SILICON VALLEY BUSINESS JOURNAL - OCTOBER 11, 2002

Titles not identifying SNI areas

- Sharon Simonson

Caveat emptor.

More than three months after San Jose City Council approved a redevelopment plan affecting a third of the city's land mass, home buyers purchasing property in the 20 affected neighborhoods still aren't being notified through title reports that their homes could later be condemned.

The delay also is opening Realtors and sellers to lawsuit because the plan and possible condemnation are facts material to a property's sale.

Some 30,000 parcels spanning 10,000 acres are in the redevelopment project area, which is called the Strong Neighborhoods Initiative. All but about 2,000 of the parcels are residential, occupied by close to 80,000 single-family homes, duplexes, apartments, condominiums and townhomes.

Faced with a threat to the interests of 5,500 members, including as many as 40 new agents a month, the Santa Clara County Association of Realtors is pressuring the San Jose mayor's office to force the city's redevelopment agency to help resolve the title-report deficiency. The agency is responsible for the plan. Four agency executives, including the assistant executive director, met with representatives of the Realtors association and the mayor's staff Sept. 30 to try to reach a solution. None was found.

Lenders and buyers rely on title reports to disclose facts that could affect the value or use of a given property, from easements to tax liens to court judgments and deed restrictions. Title companies sell insurance to home buyers at the request of their lenders insuring buyer and lender against unknown claims on a property. Title insurance would not protect a property owner from RDA condemnation, making notice even more important.

At the current pace, 850 homes, townhomes and condominiums are selling in San Jose each month, according to the Realtors' association.
Title companies say they have not included the information in their reports because they have been stymied by the 88-page, single-spaced legal description of the affected properties that the RDA has filed with the Santa Clara County Recorder's office. The description carries no assessor's parcel numbers and no names of property owners, the most common means by which title companies match information to a given parcel.

"This redevelopment agency filing would take several people who are well qualified in engineering many, many, many hours and days to identify all of the individual parcels," says Peter Milos, chief title officer in Santa Clara County for Fidelity National Title Co.

The agency, while saying it wants to cooperate, contends that it has met the letter of the law and is unsure what else to do. The agency is not offering to add parcel numbers or names of property owners to the previous filing. Janet Kern, a senior lawyer for the agency, says that the project area filing at the recorder's office does not differ — except in its exceptional length — from filings disclosing previous agency plans and project areas.

"In 30 years of adopting redevelopment project areas, this has never been an issue," says Ms. Kern, who signed off on the Strong Neighborhoods filing. "We are shocked. We did all of that work and spent all of that money [to have the legal description created], and now people are telling us it doesn't work for them."

In the past, references to other redevelopment plans routinely have shown up on the relevant title reports, Ms. Kern says.

The agency has helped property owners who were unsure if their land fell within the SNI project area, she says, using their addresses and looking through its own records.

County Recorder Brenda Davis, whose office is the repository of as many as 3,000 documents a day reflecting hundreds of different transactions including those affecting real estate, says she believes the RDA has met the letter of the law with the SNI filing. She's less sure the agency has met its ethical responsibility to inform the public.

"How do you make a public record have value? Right now, you have something that is public record because it is filed, but it's not easily found," she says.
The title report glitch is the latest in a series of troubles that have materialized since the San Jose City Council agreed in June to adopt the SNI redevelopment plan. The Realtors association has warned that property within the Strong Neighborhoods areas could depreciate because buyers will walk away when they learn that a home or another property could be subject to eminent domain. Proponents of the RDA plan deny this.

The RDA enjoys wider powers of condemnation than other local governments such as cities and transportation agencies because it has such a broad mission to engender economic growth and to increase property values.

Members of the Campus Community Association, a neighborhood group that represents 499 households in the Naglee Park area of San Jose, are preparing to vote Oct. 16 on whether to continue as part of SNI. The agency's power to condemn single-family homes is the primary worry motivating those pushing secession.

Ken Podgorsek, the association president, who has supported SNI, says the vote will bind the board though it won't have the immediate effect of removing Naglee Park from the SNI project area.

The Coalition for Redevelopment Reform, which coalesced in reaction to SNI and to other RDA efforts in the recent past, met for the first time Sept. 28 and raised $5,000 in contributions and member fees.

In addition, the Municipal Officials for Redevelopment Reform of Fullerton is convening a San Jose gathering — the Conference on Redevelopment Abuse — Oct. 19 at the San Jose Hyatt, also in response to recent activities by the San Jose RDA, the largest redevelopment agency in the state.

Lynda Seeber, whose Palm Street duplex is in the Strong Neighborhoods project area, says she doesn't believe that buyers are getting all the facts regarding nearby homes that are on the market, based on her own observations and information she gets from others.

"Some poor buyer is going to find himself in exactly the position that we're in when they finally get the news," she says. "If they don't know going in, they're going to find out from neighbors. I would be livid."

She herself has considered selling her property, which she bought in 1997 for $262,050, because she is so afraid the RDA will try to condemn it. She thinks the land is a target because it is close to downtown and two light-rail stations, which would make it ideal for higher-density residential development. She wonders about the reaction from potential buyers, however, when they learn the property could be seized.

"If I were a buyer, I know I would not buy if it were disclosed to me," she says.
Meanwhile, Mr. Milos, Fidelity's chief title officer, says the problem couldn't have arisen at a worse time. Title companies are overwhelmed with demand from homeowners refinancing their mortgages, he says. In addition, Mr. Milos and other title company officers say, having the RDA plan referenced on title reports is not critical to title companies because it would be exempted from their insurance coverage.

"But from a Realtor, buyer and seller perspective," he says, "it's pretty important."