A lawsuit against the city highlights an affordable-housing program's decades of mismanagement — and the middle-class homeowners who lost out as a result.

The Goldmine Hill Condominium Complex nestles in a warren of steep, quiet streets lined with pine trees near the top of Diamond Heights. When fog isn't blowing in from the west, nearly any spot you stop to catch your breath while trudging up Goldmine Hill offers luxurious views of the city. To the east, rows of Victorian homes cascade through the Castro and Noe Valley to the green dome of Bernal Heights Park; to the west, the long avenues of the Sunset and Parkside districts reach to the Pacific.

Goldmine Hill's shingled condos and walled-in pool contribute to a feel that is distinctly suburban. But most of the people who live here like it that way, and for Phyllis Lund, a retired nursing assistant who moved into a studio at the complex 18 years ago, the place's quiet seclusion was a selling point. Lund savors the sense of enclosed community; she even started an informal book-lending library at the complex's main office. With its Murphy bed and single bathroom, Lund's condo is tiny even by urban standards. But she feels at home here.

"I love it," she said. "I like the neighbors. I like the location. I like being in the city, but not living in the city. I'll probably be here until I go out feet first."

A condominium building at Goldmine Hill, a residential complex in Diamond Heights where many homeowners are suing the Mayor’s Office of Housing.
Frank Gaglione
A condominium building at Goldmine Hill, a residential complex in Diamond Heights where many homeowners are suing the Mayor’s Office of Housing.

In anticipation of that day, Lund several years ago had a lawyer draw up a living trust in which she left the condo to her son. Soon after, however, she got a rude surprise. It turned out that she had no say in what happened to her home once she left it. The city of San Francisco did.

Lund learned that her condominium was enrolled in the city's Below Market Rate (BMR) Condo Conversion Program, and as a result was subject to strict regulations on renting, resale value, and inheritance. She said she had never been notified of these restrictions when she bought her condo in 1992, and had not been aware of them until fellow Goldmine Hill homeowners began talking about the regulations in 2008. Among the facts Lund discovered was that the city would not let her home be sold by her or her heirs for more than $200,000 — even though its market value has now climbed to $300,000.

"This is very wrong," Lund said, explaining that she had worked to pay off her mortgage and a monthly $360 in homeowners' fees without help from the city. "This was the one thing I did on my own. This is the one big thing I own."

Lund is one of dozens of homeowners who say the city's extensive control over their most valuable pieces of property came as a shock. The group includes 66 BMR condo owners (Lund is not among them) who have filed a federal civil-rights lawsuit against the Mayor's Office of Housing, asserting violations of due process and equal protection and an unconstitutional taking of private property. An attorney representing the group estimates that roughly $100 million in home equity stands to be erased for her clients because the city mismanaged the housing program.

Dating back three decades, the BMR condo program offered hundreds of first-time homebuyers condominiums at discounted prices at Goldmine Hill and other locations throughout San Francisco. Yet some now argue that the program's uneven administration and oversight have done as much harm as good.

Some owners involved in the current lawsuit say they were never told about future resale restrictions when they bought their homes, while others say they believed limits on resale value would last for only 20 years, after which the condos would be theirs to do with as they pleased. Records reveal that many units, despite being intended for low-income occupants, were sold on the open market — and often at a tidy profit. Documents culled from the history of the program show that even real-estate professionals and city officials were confused over the program's guidelines.

While city housing officials acknowledge the program has been poorly run, they assert that homeowners have been unable to provide hard evidence — in the form of written records or communications — that they were misled by government employees. They argue that the city cannot relinquish hundreds of units of its affordable-housing stock based on rumor.

Yet the views on this at City Hall are not unanimous. One former high-ranking city official with direct knowledge of the BMR program said that the Mayor's Office's unyielding stance toward the condo owners has been a mistake. "It reminded me a little bit of the way the Native Americans were treated. The Westerners came along and said, 'Prove to us that you own this land,'" said the official, who requested anonymity because of the sensitivity of his current position. "The city just ran roughshod over them. It was not one of our prouder moments."

In the 1970s, San Francisco housing officials saw a rapid gentrification crisis unfolding. Apartment-building owners across the city were converting their properties to condominium complexes, driving out tenants in the process. To address this problem, the city crafted a law obligating building owners to set aside a certain fraction of the new condos as affordable units, and give their low-to-moderate-income tenants a chance to buy. Thus was born the first version of the Below Market Rate Condo Conversion Program. But like many government initiatives conceived with noble intentions, it was destined to go off the rails.

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