Rocky management change at apartment complex in default

2013-09-01T00:00:00Z 2014-04-02T08:58:04Z Rocky management change at apartment complex in defaultBy Emily Bregel Arizona Daily Star Arizona Daily Star

The impending foreclosure of a North Tucson apartment complex — and a messy transfer of property management responsibility — has left residents confused and in some cases, locked out of their apartments.

Residents of Woodland Village Apartments, at 3055 N. Flowing Wells Road, have been in the dark about why management of their homes recently changed.

“Basically, we’re kind of abandoned here,” said Hazel Summerkamp, who lives in the 140-unit complex with her two grandchildren. “I can’t get any information.”

Las Vegas-based 707 Property Management was court-appointed to take over Woodland Village Apartments on July 29, when Pima County Superior Court ordered the building placed into receivership during foreclosure proceedings.

Property owner Tony Laruffa — a San Clemente, Calif.-based real estate agent who has a history of bankruptcy filings and loan defaults — would comment only through a lawyer.

The management changeover has been rocky.

707 Property Management changed the locks on residents’ apartments in August for security purposes, said a lawyer for the company. But residents say the lock-change was unexpected. Those who weren’t home when their locks were changed had to get a new key from the manager’s office, and those who got home after hours were out of luck.

For resident Santiago Paredes, that meant a night sleeping in his truck.

Paredes got home after 10 p.m., after his shift as a clothing store manager, on the day the locks were changed. When his key didn’t work, he tried to call the manager’s office but got no answer. He had to sleep across the front seat of his 1984 Toyota Tacoma that night.

“It was really uncomfortable,” he said. “I’m not that tall, but I’m not short, either.”

The next morning, Paredes said he — plus three other residents who were locked out the night before — waited for the office to open so they could get new keys. The managers didn’t arrive until noon, Paredes said.

“They were just like, ‘Um, sorry you guys — we were in a meeting,’” he said.

707 Property Management president Bett Hemry did not return calls seeking comment. Jonathan Davis, an assistant manager who was recently on site at Woodland, would not comment.

For defaulting loans on income-producing properties, receivership ensures revenue from the property — like rent payments — goes to the lender during foreclosure proceedings, said Phoenix attorney Jim Ugalde, trustee in the foreclosure representing lender Fannie Mae. The court-appointed manager can make repairs, pay utilities, collect rents and maintain the property during that time of flux.

The receivership is important to make sure the financially struggling property owner doesn’t sabotage the business operations, said lender Fannie Mae’s application for the appointment of a receiver, submitted to Pima County Superior Court July 15.

A notice of default on the property’s $4.5 million mortgage was sent to Mission Creek I LLC — which does business as Woodland Village Apartments — on July 2, court records show.

That company is managed by Laruffa. His lawyer said Laruffa is not happy about the forced change in management.

“This is an aggressive government action that I believe has been hasty,” said Carlos Negrete, a Southern California-based lawyer representing Laruffa in a federal district court case in Tucson involving Fannie Mae.

Court records show the court denied a July 24 petition by Laruffa’s Tucson lawyer to stop the appointment of a receiver.

“The property is adequately managed and the appointment of a receiver is not necessary to preserve the property or the rights of any party therein,” said a document filed by Robert Rauh, attorney for Laruffa. Rauh did not return calls seeking comment.

Laruffa has been financially devastated after a series of bankruptcies, mortgage defaults — which he claims are invalid — and ongoing litigation with Fannie Mae, Negrete said.

“Mr. Laruffa has been driven to financial insolvency. He has nothing. He can’t buy me a sandwich,” Negrete said.

MISSING FINANCIAL RECORDS

At Woodland Village, the transition to new management has been complicated by missing financial records, including records of who paid their July rents.

Kasey Nye, the Tucson-based attorney for 707 Property Management, said he doesn’t know why those records are missing. Residents said they were told Laruffa took the documents.

Negrete, Laruffa’s attorney, said he “disputes any impropriety” on the part of Laruffa. But, he said, “Mr. Laruffa is the owner of the books and records. An owner is entitled to have his books.”

Residents say those without proof of July rent payment have been told to pay again and to get their original rent payments back from Laruffa, the owner. Applicants who had not yet signed a lease were turned away, even if they’d paid a deposit.

Nye, the lawyer for 707 Property Management, acknowledged that six applicants who had not yet signed leases were found to have criminal records or credit problems and were turned away. He also said 707 Property Management asked residents whether they paid rent in July but did not ask them to pay again.

“They don’t have any financial records at this point, so they’re just trying to figure out what the lay of the land is,” Nye said. “This is a highly professional management company that’s done more than 200 receiverships. … Everything should get better for the residents, although it’s no doubt confusing at first.”

For Joshua Hensley, 23, that confusion cost him money. Before the management switch, he paid a $35 application fee and put down a $325 deposit, paid by money order, on an apartment. Previous management told him he could sign his lease on Aug. 1 and they gave him the key to his apartment a few days early. He’d already moved in his furniture and unpacked his clothes when new management took over the last week of July.

The new managers told Hensley he was trespassing: Without a signed lease, he’d have to apply again and pay another deposit, Hensley said.

“They said what I paid the previous management doesn’t matter,” said Hensley, who works as a cook at a Chinese buffet. “I paid all that money and I was put in that predicament.”

With a 2-year-old daughter to look out for, Hensley decided to cut his losses and find a new apartment right away.

Nye said the company would be willing to refund deposit payments for those applicants.

Residents say bed bugs, broken air conditioners and broken windows are among the outstanding problems at the apartment complex. 707 Property Management is addressing all work orders and has refilled the complex’s pool, which had become a “cesspool,” Nye said.

HISTORY OF DEFAULT

This isn’t the first time Laruffa has defaulted on loan payments for his business properties.

In September 2010, three of Laruffa’s Arizona complexes, operating under separate limited-liability corporations, filed for Chapter 11 bankruptcy. That included Mission Creek I LLC, doing business as Woodland Village Apartments, and Cornerstone Apartments LLC in Tucson. The mortgages of both Tucson properties defaulted that year and were scheduled for public auction.

Declining rent income due to the housing crisis, as well as poor third-party management of the properties, precipitated the bankruptcies, said Eric Slocum Sparks, the Tucson attorney who represented Laruffa in the filings.

Mission Creek avoided foreclosure through bankruptcy. One of the largest unsecured creditors in the Mission Creek filing was listed as “City of Tucson-Sewer,” with its claims totaling more than $35,000.

But the Cornerstone bankruptcy filing was dismissed because Laruffa didn’t submit needed documents and acted in “bad faith,” courts records show. The property, at 3985 N. Stone Ave., was sold at a trustee sale to Fannie Mae, said Ugalde, attorney for Fannie Mae.

Laruffa filed a suit against Ugalde personally and his legal firm, as well as Fannie Mae, in February 2012, seeking $11 million in damages for complaints including “intentional infliction of emotional and mental distress.” The case was dismissed.

And Fannie Mae and Laruffa are still fighting it out in federal district court in Tucson. Fannie Mae is suing Laruffa because he filed for bankruptcy in California shortly after a Tucson’s judge’s order in December 2011 that he not file for bankruptcy for 180 days after his last filing. The lender says the filing was an effort to stop the foreclosure of the Cornerstone property. The lender is also trying to recoup the difference between what the Cornerstone property sold for at the trustee sale and the original loan amount, Ugalde said.

Negrete said he and Laruffa counter-sued, asking for an accounting of Fannie Mae’s handling of the 232-unit property while in receivership. But those claims were dismissed by the court in last month, court records show.

Negrete says Fannie Mae’s handling of the management transfer drove down Cornerstone’s property value by millions.

“They took a performing asset and made it nonperforming,” he said. “It’s a clear example of what happens when government comes in and tries to be a property manager. They don’t know what they’re doing.”

Cornerstone is now operating as Villas at Roger Road.

Residents of Woodland Village are just hoping for more information from 707 Property Management.

“If nothing else they should put out a newsletter saying, ‘This is what we’re doing, this is who we are,’” Summerkamp said.

Resident Terri Widner wants the company to prioritize repairs in occupied apartments, “instead of worrying about empty apartments or the appearance of the complex,” she said. “The look of the outside doesn’t matter if the inside is falling apart.”

Contact reporter Emily Bregel at ebregel@azstarnet.com or 807-7774. On Twitter: @EmilyBregel

Copyright 2014 Arizona Daily Star. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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