In Los Osos, when building isn't impossible, it's at least complicated.
With a building moratorium in place since 1988 in part due to septic contamination of the groundwater, developers and real estate brokers have to get creative to make projects happen.
One strategy is to use the "septic credits" that already exist on properties to build. Demolish an old building, and you can use that historical credit to build a new one. Septic credits can be bought, sold, and even transferred from one parcel to another.
At times, that unique real estate landscape, with the complexities involved, can lead to failed projects and contract disputes.
The recent partnership between Los Osos real estate broker Jeff Edwards, of J.H. Edwards Company, and a Fresno-based developer, the Los Osos Investment Group, highlights the hazards involved—as demonstrated by a spree of lawsuits between the parties involved, and accusations of fraudulent conduct, negligence, and misrepresentation levied against Edwards by the California Bureau of Real Estate (BRE).
The Los Osos Investment Group, which purchased property on Pine Avenue and contracted with Edwards in 2013, is alleging to the BRE that Edwards deceived the group into believing their property contained fewer septic credits than it had—and then, that Edwards falsely sold one of its septic credits to a retired local doctor, according to the allegations documented in a BRE accusation.
Edwards, a frequent public speaker at government meetings who recently challenged SLO County's denial of the Phillips 66 rail spur extension, faces civil allegations of unjust enrichment, fraud, and financial elder abuse in two lawsuits. The California BRE is alleging nine causes for discipline against Edwards and his real estate license, after an investigation spurred by a complaint from the Los Osos Investment Group. The SLO County Sheriff's Office confirmed that it's also investigating Edwards.
Edwards denies any wrongdoing in the dispute, and says he earned ownership of a septic credit from the investors. He said he's planning on filing a counter lawsuit.
"The majority of the assertions [in the BRE accusation] are simply not factual," Edwards told New Times.
In June 2013, the Los Osos Investment Group purchased property at 2150 Pine Ave., a site with several uninhabited, dilapidated homes across the street from Trinity United Methodist Church.
Edwards told New Times he'd watched the property deteriorate into an eyesore over the years, and he approached the investors with an idea that he thought would result in better profits and, ultimately, a public use for the Pine Avenue land.
"I approached them and suggested they look at a transfer development credit program," Edwards said, "to pair development credits from this land with other lots [in Los Osos]." He added that eliminating development rights on the Pine Avenue land would open up an opportunity for potential community use of the land.
In December 2013, Edwards signed a contract with the investment group, to locate "undeveloped lots suitable for construction of ... single family home[s]," according to the contract.
But how many transferable building (septic) credits did the Pine Avenue property have that could be used to build elsewhere in the Los Osos "prohibition zone"?
In 2006, the Central Coast Regional Water Quality Control Board granted approval for 10 septic credits on the Pine Avenue property for a previously proposed housing project, according to a 2006 letter from the water board. The project, led by a different owner, went belly up during the recession.
Edwards told the Los Osos Investment Group that he believed he could persuade the water board to approve five more septic credits on the land, for a total of 15 credits, according to both Edwards and the BRE accusation.
But Edwards wanted additional compensation from the investors for that work: If Edwards obtained one more credit from the water board, he wanted to buy it from the group for $50,000. If he obtained two or more, he wanted to receive one for free.
He estimated the market value of a septic credit at about $150,000, which he explained in a 2014 letter to the investors that he shared with New Times.
In a 2014 letter to the water board, which Edwards provided to New Times, he argued for the approval of 15 total septic credits, citing water consumption data on the property from prior years. In a May 2014 reply, the water board confirmed approval for a lower number: 12 total septic credits, two more than it approved in 2006.
But trust between the investors and Edwards started to fray.
The investment group grew suspicious that the Pine Avenue property contained more credits to begin with than initially believed, according to emails and a New Times interview with Scott Black, one of the partners with the Los Osos Investment Group.
Black said he found a 2006 letter to the water board written by the previous property owner's attorney, Marshall Ochylski, who's a current board member on the Los Osos Community Services District.
In the letter, Ochylski asked the water board to approve 10 septic credits, but suggested the property held more credits—at least 12 credits—based on the number of prior residents. The developer asked the water board to approve 10 septic credits at the time to "avoid a low income development requirement," according to the BRE accusation.
"We are only requesting the approval of 10 [septic credits] at this time," wrote Ochylski to the water board in 2006. "Any historical equivalencies over that number would be applied to the subsequent phase [of the project]."
Black alleged to New Times that Edwards was aware of the property's septic credit history and deceived the investors to "enrich himself."
"There's no way you could withhold information like that," Black said. "He knew he could easily get those two credits back."
Black also said that while the investors expressed "verbal" agreement with Edwards' septic credit compensation terms, when Edwards sent him official contracts to ink the agreement, Black refused to sign them—an allegation repeated in the BRE accusation.
Edwards countered that the investors did formerly agree to the compensation terms and acknowledged his ownership of a septic credit on several occasions, including agreeing to loan Edwards $30,000 while using a septic credit owned by Edwards as collateral.
Edwards told New Times he had no prior knowledge of Ochylski's 2006 letter. He also denied other allegations levied by Black and the BRE, including that Edwards had attempted to buy the property prior and that he "re-wrote" Ochylski's letter.
are simply not factual,.'
—Los Osos real estate broker Jeff Edwards click to tweet
He maintains that he earned the credit by obtaining two extra septic credits from the water board.
"The only number of sewer credits that were associated with that property before I got involved was 10," Edwards told New Times.
In August 2014, Edwards sold the disputed septic credit to Frederick Novy, a retired Morro Bay dermatologist, for $153,000 to build a new Los Osos bayfront home, according to the receipt of the sale.
According to the BRE, Novy paid for the septic credit in a series of checks: $70,350 in total to Edwards and his spouse and administrative assistant, Julie Tacker—checks Novy alleges in a lawsuit were cashed; $32,650 to the spouse of one of the investors to pay back Edwards' loan; and $50,000 to the Los Osos Investment Group, a payment Edwards told New Times was an attempt to resolve the credit dispute.
The latter two checks were returned to Novy by the investment group, with a note that it had "no interest in transferring a [septic credit] to Edwards," according to the BRE accusation.
In January, Novy filed a lawsuit against Edwards, alleging breach of contract; deceit and intentional, promissory, concealment, and constructive fraud; and financial elder abuse.
According to Novy's lawsuit, he discovered around June 2015 that "neither Edwards nor Tacker owned ... the credit in question."
Neither Novy nor his attorney could be reached for comment.
The Bureau of Real Estate will present the accusations against Edwards at an Aug. 30 administrative hearing in Los Angeles. Δ
Contact Staff Writer Peter Johnson at email@example.com.