La Casa de la Raza’s efforts to remove itself from financial misery by declaring bankruptcy were dealt a major setback this week as federal Judge Deborah Saltzman ruled the nonprofit’s board of directors is not legally constituted and therefore not qualified to declare bankruptcy in the first place. Saltzman ruled that boardmembers were not elected according to La Casa’s bylaws, which require general-membership meetings and votes. How the existing board is supposed to remedy this problem was not clear, but Saltzman’s ruling effectively blocks La Casa from selling off its East Montecito Street community center to satisfy more than $1.2 million in debt.
Fighting the bankruptcy proceeding has been a loose-knit confederation of some of the founding members of La Casa, which was organized in the late ’60s as focal point for Latino activism, arts, culture, education, and a host of community services. Leading the charge has been Tomas Castelo, whom La Casa owes around $800,000. Two years ago, Castelo paid off La Casa’s bank loan and then threatened to foreclose on the property. When Castelo has demanded repayment, La Casa has balked at the price — objecting to accrued interest charges. La Casa eventually declared bankruptcy about two years ago.
La Casa’s financial woes have been the stuff of operatic scale and political rivalries dating back decades. Multiple interventions have tried and failed. Castelo is a canny real estate investor, and his attorney, Tony Fischer, said he’s eager to meet with La Casa leadership to work something out. In previous interviews Castelo has said he opposed the sale because the building was a community asset and because it would put money in the hands of the very people responsible for La Casa’s mess. Experts believe the property could fetch $5 million, which would leave the current organization with more than $3 million after debts are paid off. Without bankruptcy protections, however, Castelo could initiate foreclosure proceedings against La Casa and wind up with a property worth millions more than he’s currently owed.
Castelo challenged La Casa’s bankruptcy filing, arguing the organization had not held a general-membership meeting or board election in years, both of which — he and Fischer insisted — violated its bylaws. The court agreed.