In the 321-page lawsuit filed on January 8, Attorney General Rob Bonta alleges Shangri-La Industries, San Bernardino County and other California cities including Redlands and Thousand Oaks “breached their obligations” under terms of their agreements with California’s Homekey program.
“The state is taking legal action as Shangri-La has misrepresented multiple financial considerations and has yet to cure a number of breached contractual obligations to the state and the Homekey program. The difficulties they find themselves in are of their own making,” said Pablo Espinoza, a spokesperson for the Department of Housing and Community Development.
Step Up on Second, the Santa Monica-based nonprofit, is also named as a defendant. The organization reportedly partnered with Shangri-La to provide services to the homeless and to serve as the property manager at the seven converted motels. More than half a dozen lenders Shangri-La tapped to secure loans for the motel projects are also named in the lawsuit.
According to the lawsuit, Shangri-La received more than $114 million in Homekey funds from the state of California to convert motels into permanent supportive housing in San Bernardino, Redlands, Thousand Oaks and other locations in Northern California. The developer then granted and recorded deeds of trust to secure loans from the third-party lenders without first obtaining the state’s written authorization, as required under the Homekey agreements. Shangri-La then defaulted on the loans, leading to all seven Homekey properties to fall at risk of imminent foreclosure.
Among the state’s requests to remedy the situation, are: returning the state’s funds; a judicial order that the defendants ensure each of the motel properties be designated as homeless housing for up to 55 years; receiver be appointed for each property to ensure it is run in accordance with the Homekey program.