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Owners of Troubled Capistrano Terrace (Orange County CA) Mobile Home Park File Bankruptcy

By Jonathan Volzke

The owners of Capistrano Terrace Mobile Home Park in San Juan Capistrano have filed bankruptcy, the latest twist in the saga of the 60-year-old park where residents already faced the prospect of losing their homes.

In a news release issued Friday, owners of the park, Capistrano Terraces Ltd., said they were forced into bankruptcy protection by the city’s rent control ordinance, lawsuits by residents and other issues.

They had already notified the city they intended to close the park, triggering public hearings and in-depth study of the homes there.

An Orange County Superior Court Jury awarded more than 100 plaintiffs $1 million in a 2007 lawsuit by residents alleging park owners had not maintained Capistrano Terrace. The previous owner paid more than $1.5 million in a similar suit before Capistrano Terraces purchased the Valle Road park.

“Adding to the mounting burdens, the City of San Juan Capistrano’s rent control ordinance makes it extremely difficult to even raise the rents to allow replacement of major park systems, such as new sewer lines or upgraded electrical systems,” the release says. “The inability of the owners to raise rents ($51 per month per the city’s rent control ordinance) to cover these additional expenses as well as the rising costs of insurance, property taxes and improvements have created an untenable situation resulting in the need to file for bankruptcy protection.”

Park owners had already started the process of shutting down the 17.5-acre park on Valle Road park, home to 143 occupied units.

The park began as a trailer campground in the 1950s, evolving to a permanent mobile-home park over the years. It is terraced into a hillside above the San Diego Freeway, and some units have ocean views.

The aging park has struggled for years, as the hillside has slipped. Sewage at times ran though the streets, and the power to the entire park has failed for days at a time.

Over the last dozen years, the city has tried to facilitate residents’ purchase of the park at least three times.

In the late 1990s, LINC Housing Corporation of Long Beach worked with park residents and city staff for a year to create a resident-owned park, but failed to get support from a majority of the residents in the park.

Several years later, Resident Owned Parks Inc. of Sacramento took another run at converting the park to resident ownership, but again failed to get resident support, according to a city report.

The owners, managed by the same group that owns the Distrito La Novia/San Juan Meadows, bought the property in 2003.

About two years ago, a councilman tried to broker a resident purchase, again coming up short.

In November 2006, the owners notified the city they intended to close the park. A city official again tried to broker the deal, but residents thought the landowners wanted too much money. When that effort failed in 2008, the park owners restarted the effort to close Capistrano Terrace.

The city requires park owners who want to close a park pay for a study that looks at how much each coach is worth, where it can be relocated, if at all, and develop a plan to compensate residents.

The study valued the coaches from $20,000 to $154,000.

The city’s Housing Advisory Committee held an exploratory meeting on the closure last month, drawing more than 30 residents who want the park to remain.

It is unclear what impact, if any, the bankruptcy will have on the closure plan.

Here is the park owners’ news release:

Capistrano Terrace Ltd., a California limited partnership and owner of the Capistrano Terrace Mobile Home Park announced today that it has filed for Chapter 11 bankruptcy protection. The mobile home park, purchased in 2003 has seen mounting liabilities caused by geological issues, deteriorating infrastructure, lawsuits by tenants over park issues, and failure of insurers to handle resolution of those claims.

The Capistrano Terrace Mobile Home Park was built as a temporary travel trailer park in the 1950s. It was never intended to be a full-time mobile home park, but over the years, has become just that.

Since its purchase by Capistrano Terrace Ltd. in December 2003, several improvements have been made, such as employing a professional management company, hiring full time maintenance staff, annual tree trimming, refurbishing the clubhouse and pool, buying new furniture, and scheduling regular sewer line cleaning.

Park tenants had indicated an interest in purchasing the park, which the owners had agreed to on two occasions (once under the old owner and most recently under Capistrano Terrace Ltd.), but the tenants failed to place the minimum of $100 per coach in a good faith deposit to open Escrow.

Adding to the mounting burdens, the City of San Juan Capistrano’s rent control ordinance makes it extremely difficult to even raise the rents to allow replacement of major park systems, such as new sewer lines or upgraded electrical systems. The inability of the owners to raise rents ($51 per month per the city’s rent control ordinance) to cover these additional expenses as well as the rising costs of insurance, property taxes and improvements have created an untenable situation resulting in the need to file for bankruptcy protection.

Geological studies and notices from the city required after the illegal dumping of dirt by residents resulted in slides and red tagging of homes, warned of potential danger to residents due to slope slippage.

The park pool has been closed for the past three years as a result of geological issues. With the heavy rains of December 2010, the park spent over a hundred fifty thousand dollars trying to repair damage to the park including electrical, plumbing, and cleaning up mud and debris. During one storm, the fire department recommended evacuation of several residences due to the situation.

The recent Failure-To-Maintain lawsuit resulted in a verdict for the residents (that we anticipate will be appealed). The costs and obligations required by the City’s park closure ordinance also contributed to the unfortunate need to file for bankruptcy protection. Capistrano Terrace, Ltd. will continue to work with the residents to help with relocation efforts.

Chapter 11 bankruptcy provides the opportunity to stay the claims of creditors while a plan of reorganization can be presented to the bankruptcy court over the next few months. Bankruptcy protection is intended to assure fair and pro-rata treatment of all the tenants in the relocation and claims process.