Musings: Abuse Chronicles 10

How does a house that never was a vacation rental — a house that for years got Kauai County property tax deductions for being owner-occupied — still manage to score a TVR permit, making it attractive to Southern California real estate speculators who reaped a cool $355,000 in three months by flipping it in a short sale?

It happened like this. Once upon a time — April 10, 2003, to be exact — Liz and Bruce Farnsworth paid $1.25 million for a house at 7316 Alealea Rd. in Haena.

According to neighbors, the Farnsworths lived fulltime in the house. According to county property tax records, they took a $96,000 annual homeowner's exemption — aka a “Permanent Home Use Credit”— for the years 2007, 2008, 2009, and 2010.

On. Oct. 14, 2008, shortly after the county adopted its TVR ordinance, Liz Farnsworth applied to the county for a nonconforming use certificate (NCU) to operate a TVR. Her file is lean, lacking virtually all of the documentation required by the TVR law. There's no owner affidavit, no record of any rental history, no proof that any general excise or transient accommodation taxes were paid.

Her application claims the TVR use started on May 10, 2000 — predating the house's final building inspection and encompassing the years the couple received permanent home use tax credits. Furthermore, the GE license says the business began Jan. 1, 2008.

Despite the contradictory and missing documents — and the presence of an illegally enclosed room on the ground floor in the flood zone — the county granted Haena Hale an NCU permit on June 22, 2009. The Farnsworths continued to live in the house and never used it as a TVR. Nor did they renew their TVR certificate for the years 2009 or 2010.

It was “all g” for the Farnsworths until 2011, when money troubles hit hard. With foreclosure imminent, they placed the house on the market with Hawaii Life Realtors for $1.7 million. The MLS described it as a “short sale” and notes: “Home is owner-occupied and easy to show.” It also describes the downstairs enclosure:

“The ground floor space has been efficiently laid out with an enclosed work space/exercise room complete with a loft - whimsically crafted lava rock outdoor shower is adjacent. A covered space for 1 car is augmented by an enclosed storage space that can also house another vehicle.”

Here's a picture of that enclosed ground floor, which the county apparently missed during the original TVR inspection:

On Sept. 29, 2011, Liz Farnsworth submitted an application to renew her 2011 TVR certificate. She attached a hand-written note explaining she missed the July 31 deadline because “I have been out of the country for six months for work.” Inspector Vil Balisacan approved her late renewal on Oct. 7, and also allowed her to retroactively renew her permits for 2009 and 2010, as evidenced by the sequential numbers on checks paid and receipts given for those applications.

With the TVR permits thus secured,  7316 Alealea Road LLC — a real estate investment company formed by Del Mar Realtor Bill Morgan — bought the house for $875,000 on Dec. 5, 2011. Shortly thereafter, Internet ads began appearing for Hale Hina. Three months later, he flipped the house for $1.23 million, netting $355,000. His company also bought and sold two other TVRs in the area.

Coldwell Banker completed the house's transition from residential to commercial property by assuming the job of renewing the 2012 permit, and providing “professional management.”

Which is how a house that previously was occupied by two fulltime residents came to be a mini-resort that “sleeps 8,” with the promise that even more can be accommodated:

King size beds (1), Queen size Beds (2), Baby Cribs (1) Can be rented and delivered upon request. Pack-n-play available if desired., Sleep Sofa or Futons (1) Day bed.

And though several ads describe it as newly remodeled, no building permits for such work could be found.

Yet another ad proclaims:

You won't see any high rise, timeshare resorts here, just a contrast of multi-million dollar beach homes and tin-roofed island shacks.

With the multi-million dollar beach homes functioning like resorts, and the tin-roofed shacks scant remains of a once vibrant local neighborhood.