City officials paved Gearhart’s path of destruction
August 3, 2009
By KAREN VELIE
As developer Kelly Gearhart worked to build more than 400 new homes in the Atascadero area, city inspectors and others were apparently looking the other way, allowing Gearhart to avoid paying city fees due to falsified and unfinished inspection reports.
In one case investigated by CalCoastNews, the value of a $700,000 Gearhart home is expected to have lost approximately $200,000 in value because it was not inspected, as required by law, before it was occupied, said the homeowners.
In another instance, former Atascadero mayor Mike Brennler said the lack of oversight cost the city more than $292,000 involving 30 senior cottages.
“I was told by people both inside and outside city hall that Gearhart was given special privilege related to his developments, considerations that were not given to other developers,” Brennler said. “These people were in positions to know.”
Employees and city officials report City Manager Wade McKinney, Assistant City Manager Jim Lewis, and Community Development Director Warren Frace instructed staff to allow Gearhart to skip the city’s Planning Department and allow Gearhart to deal directly with upper level city employees.
Frace, Lewis, and McKinney did not return calls seeking for comment.
“We were ordered to do illegal things,” said an employee of Atascadero who refused to be named, as did a handful of city workers, due to fears of either losing their jobs or of being black balled in the future. “Gerhart’s projects were fast tracked. Projects went directly to Warren Frace and skipped planning.”
Following information that the FBI had began an investigation into the city of Atascadero, officials ordered employees to produce permits and inspection reports for properties that had been finished years earlier.
Attempting to verify that property permits were official, some homeowners discovered that no approved plans for their properties are on file with the city. Officials had previously enacted rules that required city workers to destroy building plans, aside from the original project plans, after 90 days.
The policy appears to circumvent California law governing retention of public records.
“We no longer dispose of plans after 90 days,” said Atascadero Chief Building Official Ken Forman. “We had a backlog of well over 600 un-filed permits.”
In some cases, permits have been signed off on years after the properties were occupied. In the DeAnza neighborhood that sets on the far north side of Atascadero on the east side of U.S. Highway 101, final permits were signed off on though home owners report the final inspections did not occur.
Karl and Jana Dearie agreed to purchase a home on Farrocarril Road from Gearhart in October of 2005. According to official documents, their property received a final inspection on three separate dates.
On December 14, 2005, Karl and Jana Dearie moved into their home on Ferrocarril Road in Atascadero. Prior to moving in, Dearie called the city inspector and was told the city had performed the final inspection, Karl Dearie said.
“We told him, ‘No it had not,’ ” Karl Dearie said. “The roof vents were not painted. We asked him to call when he gets a final.”
Following the cities assurance the property had passed its final inspection, the Dearies moved into their new home.
Melanie Schneider signed off on the escrow and provided Stewart Title officials with a final inspection date of Dec. 12, 2005.
In an odd twist, Schneider, an ex-employee of Stewart Title who was a key person in the majority of Gearhart transactions, reportedly moved to Colorado with Kelly Gearhart’s brother, Doug Gearhart, shortly after the fall of Hurst Financial Inc. (a hard money lender currently being investigated by the FBI due to fraud primarily related to Gearhart projects).
Attorneys retained by investors allegedly defrauded by Gearhart are looking toward Stewart Title for financial restitution for alleged negligence, and in some cases fraud.
Fast forward to 2008, when Atascadero officials began ordering homeowners to allow them to inspect properties occupied in prior years. In a letter to the homeowners Forman writes the purpose of the inspection is to ensure buildings conform to approved plans.
The city’s approved plans for the Dearies’ home not only differ from the structure, but also show the home was built on a portion of their property that is currently undeveloped.
“Please understand that occupying a structure without final inspection and approval by a city inspector is a violation of Section 8-2.110 of the Atascadero Municipal Code,” Forman says in a letter to the Dearies on July 8, 2008. “Failure to comply with this request by the stated deadline may result in enforcement action….”
An inspection report, on file with the city, states that an inspector dated the final inspection as having occurred on Dec. 27, 2005. However, the Dearies said they were home that day and no one from the city came to inspect their home.
In addition, a half dozen initials signing off on the Dearies 2005 inspection report do not match Atascadero’s Senior Building Inspector David Muehlhausen’s initials or any 2005 city inspector, leading the Dearies to question whether the reports were forged.
“The building department is supposed to work for the community not the developer,” Karl Dearie said. “The city is negligent; it is a clear breach of duty.”
Following a handful of threatening letters and a $227 fine for non-compliance from the city, the Dearies allowed the city to do a final inspection on Sept. 30, 2008. The inspector was unable to the sign off on the septic system because its exact location is not known.
“They have jeopardized persons and property,” Karl Dearie said. “I am not going to sell and not tell people; it is a disclosure issue. We have a different moral compass.”
Frustrated with the city, the Dearies asked Realtor Stacie Ormonde and Stewart Title to look into the status of inspections for their home.
“Kelly talked to the city inspector,” Tamara Gearhart (Kelly Gearharts wife) wrote in letter to Ormonde. “They are cleaning up files. They found they had a correction that was not signed off on the out building. Not a big deal they just never went out to sign off. They have to take a look. Sorry, but this happens a lot.”
Letters from the city in 2008 originally claimed that the house and the out building were not properly inspected. Following complaints by the Dearies, the city changed their request for inspection to include only the storage facility.
In early 2005, Gearhart finished construction on two auto bridges that provide access to the DeAnza neighborhood homes. In both cases, Atascadero officials failed to require city permits and did not inspect the crossings prior to allowing autos to use the structures.
Because of this, the city failed to collect thousands in public improvement fees.
In addition, the creek bridge failed to meet American with Disability Act requirements, according to an e-mail from former Atascadero Planner Steve Kahn.
Gearhart saved thousands of dollars on public improvement, valuation, and impact fees.
Some city planning officials denied that any favoritism was shown to Gearhart that involved his projects. One upper-level city employee, who asked to remain unnamed because of job security issues, contends city officials required tougher building standards when working with Gearhart.
Brennler looked into the 30 cottages that were not finalized correctly and as such he contends the city failed to collect $292,500 in development impact fees and $117,000 in capital impact fees.
“The city bent over backwards to help Gearhart move his projects along and then he turns on the city by moving people in before the properties were finaled and the fees were paid,’ said former Atascadero Planning Commissioner Joan O’Keefe. “Gearhart was able to deflect the blame on the city because of the city’s poor record keeping.”
In June 2007, Brennler asked the district attorney to determine if Gearhart’s violations of local and state building codes were criminal in nature.
Several weeks later, District Attorney Chief Investigator William Hanley wrote that prosecutors were declining to further probe Gearhart as his “conduct does not rise to the level of criminal wrongdoing.” Hanley did not remove himself from the investigation despite his family’s ties to Gearhart.
Del Robasciotti, Gearhart’s close friend and Hanley’s brother-in-law, has worked as a sub-contractor for Gearhart for several decades.
Gearhart, a former Atascadero Citizen of the Year, is under investigation by numerous federal and state agencies for his participation in an alleged lending scheme in which thousands of investors were bilked out of at least $80 million.