ISSAQUAH — Real-estate agent Betty Chandler knew something was off soon after her clients walked into their new condos in the Issaquah Highlands.

Many of the new homeowners had purchased the condos at lower-than-market prices, thanks to help from an Eastside organization that provides housing for households whose incomes are below the King County median. Their neighbors, at least on paper, qualified for the same program operated by A Regional Coalition for Housing (ARCH), an agency that pools money and works with affordable-housing providers to build and preserve housing.

But when Chandler wanted to send a welcome note from her buyers to their new neighbors, the mailing addresses were different from their Issaquah Highlands homes. One client even told her some people were renting condos in the neighborhood.

“I said, ‘That can’t be, you signed a covenant that it has to be owner-occupied,’ ” Chandler recalled. “She said ‘I know what I signed, and I’m telling you there are a tremendous amount (of condos) being rented out.’

“That was my first awakening that all that glitters is not gold.”

A KING 5 investigation last year found that many of the owners of condominiums in the Issaquah Highlands and Bellevue weren’t living in their ARCH properties, but instead renting them out to others for profit, using them as a second home, or leaving them empty. All three acts were in violation of the agreements they signed with ARCH.

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In addition, a recent investigation by The Seattle Times revealed an additional two dozen homes in Issaquah, Bellevue, Woodinville and Redmond where the owners appear to live somewhere else, in violation of the rules of ARCH, which is partially funded by Eastside taxpayers.

After the KING 5 investigation, ARCH officials said the nonprofit organization would hire a home-ownership consultant and conduct its own audit of the about 700 ARCH-administered homes spread across the Eastside. But at least one city is withholding its funding for ARCH until it has more information on how ARCH plans to address the problem.

“Just as important as it is to create affordable housing, it’s also important that we do the work to ensure that those who are intended to benefit from those programs are actually benefiting,” ARCH Executive Director Lindsay Masters said in an interview with The Times.

Chandler, the real-estate agent, said the issues of ARCH homes have been largely ignored, and the violations — and negative impacts on other would-be buyers — go back more than a decade.

“What about all the people who weren’t allowed to purchase because some investor did?” she said. “It can be fixed, but it isn’t going to cure the damage that has been done.”

Partnership for affordable housing

ARCH is a partnership among 15 Eastside cities to preserve and increase affordable housing for a region where the cost of living has ballooned. The median cost of an Eastside house is nearly $1 million and the median cost of a condo is $489,250.

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ARCH-administered homes, which include condos, townhomes, duplexes, cottages and single-family houses, are sold for between $150,000 and $500,000. To qualify, the household income can’t exceed a certain percentage of the King County median income. For a one-person household, the median income is $72,380. For a two-person household, it’s $82,720.

A one-bedroom condo in Frazer Court in Redmond, for example, is listed for $300,000, and the people living there must earn $74,448 or less. Other Frazer Court units not administered by ARCH are valued between $350,000 and $530,000.

After 60 days, the home can be sold to anyone at the ARCH price, regardless of income, but the new owner has to follow the rules set by ARCH. The home must be occupied by the owner, who can’t rent or lease the property. There are also restrictions on how much the property’s price can increase if it’s resold.

But over time, ARCH acknowledges, some owners violated the rules.

Condos at Ashford at Vista Park in the Issaquah Highlands were auctioned off in 2008 to new owners who agreed to live there and prove they had moderate incomes. The development remains administered by ARCH, though some of the condos have been resold by the 2008 owners.

One three-bedroom, two-bathroom condo is owned by a couple whose property-tax bills and voting records list an address of a Mercer Island home valued at nearly $3 million, according to King County property records. A two-bedroom, one-bathroom unit is owned by a man who also owns homes in Issaquah and Des Moines.

Owners for a handful of condos in the Enclave at Issaquah Highlands are listed as living in Issaquah, Sammamish, Bellevue, California and Texas, according to property records.

Owners in three of the nine ARCH units in the McKee Condominiums in Bellevue were violating the rules, as first covered in the KING 5 investigation. One unit was owned by  a couple who also owned a home valued at $581,600 in Olympia, where they work as state government employees.

Another owner in an ARCH unit had regularly rented out her home and put it up for short stays through Airbnb.com, which violated the rules of the building, said resident Laura Duncan.

“It was like every single thing she did didn’t comply with our rules,” Duncan said.

A building manager alerted ARCH in 2012, Duncan said, but the organization didn’t take any action at that time. ARCH reviewed the reports on the McKee owners after the KING 5 investigation and said they were working with the owners to sell their homes to buyers who qualified for the program.

The couple with the home in Olympia sold its condo in mid-February, and the second owner who rented out her condo sold it late last year. The tenant of the third owner is being allowed to remain at the residence until their lease ends.

The city of Bellevue is working with the City Attorney’s Office to figure out the circumstances of each unit, said Deputy City Manager Kate Berens. In addition to making the violators sell the homes, another possible option would be to recoup any rent payments the owners earned from the tenants.

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The city hasn’t concluded whether the activities were illegal, Berens said, as that would involve fraud versus violating the ARCH contract agreements.

Audit being conducted

ARCH says it will complete an audit of all its homes by the middle of the year. It’s also hired a consultant to formally evaluate the program’s policies and procedures.

Other recommendations include developing better ways to verify a person’s income, and adding an asset test to the process. The program doesn’t preclude the owners from owning a second home, as long as the ARCH property is their primary residence, nor does it conduct a review of the potential buyer’s assets beyond income.

It’s possible that some owners’ annual earnings met the requirements, but they also had other property and savings that contributed to their net worth.

The program is meeting with each city as part of an annual process to present its budget and programs, and asking for a 3.5 percent increase in each city’s contributions. At least one city has raised questions about the practices in relation to its funding. Bothell is withholding about $100,000 in funding until it meets with ARCH, Mayor Andy Rheaume said.

City Council members had some concerns after hearing about the investigation, Rheaume said.

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“They’ve been an awesome partner to the city, and they’ve produced the one thing we really need, which is affordable housing,” he said. “We wouldn’t throw the baby out with the bath, but it’s more of a ‘hey, what is going on out there?’ We had some concerns over what was happening in Bellevue.”

Masters, the ARCH executive director, stressed that the vast majority of the ARCH homeowners and renters have complied with the program.

“For the people who knowingly violated the rules, it’s very unfortunate,” she said. “It takes away from all the people who do benefit from the program and do benefit from the rules.”