Dear Santa Cruz County Board of Supervisors:

Many homes lost in the CZU fire were built prior to the existence of the County Planning Department and predate requirement for building permits.   But permits to build a new home require the construction of the foundation, retaining walls, roads and driveways be built to offset geological risks.   Now hundreds of people who’ve lost their homes worry that they can’t afford to rebuild after the CZU fires if they’re forced to meet current geological requirements as if they’re a “new build,” when all they want is an “in kind rebuild” permit  to replace their original home.    Geological requirements can cost tens and sometimes hundreds of thousands of dollars be spent on foundations, retaining walls and driveways.   

The Santa Cruz Board of Supervisors voted unanimously on September 14th to approve a resolution allowing CZU fire victims to rebuild, without following current geological building requirements, IF they sign a Covenant releasing the County of liability.    Once signed, the Covenant would be recorded and attached to the parcel’s title in perpetuity.    Although concerns were raised by CZU fire survivors at that Board of Supervisor’s meeting, their concerns were not given credibility.    Now the real estate and lending community are involved and have explained the problems with the Covenant.   

The Covenant was written without understanding its unfair and damaging consequences for fire survivors.

1.       Much of the CZU burn zone is amongst the most affordable areas in Santa Cruz County to live.    It’s home to teachers, first responders, service employees, retirees, and others who are not as wealthy as homeowners elsewhere in the County.

2.       Insurance agents vastly underestimated the cost to rebuild, given covid economy disruptions and skyrocketing building costs.    Consequently, most CZU victims are underinsured.

3.       The financial consequences of signing the Covenant would be devastating.   A local lender, who lost his home, ran the Covenant by his company’s underwriting team.   The underwriters said it would be impossible for anyone to get a loan on a property with the Covenant recorded on title as written.    The Covenant indemnifies the County from anything that might happen due to the lack of proper permits, but it does not indemnify lenders.    With an unknown cost to cure geologic issues, and no legal protection, conventional lenders wouldn’t finance a Covenant property when the owner needs to refinance or sell.

4.       The Covenant could even affect CZU fire survivors’ existing mortgages.   Most people don’t realize that nearly all the insurance proceeds for fire losses are paid to the homeowner’s mortgage company – not to the policy holder – unless their home was owned outright.

Once fire survivors’ lenders became aware of the signed Covenant when it was recorded against the title, they could require all remaining fire insurance proceeds be immediately applied to repay the mortgage, instead of letting the owner use the money to rebuild.    This is because loans have clauses stating that the property owner can’t do anything to devalue the property.   A lender could easily say that that signing the Covenant devalues the property, since the property could no longer be financed.

5.       Potentially, lenders could even “call the loan,” if an owner signed the Covenant.   This means the lender could force the borrower to pay the entire mortgage off immediately.    People who’ve already lost everything to the fire would go into default if they couldn’t pay off their loan.     If they were unable to cure their default, the lender could foreclose and take the property.

6.       This creates a very real possibility Covenant signers:      

a.       wouldn’t have any money left to rebuild,

b.       properties would be worth far less than before the Covenant was signed,

c.       could lose their property in foreclosure, and

d.       their credit could be ruined.  

e.       With bad credit, they not only couldn’t buy another home, they’d have challenges even renting.   It can take 10 years or longer to rebuild credit after foreclosure.

7.       The Covenant will lower affected properties’ value.    These Covenant restricted homes could only be sold to cash buyers, or buyers willing to use private hard money loans where the interest rates are far higher than normal.    Those kinds of buyers demand a discounted price from the seller.     Properties that can’t be sold using a conventional loan are inherently worth far less than normal.

8.       The Covenant is unfair.   It damages only people who lost their homes, while leaving surviving neighbors untouched, with no obligation to spend money to upgrade their properties to meet current geological requirements.  Meanwhile, surviving neighbors can refinance and sell their home at fair market value to buyers.   

You can help

• ·       E-mail the BoardofSupervisors@SantaCruzCounty.us    
•         Comment on the county page santacruzcounty.us.            You may need to create an account, which takes 1 minute.   Then scroll to the bottom and "ADD COMMENT"  to express your support for allowing CZU survivors to obtain "rebuild in kind" permits to rebuild their homes with non-fire related geo exceptions.   At a bare minimum, the Covenant needs to be rewritten.
• ·       Share this petition TODAY on social media, and e-mail it to people who care
•         Show up in person to the next Board of Supervisors meeting at -->1:30 PM Tuesday September 28th at 701 Ocean Street Santa Cruz, room 525.    
•          Copy and paste this and e-mail it to your local supervisors, assemblyman and senator

bruce.mcpherson@santacruzcounty.us​

ryan.coonerty@santacruzcounty.us​

manu.koenig@santacruzcounty.us​

zach.friend@santacruzcounty.us​

greg.caput@santacruzcounty.us​

john.laird@sen.ca.gov​

mark.stone@asm.ca.gov

There are other possible alternative solutions to achieve the Board of Supervisors’ goals.

Goal #1               Protect future homebuyers

The County could file a “notice of geologic hazard” with the county recorder.   Some say that this should be filed on ALL properties the county has concerns with, NOT just the fire survivors.    Future buyers would be aware of the risk in the area, as it would be public record, disclosed on the preliminary title report.          This is already provided for in existing law.      And it treats all people affected by geologic risks equally.    Homes rebuilt after the fire would not be unduly penalized compared to homes that survived.    Also, neighborhoods’ market values would adjust in a more normal manner because it would be a common phenomenon for the area.    This option will not appeal to those whose homes survived.   Perhaps there are better options that we can create collectively.

A.      Most home sellers already are obligated by statute to disclose natural hazards such as debris flow, fire severity zones, and geological hazards such as historical landslide areas.    REALTORS already provide buyers with Natural Hazards Reports generated by independent companies.

B.      Homes sellers already must disclose any known material fact to potential buyers, especially anything that would influence a buyers’ decision to buy, or that would influence the buyers’ perception of the property’s value.  This disclosure obligation would include the fact that the home was rebuilt post CZU fire as an “in kind rebuild.”  After the first sale, this fact remains readily available:  Building permits are public record.    Anyone can investigate permits on-line and/or in person at the County.

 

Goal #2               Indemnify the county

The Board of Supervisors could direct staff to create a more equitable agreement.   Property owners wanting to rebuild could sign the agreement that they acknowledge the geological risks as identified by county staff.     No need for this to be recorded as all future owners are now aware of the risk through the “notice of geologic hazard.”    Buyers are allowed to review the permits issued as kept on file for each home by the Building/Planning Department.

 

“Rebuild in kind”

County geologic staff already recognize that “in-kind” replacement structures of similar size and location on the site are generally subject to similar levels of overall geologic risk as the original structure.  So if a homeowner wants to build an “in-kind” replacement structure destroyed by the CZU Fire, County geologic staff could tailor geologic reporting requirements to focus on those hazards that pose an “imminent” or “near-term” threat to life safety.  

 

Finally, if the County pursues the Covenant methodology, we recommend that there be a panel to reword the Covenant more equitably.   The panel should include at least one representative of the fire survival community, one REALTOR, and one lender.

 

Respectfully,

 

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