Santa Monica to Study Loan Deal : Inquiry: Ex-Mayor Nat Trives may have received improper funds from city housing agency. Trives denies wrongdoing.

Former Santa Monica Mayor Nat Trives and a local home renovation agency are the targets of a city investigation into whether Trives received an improper loan from the nonprofit agency to finance a commercial condominium project.

The 7-year-old deal was uncovered in a routine audit of the city-funded agency, the Neighborhood Resource and Development Corp. The investigation threatens the future of the 11-year-old agency, which fixes up homes in the city’s poorest and most ethnically diverse area--the Pico neighborhood.

The agency, which depends on the city for most of its more than $300,000 budget, faces an outright cutoff of funding. So far, two agency directors, Matthew Millen and Octavia Miles, have persuaded the city council and staff to postpone the agency’s “corporate death penalty” and provide $112,000, or four months of funding, until the investigation is complete, according to city documents.

Meantime, city officials have been poring over the agency’s records, which have been described as so sloppy that an outside auditing firm could not perform an adequate audit in January. When the audit was completed in the spring, city officials found that the agency might have improperly loaned money to one of its directors, Trives, and that it spent $7,428 in city grant money to pay for parking tickets, bank late fees and IRS penalties.

Trives, a deputy superintendent at Santa Monica City College, has vigorously denied any wrongdoing and insists the $25,000 he received was an “investment” to help the agency start building moderately priced housing in the Pico neighborhood.

The money went toward a five-unit condo project built by Trives that eventually went sour when the units went on the market at $180,000 to $190,000 apiece in 1992, at the depths of the real estate recession.

“Nobody’s trying to hide anything,” Trives said. “We just happened to be the dumb guys in the community who got in when the housing market” crashed.

“I’m not going to sit back and let the NRDC go down on this issue,” Trives said.

Agency Executive Director Clyde Smith said he could not comment on the failed condo project or the investigation.

The seven-month probe has focused on the $25,000 the development corporation gave Trives in 1988, when he sat on the agency’s board of directors. The city’s contract with the agency bars its directors from acquiring “any personal, financial or economic interest” from the agency’s dealings. State law bars a nonprofit corporation from making “any loan of money” to any director or officer “unless approved by the attorney general.” No such approval was ever obtained, according to internal city documents.

City Atty. Marsha Jones Moutrie, who confirmed that her office is reviewing the agency’s financial documents, said that the agency and city officials agree about what occurred, but that there is disagreement about whether the action constituted a conflict of interest. City staff members are expected to conclude their investigation soon and make a recommendation to the City Council about future funding for the agency, she said.

Trives, 60, said the agency has become ensnared in a misunderstanding between the agency’s accountants and the city’s staff. The agency, which was considered a partner in the condo project, had planned to use the anticipated profits from selling the units to finance up to 43 other projects, including building more condos to generate additional revenue.

The agency’s “dream from the day it was incorporated was to improve the quality of life in its community,” Trives said in a recent telephone interview, adding that part of this mission included building new housing along with rehabilitating existing homes and apartments.

City documents reveal that in the spring of 1988, developer Jerry Snyder donated $34,010 to the agency, which was to go toward the condo project at 1802 20th Street, near the Santa Monica Freeway. At the time, Snyder was beginning work on the Water Garden office complex near the Pico neighborhood and was donating money to various community causes.

Later that year, Trives received about $25,000 from the agency to finance the condominium development. The project was designed by architect Herb Katz, himself a former Santa Monica City Council member.

After the condos failed to sell, the bank foreclosed on the project in 1993. The development corporation forgave Trives from having to repay the loan in 1994, according to city documents.

Trives, who has no background in construction, said that he decided to obtain financing for the condo project after the agency’s initial efforts to secure a development loan were unsuccessful. Trives said that he had enough personal collateral to secure a loan.

Trives said he lost a substantial sum of money on the failed real estate project, jokingly describing the fiasco as “the largest nonprofit contribution in my life.”

Lawyer Tom Larmore, a former city planning commissioner who is representing the agency, said there is “clear support” for the agency’s contention that the arrangement was indeed an investment, but he declined to specify whether there was a formal contract between the agency and Trives.

City documents reveal that the agency attempted, apparently without success, to set up a real estate partnership regarding the condo project.

Times staff writer Nancy Hill-Holtzman contributed to this story.