Monday, July 23 , 2018, 5:14 am | Fair 66º


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Santa Barbara’s La Casa de la Raza Files for Chapter 11 Bankruptcy

La Casa de la Raza filed for Chapter 11 bankruptcy Wednesday so the 45-year-old Lower Eastside community center can restructure its debt and stave off the foreclosure of its iconic Santa Barbara building.

Leaders of the nonprofit said they reached an impasse with their lender this week, compelling Santa Barbara attorney Matthew Clarke to file for bankruptcy on their behalf.

La Casa de La Raza, which was founded in 1971 to focus on preserving Latino cultural heritage and providing an umbrella for services, will remain open and operating as usual during the process.

This is the fourth time in four years La Casa has worked to avoid foreclosure for failing to repay outstanding debt on its 601 E. Montecito St. headquarters.

Clarke said that while one community member was willing to commit financially to restructure La Casa’s loan, the nonprofit’s current lender — Tomas Castelo, a local attorney and co-founder of La Casa, through his entity MLG Leasing, Inc. — wouldn’t allow another week to complete the restructuring.

Castelo bought La Casa’s loan note from Fidelity Mortgage Lenders Inc. last September to grant the nonprofit relief from debts and to avoid foreclosure.

La Casa leaders say they had been in discussions at the time with the Santa Barbara Foundation regarding a “tailor-made nonprofit lending program,” and Castelo said he would take over the note while those talks progressed.

Instead, in what La Casa calls a “hostile takeover,” Castelo threatened to foreclose on the building that’s worth at least $3 million, Clarke said.

That version of events was refuted by Castelo, who said he took on La Casa’s debt to work with the board to make the nonprofit model sustainable instead of having members keep borrowing against the building.

La Casa said in order to preserve its assets, the board of directors voted Wednesday to file for Chapter 11.

“We will not stand idly by and allow personal self-interests to prevail,” La Casa board president Marisela Márquez said in a statement.

As part of the bankruptcy process, Clarke said the nonprofit will develop a plan to replace Castelo. 

This isn't the first time Castelo said he’s tried to save La Casa from hemorrhaging money and operating without proper record keeping. In 2012, he paid $146,000 to take over its loan note from Santa Barbara Bank & Trust.

After La Casa paid Castelo back, he said. it took out the Fidelity loan and soon found itself in the same position.

“They kept slipping further and further into the hole,” Castelo said, citing a lack of transparency. “I decided that I’m not going to step aside so easily.”

He said he threatened to foreclose on the building only after La Casa leaders refused to meet with him or to disclose how much they’ve borrowed from other sources.

The plan was never to have the title in his name but to establish a community foundation inside the building, whether that could still be La Casa or another nonprofit.

Castelo said La Casa owes him nearly $600,000 at this point, including legal fees.

The latest woes are loosely related to La Casa’s previous property-tax issues. The nonprofit has been working since 2012 to have its taxes reassessed so it gets a nonprofit status rate instead of paying as a business. 

In a press release from the organization, which is led by executive director Raquel Lopez, the nonprofit reprimanded Castelo and thanked the community for continued support. 

“In essence, this lender is attempting to seize a landmark historic institution in our community for a tiny purchase price,” La Casa leaders said. “Snatching homes from senior citizens off the courthouse steps by paying their late mortgage bill, for example, is a common practice for people wanting to acquire properties for a song.

"This is how communities become displaced, a terrible side effect of gentrification. And now someone is attempting to do that to La Casa.

“La Casa’s staff and board want to thank the community of Santa Barbara, Carpinteria, Goleta and Los Angeles who have reached out to us. We look forward to continuing our work together in solidarity as we move this agency forward. The board and staff also want to invite anyone and everyone who would like to help La Casa – please contact us.

"We are here by and for the community.”

Castelo said bankruptcy may be be good for La Casa, since it would force the organization to disclose how it has been spending money to get to the root of the problem.

Noozhawk staff writer Gina Potthoff can be reached at .(JavaScript must be enabled to view this email address). Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.

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