Fraud suspected as several low-income housing projects in SoCal face foreclosure

SAN BERNARDINO, Calif. (KABC) -- When the old All-Star Lodge motel in San Bernardino was converted into low-income housing specifically for the homeless in 2022, many of the residents were overjoyed.

"I was so excited," said Renee Jones, who said she was homeless and sleeping in front of a convenience store for more than seven years. "I just felt it was a blessing. I felt like I won the lottery to be here."

But the property is now one of several Project Homekey properties across the state of California in foreclosure. Jones suspects fraud.

"Somebody took the money and ran. And what we're waiting on now is to see if somebody will pick up the slack."

It's a similar situation at the former Good Nite Inn in Redlands, which was converted into low-income housing in early 2023.

"They gave us notices on our door that we might be evicted," said Isaac Allen.

Another resident, who didn't want to identify himself, said many of the residents feel like they're in limbo.

"They just told us we might have the property sold out from under us. I have a 14-year-old-son... I hope we don't have to go back to being homeless."

The notices of foreclosure were taped to the front doors of many of the residents in late 2022. Two weeks later, the California Department of Housing and Community Development filed a lawsuit against the for-profit developer responsible for seven Project Homekey properties now facing foreclosure.

That developer, identified as Shangri-La Industries, accepted more than $100 million in Project Homekey funding, and is now facing allegations of breach of contract and fraud.

"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," said Ryan Seeling, general counsel at the Department of Housing and Community Development.

"The difficulties they find themselves in are of their own making. This is clearly spelled out in the complaint. HCD will continue to make every effort to ensure Homekey dollars go toward housing individuals experiencing homelessness, and not enriching developers."

According to the complaint, Shangri-La Industries used the state and federal funding given to them to grant and record deeds of trust to secure loans from third-party lenders without approval, and then defaulted on those loans, causing the lenders to record notices of foreclosure.

Shangri-La has not responded to request for comment made by Eyewitness News.

The city of Redlands, which is also named as a defendant in the lawsuit, released the following statement:

"We understand the state of California's interest in the success of this project and share their goal to keep the Redlands facility as a viable project to provide supportive housing, along with wrap-around services to address homelessness."

"The City of Redlands does not own the property, did not borrow money from the lender, nor does it control the lender's conduct. We have been working with the lender to explore short-term and long-term solutions to prevent or limit any discomfort or hardship to the tenants. The project is currently near capacity and continues to provide housing and services as it was intended."