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Federal judge dismisses Encinitas housing discrimination lawsuit
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Federal judge dismisses Encinitas housing discrimination lawsuit

ENCINITAS — A federal judge earlier this month dismissed a lawsuit alleging unlawful housing discrimination in Encinitas, leaving several low-income residents the option to appeal the ruling to the U.S. Court of Appeals for the 9th Circuit or pursue their case in state court.

District Judge Marilyn Huff issued a July 19 order in U.S. District Court for the Southern District of California, dismissing three causes of action alleging violations of the federal Fair Housing Act against the city of Encinitas and 13 other defendants, including developers, real estate and mortgage brokers and “shell companies.” 

Huff dismissed the claims with prejudice, meaning the complaints cannot be resubmitted in federal court. 

The lawsuit, first filed by Escondido-based attorney Anna Hysell in Sept. 2021, alleged developers and lenders had conspired to sell two designated affordable homes — 1317 Portola Road and 1412 Mackinnon Avenue — to wealthy investors instead of dozens of qualified, very-low-income applicants.

The complaint further alleged the city of Encinitas was complicit in the unlawful home sales by allowing them to take place under its affordable housing regulatory agreements. 

However, the judge sided with the defendants, repeatedly stating that “income status” is not a protected class under the federal Fair Housing Act or FHA, and there was nothing discriminatory about the defendants’ decision to sell the home to a wealthy buyer over dozens of lower-income applicants. 

“A preference for buyers who are able to make cash offers is not discrimination based on a protected category under the FHA,” Huff wrote. “[F]inancial status is not a protected class under the FHA . . . and cannot be the basis of a claim.”

But the judge stopped short of throwing out the entire complaint, dismissing the remaining state-level claims without prejudice — discrimination under California’s Unruh Civil Rights and Fair Employment and Housing acts, fraud, unfair competition and negligence — thereby leaving the door open for plaintiffs’ to pursue legal remedies in state court.

“Here, the Court has dismissed all of the federal claims in the operative complaint with prejudice, and the case is still in an early stage, the pleading stage,” Huff wrote. “In light of this, and after considering the relevant discretionary factors, the Court declines to exercise supplemental jurisdiction over Plaintiffs’ remaining state law claims. As such, the Court dismisses Plaintiffs’ state law claims without prejudice.”

Hysell declined to comment on the court’s decision and did not say whether she intends to appeal the decision in the federal courts or file a new complaint in state court. The city of Encinitas also declined to comment about the court’s ruling. 

According to sources close to the matter, both sides are currently in settlement negotiations.  

Regardless of the status of the lawsuit, The Coast News found several violations and issues within the city’s affordable housing program, particularly with one of the properties at issue in the federal complaint. 

Public records show the property at 1412 Mackinnon, a designated affordable home in Cardiff, was prematurely sold to Kenneth Reed — a mortgage originator at Finance of America Mortgage and one of several defendants named in the federal complaint — and had entered third-party escrow two weeks before the developer was authorized to begin advertising the house for sale.

After first notifying the city of its intent to sell the home via email on Aug. 12, 2020, Reed accepted a multiple seller counteroffer from developer New Pointe Investment on Sept. 30, 2020, to purchase the Mackinnon home, records show. 

Under the city’s affordable housing agreement, New Pointe had approximately two weeks remaining of a mandatory 60-day waiting period before it was permitted to start advertising the sale of the home, much less locking in a buyer.

“Owner shall provide City with notice of not less than 60 days prior to advertising the availability of the unit of their intent to rent or sell the unit,” the agreement states. 

New Pointe also ran advertisements for the Mackinnon home in the San Diego Union-Tribune as early as Sept. 13, 2020, just halfway through the two-month mandatory hiatus and in another apparent violation of regulatory guidelines.

Lastly, the purchase agreement for 1412 Mackinnon also discloses the commission rates for agents involved in the sale. Susana Marquez, Reed’s agent in the sale, is also the wife and business associate of Mark Marquez, owner of Marcor Ventures and New Pointe’s listing agent for the property. 

According to the counteroffer form, the “buyer will pay all recurring and non-recurring closing costs, including real estate commissions, fees, and taxes.” The total real estate commissions were 3% to the listing agent (Mark Marquez) and 3% to the buyer agent (Susana Marquez).

By selling to Reed, Marquez’s agency, under parent brokerage firm Pacific Sotheby’s International, earned double commissions on the sale, instead of just 3% if New Pointe was to accept an offer from an unknown low-income applicant.

Jordan P. Ingram contributed reporting to this article.

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