sold to low-income or very-low-income households.
And making matters worse, these numbers could be even lower. The complaint alleges the city’s list of affordable single-family homes was outdated, missing information and “showed inaccurate records of ownership.”
For example, the lawsuit states that county records show companies that own affordable homes in Encinitas have transferred to the investor owners’ family trust and some of the homes “do not have proper affordable housing regulatory agreements in place with the owners of the affordable homes.”
“The fact that these affordable single-family homes have mostly been sold to investors is a violation of the public trust,” Hysell said. “The idea that the city has allowed such scarce inventory to be completely dominated by a group of connected investors versus the vulnerable groups they are charged with protecting is unacceptable. That is what this case is about. There is a lack of fair housing opportunities in Encinitas. The city knows it, yet they are not doing their job to fix it and are allowing these investors to take those opportunities away from protected classes.”
Portola & MacKinnon
In March 2021, a representative from Woodbridge Pacific Group, a developer responsible for the Desert Rose community, sent an email to the City of Encinitas stating they currently had a list of approximately 80 low-income applicants and two non-qualified investors looking to buy an affordable, single-family home at 1317 Portola Road in the Loden at Olivenhain neighborhood.
As part of the city’s density bonus and affordable housing programs, homes meant for very low-income households may be sold to investors — with written permission from the city — who must keep the units as low-income rentals for 55 years.
The City of Encinitas eventually approved Woodbridge’s home sale to non-qualified investor David Santistevan, senior executive vice president of Colliers International, and his one-man business entity, Scramark, LLC.
According to the lawsuit, the Portola home was prematurely sold to Santistevan for $175,000 on March 17, roughly two weeks before the April 2 application closing date and for a higher-than-advertised price. Plaintiffs allege Santistevan mortgaged $113,000 of the total before giving Woodbridge a $63,000 bonus.
The lawsuit further alleges the single-family affordable home at 1412 MacKinnon Avenue was illegally sold to non-qualified investor Kenneth Reed, a mortgage loan officer at Finance America Mortgage, who paid for the home in cash.
Victor Spayde was the Mackinnon property’s preferred lender who works alongside Reed at Finance of America Mortgage’s San Diego office. Leah Sorenson, a qualified low-income applicant and plaintiff in the lawsuit, reached out to Spayde on Sept. 24, 2020, seeking qualification for the purchase. According to the complaint, Spayde never responded to Sorenson’s request and the home was sold to the non-qualified Reed on October 6, 2020.
“Mr. Spayde is charged with discriminating against Plaintiff Sorenson in the qualification process of the purchase application to enable his co-worker Kenneth Reed, a wealthy male investor to purchase the designated affordable home. Mr. Spayde failed to properly comply with the federal housing and credit laws in the qualification process of the mortgage/lending of 1412 Mackinnon Avenue. Mr. Spayde also violated California’s unfair competition laws,” the complaint reads.
Spayde told The Coast News he had no comment. The Coast News left a voicemail message for Reed but received no response. Reed’s office line has been disconnected.
New Defendants, Allegations
The ongoing investigation has brought forth additional players in this alleged investor-buyer scheme, including Ciara Layne-Trujillo, a senior brokerage vice president at Colliers International, who works with Santistevan at the company’s La Jolla office.
According to the company website, Layne-Trujillo “specializes in the sale of land of both single-family and attached developments.”
“Santistevan and Layne-Trujillo have been colluding to acquire these affordable homes in Encinitas for personal benefit. They decided to do the same with the acquisition of 1317 Portola Road through their prior business relationship with developer WPG and Desert Rose. They conspired with WPG and Desert Rose to sell them the affordable home for their personal benefit,” the complaint reads.
The lawsuit further alleges Layne-Trujillo’s company, Trumen, LLC, purchased a designated low-income home on Urania Avenue that is currently housing her friend Molly Bristol, owner of Reef Processing (or Reef Home Loans), who is not believed to qualify as a low-income household.
Bristol did not respond to requests for comment and both her personal and business Facebook pages were either deleted or restricted just hours after The Coast News attempted to make contact.
The lawsuit expanded its scope to include two more affordable homes purchased by Santistevan in cul-de-sacs on Sandy Court and Dolphin Circle off Urania Avenue.
In September, Taber wrote in a statement about the city’s approval of the Portola Road home that Santistevan “already owns and manages two affordable units in the City and has consistently been in good standing with the City’s compliance monitoring.”
But according to the complaint, Santistevan is not in good standing due to currently housing Layne-Trujillo’s mother and sister at his Sandy Court and Dolphin Court properties, respectively. Neither of Layne-Trujillo’s relatives are believed to be low-income renters as required by state and federal law, per the complaint.
In comments to The Coast News, Layne-Trujillo confirmed working with Santistevan at the same office but declined to go into further details about their professional relationship. Layne-Trujillo also said she could not confirm or deny whether her family members were living at the homes.
The Coast News observed a shipping container on Nov. 24 and Nov. 29 parked in the driveway of the Sandy Court home. No one answered the door at either residence.
San Diego-based attorney Jeffrey Morris, of Devaney Pate Morris & Cameron law firm, is representing the City of Encinitas in the lawsuit. In an email response, Morris told The Coast News, “We are in receipt of the first amended complaint and are in the process of reviewing it. No further comment at this time.”
Morris works at the same law firm as Leslie Devaney, who serves as city attorney for the cities of Encinitas, Del Mar and Murrieta.
As the city’s interim attorney, Devaney’s signature is on several affordable housing agreements, including the Portola and MacKinnon homes, but it remains unclear if her relationship with the city will pose a conflict of interest for the law group.
The Coast News left a message with Devaney seeking comment but did not receive a response in time for publication.
EDITOR’S NOTE: This article has been updated to include a response from the City of Encinitas.
CORRECTION: A previous version incorrectly stated the lawsuit claimed Victor Spayde approved Kenneth Reed’s mortgage application for the 1412 Mackinnon home. However, Reed paid for the home in cash. The lawsuit alleges Spayde discriminated against a low-income applicant during the qualification process of the purchase application for the Mackinnon property to “enable his co-worker Kenneth Reed, a male investor to purchase the designated affordable home.” The Coast News regrets the error.