After waiting to buy houses seized by Caltrans nearly six decades ago to make way for a freeway extension that was ultimately scuttled, longtime residents of those homes received some bad news this month.

People who decide to buy under a plan engineered by the state Legislature will not receive the equity on those homes if they sell them. Furthermore, those homes will not stay in a family upon death of the owner, according to local Attorney Chris Sutton.

“No matter what price they pay, the tenants don’t get the equity,” Sutton said.

However, buyers do get the original purchase funds back if they sell. If a buyer sells the house one year after the purchase, the buyer would only receive the amount they paid to purchase the home. In the second year, the owner would receive the purchase amount and 20 percent of the property’s appreciation. After five years, the owner would receive 100 percent of the appreciation of the home on top of purchase price if they sell the house at market value. The rest of the money would go to the California Housing Finance Agency (CHFA).

On a house with a fair market value of $600,000 selling for $200,000, the buyer would get a loan for the $200,000, but a $400,000 lien would go to CHFA, who would get the equity if the property were sold.

Any money produced as part of the sales would be spent by CHFA in Pasadena, South Pasadena, part of Los Angeles, Alhambra and La Cañada Flintridge for affordable housing projects.

According to Sutton, the potential buyers were bamboozled by a once supportive bill authored by former state Sen. Carol Liu, D-La Cañada Flintridge, which changed the way the houses were sold.

Under the original bill authored by Liu, which the tenants endorsed, at the end of the 30 years the owner would get the full equity in the house. In addition, heirs could step in upon an owner’s death and continue to own the home.

But according to Sutton, Liu’s bill was changed during the legislative process and heirs must now reapply to qualify for the affordable purchasing program. If they don’t qualify, the home would be sold.

“The governor would not agree to it, because it was too much of a giveaway,” Sutton said of Liu’s original bill. “If the tenants knew it was going to end up like this, they would have opposed it.”

Sixteen tenants have applied to purchase the Caltrans homes they are living in under the affordable purchase program. Three of those candidates did not qualify.

Eight others have agreed to buy their homes from Caltrans under an inflation adjusted sales price. Under that process, Caltrans added decades of inflation onto the price of the houses based on the Consumer Price Index, even though the CPI is not used in real estate.

Sutton said those eight families agreed to buy the homes at the inflated prices because they wanted to get on with their lives.

“They went out and found the extra money so they could get away from Caltrans forever,” he said.

The five remaining tenants have filed a lawsuit against Caltrans, claiming Caltrans tried to raise their rent and the price of their homes illegally. Sutton is representing those five families in their lawsuit.

This is not the first setback for tenants living in many of the nearly 500 homes in Pasadena, South Pasadena and the Los Angeles neighborhood of El Sereno that were seized by Caltrans through eminent domain in the early 1960s to make way for an extension of the Long Beach (710) Freeway to connect with the Foothill (210) Freeway.

The California state auditor found that between July 2007 and December 2011 Caltrans, which did not verify the eligibility of tenants to be charged below-market rate rents, collected $12.8 million in rent but lost $22 million due to underpayment by ineligible tenants. During most of that period, Caltrans reportedly paid out another $22.5 million for questionable repairs and spent an average of $6.4 million per year on property repairs but could not demonstrate that repairs for 18 of the 30 projects reviewed by auditors were reasonable or even necessary.

Six months after the audit’s release, Caltrans began increasing rents by 10 percent every six months, until people were paying market-value rents on the homes.

The rent increases have left some families unable to afford the homes they were living in.

In 2012, after the surface option for the freeway extension was taken off the table, The LA County Metropolitan Transportation Authority (Metro) and Caltrans officials announced they wanted to build either a six-lane highway along portions of West Pasadena or a 6.3-mile tunnel from the end of the 710 Freeway in Alhambra to Pasadena, but those ideas were also eventually nixed.

In September 2016, Caltrans announced its intention to finally sell the homes starting with 42 properties going up for sale in 2017. Caltrans announced the agency would retain an easement to the property underneath the homes.

The homes are being sold under three phases. Phase 1 includes the sale of 42 homes and 11 vacant lots that are not within the scope of the remaining project alternatives. In Phase 2, Caltrans will make a decision to sell some of the other properties that fall within the scope of the proposed project. Remaining properties deemed as surplus after the project is either built or formally denied will be sold as part of Phase 3.

“It’s just cruel,” Sutton said. “It stops people from buying the homes they have lived in all of their lives. It’s unclear if CFHA even knows Caltrans is using inflation to raise the price.”