Nearly three weeks ago, the Vanguard brought to light serious problems of potential misuse of approximately $4.15 million in public funds that were used to loan the Davis Area Cooperative Housing Association. In particular the organization is accused of illegally redistributing cooperative funds to its members.
In July of 2008, the city of Davis and the Davis City Council responding to complaints from DACHA members of high monthly carrying charges and unaffordable share costs as well as an audit that showed that DACHA was in financial distress and not sustainable in the long run, provided a loan to help DACHA refinance their debts, reduce their share costs from $22,000 to $6250 and reduce their monthly carrying charges that ran as high as $1800 per month.
Moreover, the legality of this action is also in question. A memo from the City Attorney argues that the action is legal. Lawyers for Twin Pines Cooperative Foundation, who are Plaintiffs in a lawsuit against DACHA argue that the action represents a violation of Safety Code Section 33007.5.
The victims in this are the affordable housing residents of DACHA, who now face considerable additional legal action above and beyond the nearly $350,000 arbitration judgment by Twin Pines Cooperative Foundation due to what from the Vanguard’s research is a city staff designed and council approved refinance.
These findings were presented to council on September 29, 2009. Last week, principles from Twin Pines, David Thompson and Luke Watkins spoke before council last week, presenting a wider array of problems that they see with the city’s decision to loan DACHA over $4 million in tax payer money and the use of that money by DACHA.
The city has agreed to agendize the item for discussion at this week’s council meeting. At the meeting last week, City Manager Bill Emlen tipped his hand when he suggested,
“I think we’ll be able to clear the air on these allegations.”
The 31 page staff report does little to clear the air other than make assertions that do not appear based on California statute or case law.
The staff report is presently unavailable at press time due to the server being down, however, it addresses ten key points raised, two of which were raised by the Vanguard. From our vantage point neither of these points were successfully addressed.
The first critical issue is one of legality.
According to California Health and Safety Code Section 33007.5:
The corporate equity shall not be used for distribution to members, but only for the following purposes … (A) For the benefit of the corporation or the improvement of the real property (B) For the expansion of the corporation by acquisition of additional real property (C) For public benefit or charitable purposes.
Moreover:
Members are only allowed to receive a distribution of “transfer value” at such time as the members ceases to be a permanent member of the corporation.
In a lawsuit filed by Twin Pines against DACHA, the plaintiffs allege:
Plaintiff is further informed and believes, and on that basis alleges that in contravention of California Law, DACHA’s Board of Directors recently returned more than half of the transfer value, as that term is defined in the limited equity housing cooperative law, to the existing Members. As a part of the “comprehensive refinancing” with the City of Davis, DACHA’s loan from the City was used to return funds to current members. In a report submitted to the Redevelopment Agency of the City of Davis, DACHA and the City staff explained that all members would have their share investment lowered to $6250 from a high of $22,000, which would leave a sum of $185,000 to $200,000 for a distribution of corporate assets to the current members.
They continue:
The aforementioned acts constitute a violation of Health and Safety Code §33007.5 and are deemed an illegal distribution of the assets of a non-profit public benefit corporation in violation of Corporation Code §5410.
The city continues to claim that the transfer of money to the residents of DACHA was permissible under the law. They argue that this does not amount to a transfer of cooperative assets but rather the reimbursement of an overpayment.
While the staff report with the phrasing is not available at press time, we see the explanation in the Davis Enterprise’s Sunday article on DACHA.
Stachowicz said staff members believe the reimbursements were legal.
‘They were really being reimbursed their money for overpayment of shares,’ she said.
City Attorney Harriet Steiner, who reviewed the legalities of the procedure, maintains that the city has room to make adjustments to an affordable housing system that isn’t working.
But the staff report does not cite either case law or precedent to back up their point. It is possible that Ms. Steiner’s legal interpretation is correct, although her knowledge of this very particularized area of the law is somewhat in question.
The bigger problem at this point is that the City Attorney and by extension the City Manager designed and implemented the refinance and are now being asked to access their own program’s legality. It seems logical that the city at the very least should ask for a third party legal opinion to determine whether the action was carried out legally. Given the amount of taxpayer money involved, it would not be unreasonable to ask for an outside investigator to look into the dealings and determine what the city was authorized to do and whether they overstepped their legal authority.
The other question that was not satisfactorily addressed in the staff report has to do with whether the council was fully informed as to the fact by approving the share stabilization plan that that meant reimbursement to the members of DACHA.
Staff maintains the council was fully informed on this point, but as we wrote on September 30, 2009, the staff report for that meeting was ambiguous at best and at times even deceptive.
At least one member of the council, Lamar Heystek has made it clear that he was unsure as what was approved back in July 2008.
“I can’t assess whether we knew what we were talking about in terms of share stabilization… Staff materials weren’t necessarily clear to me in retrospect. Now I see other things happening that I may or may not have known judging from those materials should have happened.”
The staff report does in fact appear to be rather ambiguous on this point. It never mentions the term refund. Nor does it mention explicitly that residents will receive payment. The closest the staff report comes to mentioning even the possibility of refund comes at the bottom of page two. It reads:
“The share stabilization will result in all members having a matching share investment of $6,250 as their current share amount.”
The article on September 30 shows clearly that the staff report was considerably less clear than the DACHA ballot, which made it explicit that share stabilization meant repayment of a portion of the share cost. The staff report never made that fact clear and while the staff report for this council meeting argues otherwise, they are never able to show clear language to suggest that share stabilization meant repayment to the members of DACHA.
The bottom line at this point is that the city may be correct that nothing was done illegally. There is clearly enough doubt at this point that we have to be mindful that the same people who are making those claims, devised the refinance to begin with. That means they are not neutral parties in this dispute. They clearly have conflicting interests in dispensing with legal advice.
If the council is interested in putting these questions clearly and convincingly to rest, they need to engage in some form of third party review of the city’s policies. These matters will in fact be adjudicated in a court of law, if and when the lawsuit against DACHA proceeds. At that time, a judge will rule on the legality of the city’s refinance program and it would be a great embarrassment to the city of their city attorney ruled their actions legal only to be overruled by a judge.
There is a greater stake here as well. In addition to $4.15 million in taxpayer money there is also the fact that the members of an affordable housing cooperative association now face considerable legal jeopardy because of actions designed and implemented by city staff. Staff probably had the best of intentions, but the result is now in the courts.
DACHA in June already lost in binding artibtration in the amount of just under $350,000 for a breach of contract with Neighborhood Partners. Now they are involved in another suit, this one in part due to city staff’s actions, where they face additional potential losses. The city must step in and make them whole. They bear a good of responsibility here and to begin with, the city must reconcile their actions with the law.
—David M. Greenwald reporting
. . . limited equity hosing cooperative law . .
Hosing indeed.
You make the affordable housing concept sound like an enormous wild goose chase that only really works well as a way to prevent growth.
Balance: Interesting, that was actually a typo in the lawsuit that I cut pasted over (and didn’t catch).
Greg: I’m not following you here, can you elaborate.
David: This $4 million sounds like an outrageous liability that should never have happened. On the other hand, it is just the sort of thing that can happen when you play fictions with home values and family income. The end result could be to make the city and developers afraid of affordable housing in general, and then to deter development when it has an affordable housing quota.
It’s not that housing can never be affordable, but rather that anti-market implementations lead to trouble. If you work with the market, for instance with economy apartments or trailer parks, then there will be less risk of ruin.
I understand what you are saying. In part this was a very specific type of housing, it was specifically designed to be cooperative housing. David Thompson is kind of the cooperative housing guru. So I don’t know how generalizable it is to other forms of affordable housing. The idea behind this was to provide an actual house to people who would never be able to buy a house in Davis. I’m of mixed view when it comes to off-market housing. Certainly any limited equity situation is fraught with risk, and the way this has panned out kind of embodies that risk.
On the other hand, unless this city more than doubles in population in a short period of time and in the process greatly reduces the quality of living, I don’t see how we are going to reduce housing prices.
BTW, don’t read that response as a defense of anything, I just happen to understand the dilemma and the countervailing pressures of affordability, high standard of living, and limited growth.
To me the bigger issue than that the ‘refund’ was given is WHY it was needed. What was designed poorly to need this and to cause the affordable payments to be so high.
It seems our affordable programs have had more than their share of issues over the yrs, e,g., developer relatives buying them, not long term affordability, etc.
Who are the DACHA Board. Are they residents ?
Thanks.
Thanks for the article David. Good question by SODA’ite; who are the DACHA Board members? Are they residents? How are they selected?
A lot of this goes back to David Thompson, the “cooperative guru” himself. He repeatedly sells the idea of cooperatives, and all the promises he makes are usually overinflated or not quite reality. As a result, people get sucked into schemes they do not fully understand, as the DACHA people did. My understanding is DACHA members really did not understand what a housing cooperative was, bc David Thompson and friends weren’t totally upfront with full information.
Later on, when things start to fall apart, what happens? The city has to come to the rescue, or the project the city themselves invested in goes down the toilet, and somehow David Thompson walks away that much richer. If necessary, Thompson will sue the very project he has helped to create to make sure he gets every penny of profit he expected to make. Doesn’t matter that he did some sleight of hand along the way when convincing everyone to come aboard his project. Eleanor Roosevelt Circle and Rancho Yolo are both examples of this.
However, city staff is known for catering to or having catered to David Thompson, as well as city staff being pretty heavy handed about doing whatever the heck they see fit. But city staff will also walk away, leaving others to hold the bag, covering up any mistakes city staff has made themselves. I doubt very much we will ever get to the bottom of what really happened with DACHA, and I have no doubt David Thompson will make sure to extract every penny out of DACHA he can. It is the DACHA members who are going to be the big losers in all this, naively led down the garden path by both David Thompson and city staff.
“who are the DACHA Board members? Are they residents? How are they selected?”
Just to further my point, DACHA Board members are residents who purchased homes on the cooperative, selected by themselves. Generally homeowners like this are very naive, and will take the advice of “experts” like David Thompson or city staff.
Did the “. School of Sherlock Holmes ” teach you for one week , and did you graduate from that intense course. ?
[i]The idea behind this was to provide an actual house to people who would never be able to buy a house in Davis.[/i]
This is exactly the contradictory idea that lets a lot of people pretend to support something that is against their interests. As you say, actual houses in Davis aren’t affordable and they aren’t going to be affordable. Above all, the people who already own them certainly don’t want their houses to become affordable. But what they can endorse is an affordability agenda that makes the housing shortage worse.
However, having an “actual house” isn’t an important progressive goal in the first place. Davis also has a serious shortage of apartments. For those who want some equity, Davis could also have more condominiums, and the trailer parks work well as economy housing. The message from the city to people who would buy such housing is bad: “We wouldn’t want you to suffer in a trailer, we want you to have an actual house, so that’s why we provide nothing.”
Also, as Don has pointed out, an increasing number of actual houses in Davis are rented out. So more apartments would also help with the shortage of actual houses.
It’s also false to resort to scare stories about doubling Davis in 10 years. That would be 7% annual growth, while the Measure-J-induced reality is 0.5% annual growth. Even that will fall further unless you count West Village. 1% growth would already look significantly different, and it would still be less than the regional average. Davis would still have plenty of time to sustain bike paths and greenbelts and the school system. It would still be expensive, but it would look less like the Martha’s Vineyard of the Central Valley.
Finally, I understand that you’re not necessarily defending the political status quo. Even so, it’s important to see the counterfeit progressivism in the status quo. And I think that what is happening with DACHA is part of the problem.
[i]The idea behind this was to provide an actual house to people who would never be able to buy a house in Davis.[/i]
This is exactly the contradictory idea that lets a lot of people pretend to support something that is against their interests. As you say, actual houses in Davis aren’t affordable and they aren’t going to be affordable. Above all, the people who already own them certainly don’t want their houses to become affordable. But what they can endorse is an affordability agenda that makes the housing shortage worse.
However, having an “actual house” isn’t an important progressive goal in the first place. Davis also has a serious shortage of apartments. For those who want some equity, Davis could also have more condominiums, and the trailer parks work well as economy housing. The message from the city to people who would buy such housing is bad: “We wouldn’t want you to suffer in a trailer, we want you to have an actual house, so that’s why we provide nothing.”
Also, as Don has pointed out, an increasing number of actual houses in Davis are rented out. So more apartments would also help with the shortage of actual houses.
It’s also false to resort to scare stories about doubling Davis in 10 years. That would be 7% annual growth, while the Measure-J-induced reality is 0.5% annual growth. Even that will fall further unless you count West Village. 1% growth would already look significantly different, and it would still be less than the regional average. Davis would still have plenty of time to sustain bike paths and greenbelts and the school system. It would still be expensive, but it would look less like the Martha’s Vineyard of the Central Valley.
Finally, I understand that you’re not necessarily defending the political status quo. Even so, it’s important to see the counterfeit progressivism in the status quo. And I think that what is happening with DACHA is part of the problem.
The DACHA story has long legs.
It began with me blowing the whistle on there being no community equity second placed on the 52 affordable homes in Wildhorse. As a result $10 million dollars of gain which should have been shared with the community was lost forever. What was interesting about these 52 homes is that there was no lottery, no first time homebuyer requirement, and no income requirement. You needed only to own the home for 24 months and the market gain of $200,000 per home was yours to keep.
So the question is who got those homes as none of it went through a public process? It seems the homes mainly went to families, friends and those in the know. One home was never lived in for the two years where the owner sold and walked away with $200,000 of community money. Some were even sold before the two years were up and they got away with $200,000 in gain each. Many were sold immediately after the two years were up which raises lots of flags as to who the buyers were. Was it a home they got or a windfall? To obtain a home at less than $200,000 and sell its two years later at $200,000 more is one heck of a gain.
Anyhow, I blew the whistle on that and absolutely nothing happened and the City turned a blind eye on a $10 million dollar scandal. The City should be looking deeply at that transaction to see who were the initial 52 buyers and who really should not have been?
The second was the six affordable homes on Marden. I blew the whistle on that one too. The developers put their families and friends at the top of the list. CHOC was managing the project and they decided to resign. Interestingly, one of the homes was eventually won by a woman who we found out later was married to a man who had got one of the $200,000 gain Wildhorse homes. They were married but he claimed they lived apart. When we finally got to see inside the Marden home after months of it being owned we found that she had never lived in the unit. The instructions were still in the dishwasher. They were just waiting to see the two years go by and then collect their $200,000.
There were seven other houses in South Davis that also escaped the community equity second requirement. In this case, almost all the owners sold in two years and only one bought a home in Davis. So that $1.2 in community equity went to some other community.
So altogether 65 homes escaped sharing $13 million dollars of gain with the city for its housing programs!
As you can understand my whistle blowing was not attractive to city staff and none of the $13 million dollars was regained. Am I being punished for whistle blowing?
NP recommended that the city’s program was replete with irregularities, lacked fairness and transparency, and was based mainly upon who you knew. And after two years, the homes were lost forever and the occupants left town with the money. Not only that but everyone else in the subdivision was paying more for their homes to subsidize people who made more on their homes than they did. But that is another story.
NP went to the City Council and said there is a better way to do this. You can take the limited equity housing co-op model that we initiated at Dos Pinos and rid yourselves of many of these problems. (Dos Pinos has worked well for over 20 years).
With the LEHC, the homes stay affordable forever, the gain stays in Davis in the form of lower housing costs over time, the members have the tax benefits of home ownership, you can check for income status, first time home buyer status and even give a preference to people who work in Davis.
So off we went and arrived at 20 homes over a four year period. However, in the process we found that staff was unwilling to make available to us the type of finding it has made available to others. We suggested different ways to do support the share structure but city staff turned down four different plans we recommended. We told staff that the formula they had been using for affordable homes might work if you knew you would get $200,000 in 24 months but not if we were providing long term homes for the Davis workforce. We provided all of this information to the city about how their formula did not work but nothing was done. We told the City that even using their own formula that the DACHA members had been overcharged $400,000 for the homes. Only after the 20 homes were transferred did city staff recommend to the Social Services Commission the changes we had recommended three years before.
Every one of the homes that went to DACHA members were all done in full conformity with the City requirements in place at the time. City staff in fact approved each of the financing plans, each of the budgets, the initial share for each home, and the carrying charge for each home according to the city affordability plan. City staff also approved every individual who joined the co-op as meeting their affordability standards that they required of the management company used by DACHA. Every household moved into DACHA has been approved by city staff.
At some point in time DACHA members began to meet in secret with city staff and the outcome appears to have been that DACHA should be dissolved and the homes turned over to the residents in fee simple. One DACHA board member testified under oath that they wanted the Green Terrace economic model that allowed them 6.5% gain per year compounded. They had also written about the Green Terrace model in their memos to the city. (The Green Terrace model actually is 5.5% per year)
The crux of that model is that they would be taking $4 million dollars of value committed to nonprofit tax exempt purposes and converting that to private gain. Over a short number of years each former DACHA resident would gain $200,000 each. This would strip the public good of $4 million dollars. That would be the outcome of their intent. So please follow the money? More to come!
DPD, If David Thompson is right about this, I suggest the Vanguard investigate the entire ‘affordable’ process, not just DACHA. I think an audit by a third party is in order for the entire thing. We in Davis have been proud of our affordable program….and want to continue to be proud of it. Right now, based on what he says (and some history I cited earlier than I remember), I am ashamed of it. What is intended as a helpful hand to the less fortunate, has not been it seems. Others?
I will be doing exactly that, and in fact, I have been investigating the affordable process for nearly a year already on and off. I know Council is going to be looking at the issue, it’s listed on their long range calendar with no date.
I am still reviewing the material concerning DACHA.
I would just like to make two technical clarifications.
1) We were all concerned with the previous abuses of the affordable housing program, and we took steps to assure that they would not recur. This has nothing to do with whether DACHA, which was designed by Neighborhoods Partners, is a viable model in its conception and/or execution, and if not, what should be done next. This is one of the questions that we are reviewing.
2) David Thompson of Neighborhood Partners focuses on his assertion that the cooperative members wanted the project to be turned into some form of limited-equity home ownership. On first blush, this also appears to be of little relevance. It is fairly typical for cooperative owners to wish that they had more of the benefits of home ownership, and it is typical for limited equity homeowners to wish that their equity caps be raised or removed. The city council did not move to turn the cooperative model into a home ownership model.
Again, the question is whether DACHA, which was designed by Neighborhoods Partners, is a viable model in its conception and/or execution, and if not, what should have been done and what should be done next.
A well respected lawyer, with impeccable credentials was chosen by both sides (DACHA and NP) with the knowledge of the city, to conduct the arbitration.
Mr. Malavos was provided with extensive materials provided by the City of Davis, DACHA and NP in the form of emails and documents. He reviewed depositions by city staff, DACHA present and former board members and NP. He heard testimony from city staff, DACHA present and former board members and NP and others.
After four days of hearings and review of the documents Mr Malovos made a number of telling comments:
He mentions the occasions when the DACHA members made it known to Council that they wished to own their own homes. He speaks of “the stated purpose of the new board to somehow gain ownership of their homes to achieve equity…”
Mr. Malovos created a section entitled: The Role of the City of Davis. His first sentence says a lot.
“What is curious is that the City of Davis representatives were present throughout this entire time when the new Board took these untoward actions and they did little to discourage the Board”
Later Mr. Malovos commented
“The testimony by three members of DACHA who appeared at the hearing could only be described as cavalier. For the most part their testimony was characterised as failure of memory, contradictions and a certain inability to admit their own written words. Two of these members appear to have been in serious arrears in their fees during times they were on the board in direct contravention of the bylaws.”
(The DACHA bylaws require that a member behind more than 30 days must be automatically removed from the board). DACHA members could not recollect which board members were behind in their charges (records provided to Malovos show almost all were) and confirmed that no member had been removed from the board for this reason.
I helped to set up Dos Pinos over 20 years ago and it has been extremely successful. The difference appears to be that the members of Dos Pinos are content with their model and have no interest in contravening the law or pursuing private gain at the expense of a community asset.
Regretfully, no one at the city has ever said to DACHA if you don’t like the co-op then you can give 90 days notice and leave.
March 15, 2007
memorandum
Attorney Client Privileged
To Twin Pines Cooperative Foundation
From Karen Tiedemann
RE Whether DACHA can dissolve and distribute its assets (units) to its members.
I. Introduction:
The Davis Area Cooperative Housing Associations, Inc. (“DACHA” or the
“Corporation”) is investigating whether the Corporation may be dissolved and have the assets (or units) transferred to the members as fee interests.
II. Question Presented
Can DACHA be dissolved and prior to the dissolution have an arrangement
whereby the property of DACHA will be distributed to a nonprofit corporation who will in turn sell each of the individual homes to the former DACHA member residing in the home prior to the dissolution.
III. Brief Answer
No. State law prohibits the transfer of assets of a nonprofit public benefit corporation to individuals and state law creating limited equity cooperatives requires that the assets of a limited equity cooperative be transferred for use for a public or charitable purpose. Additionally, the Bylaws of DACHA prohibit any member of DACHA from obtaining any private benefit or inurement from the Corporation.
IV. Discussion
DACHA is organized pursuant to Section 33007.5 of the California Health and Safety Code as a limited equity cooperative.
Section 33007.5 (a) of the California Health and Safety Code requires limited equity housing cooperatives to be organized for a public purpose, either as a nonprofit corporation or by having the real property on which it is built revert to public or charitable ownership. Section (b) mandates that the articles of incorporation or bylaws of a limited equity cooperative establish the “transfer value” of the stock or membership interests to be the original amount paid for the membership or shares by the first occupant, plus the value of any improvement installed at the expense of the member, plus accumulated interest not to exceed 10% per annum.
Section 33007.5 (d) of the California Health and Safety Code requires that upon dissolution of a limited equity cooperative, the corporate equity is required “…to be paid out, or title to the property transferred, subject to outstanding encumbrances and liens, for the transfer value of membership interests or shares, for use for a public or charitable purpose.” Subsection (d) defines “corporate equity” as “the excess of the current fair market value of the corporation’s real property over the sum of the current transfer values of all shares or membership interests, reduced by the principal balance of
outstanding encumbrances upon the corporate real property as a whole.”
Part 2.
Pursuant to the Health and Safety Code, DACHA’s Articles of Incorporation (the “Articles”) establish DACHA as a nonprofit public benefit corporation and irrevocably dedicate the “property of the Corporation …to charitable purposes” specifying that “no part of the net income or assets of the corporation shall ever inure to the benefit of any…member of the Corporation or to the benefit of any private individual.”1
The Articles further specify that “upon the winding up and dissolution of the Corporation … the remaining assets shall be distributed for the sole purpose of providing permanently affordable nonprofit cooperative housing in Davis, California to Twin Pines Cooperative Foundation (“TPCF”) … or with the agreement of TPCF, or if TPCF no longer exists, to another nonprofit fund, foundation, or corporation that is organized and operated exclusively for charitable purposes, and which has established and maintained its tax-exempt status under Section 501(c)(3) of the Internal Revenue Code…”.
Pursuant to DACHA’s Articles, which are based on state law, if DACHA were
to dissolve, the assets of the Corporation would either have to go to TPCF or, with the consent of TPCF, to another non-profit, 501(c) (3) organization. The assets cannot be distributed to the members since Corporations Code Section 5410 provides that there can be no distributions in public benefit corporation except as allowed under Health and Safety Code Section 33007.5. Health and Safety Code Section 33007.5 provides that members are only allowed to receive a distribution of “transfer value” at such time as the members ceases to be a permanent member of the corporation.
Subject to TPCF’s agreement, the assets of DACHA, upon dissolution and after payment to the members of their transfer value, could be transferred to another 501(c)(3) entity whose charitable purpose is to provide housing opportunities to low 1 Articles § IV. (a) income households in order for that entity to operate the housing as affordable housing available to low income households. The Board of Directors would have to agree that this meets the charitable purpose requirements of the Articles and State law.
However, sale of the units to the existing members of the corporation for anything less than full fair market value would violate the Corporations Code and be considered an illegal distribution. Such a sale would also violate the provisions of the Articles that prohibit any part of the net income or assets of the corporation ever to inure to the benefit of any member or any private individual.
Based on our conversation it is my understanding that one proposed plan for dissolution would be for DACHA to transfer the corporate equity (i.e. the homes) to a 501(c)(3) corporation, which would then sell the homes to existing members at a reduced purchase price and subject to resale restrictions that would ensure some level of continuing affordability on the homes. Such a plan would most likely violate the provisions of the Articles of Incorporation and the provisions of the Corporations Code that prohibits distributions. If the members were to be assured that they would be able to buy the homes from the 501(c)(3) corporation receiving the corporate equity, this would be considered a private inurement for the benefit of the members since they would have an opportunity to convert their cooperative membership interest into a fee simple interest with different, and most likely more favorable, restrictions. Additionally, unless the homes, once sold to the members were restricted so that the maximum amount that the members could ever receive upon sale of the home was equal to the transfer value as defined in the Bylaws, the sale of the homes to the members would be
a distribution to the members, prohibited under the Corporations Code.
If the intent of dissolving DACHA is to allow the members to obtain the equity value of their units or a greater amount of equity then currently allowed pursuant to the transfer value formula, such purpose is likely not obtainable. Additionally, if the purpose is to allow the members to own their units in fee simple, such a purpose is also not likely to be obtainable without violating the provisions of the DACHA Articles of Incorporation and the prohibition on distributions in public benefit corporations. Even if the corporate equity was transferred to a nonprofit corporation whose purpose is to provide affordable housing, the eventual rental or sale of the individual units could not be structured to ensure that the existing members of DACHA receive the units or such a structure would be considered private inurement to the members of DACHA.
And who convinced the city and DACHA members that a cooperative was the best way to go? And who stood to benefit financially from setting up DACHA?
Again, the question is whether DACHA, which was designed by Neighborhoods Partners, is a viable model in its conception and/or execution, and if not, what should have been done and what should be done next.
The arbitrator that David Thompson refers to specifically stated that it was not his job to determine whether Dacha was sustainable.
If the cooperative was designed or run in a manner that is unsustainable, the question is what to do next.
There could certainly be financial losers if the corporation dissolves. The losers could be the low income families who stand to lose the substantial fees that were required of them to buy into the project; the losers could be the city’s affordable funds that could help other low income people find housing; or the losers could be other creditors such as Neighborhood Partners, who designed DACHA and who built into the design ongoing mandatory consulting fees for themselves, a requirement that new units be purchased, and fees for Neighborhood Partners each time a new was purchased.
It was the collection of these mandatory consulting fees and fees for the mandatory expansion of DACHA that were the topic of Neighborhood Partners lawsuit against DACHA.
The City hopes that everyone can be made whole. We hope to learn more about the current status of DACHA tonight, and to figure out how to proceed.
I should add that one of the problems that we have been dealing with, and that DACHA has been dealing with, is the complexity of the model and the side-contracts between Neighborhood Partners and different DACHA boards.
I am still in the process of trying to sort out this complex arrangement, and trying to understand whether the coop is viable.