As far as the city’s concerned, the elegant row house just off Logan Circle at 1342 Vermont Ave. NW is vacant. But on a recent Sunday evening in May, a man standing in the threshold of the basement unit says he and his family have been living there steadily for three years.

A woman next to him holding a baby refuses to give her name but does explain why the city thinks her house is vacant. “They ask you to declare that it’s vacant of tenants,” she says. She adds that the units above the basement are empty. She won’t say whether they are converting the building to condominiums and then refuses to answer any more questions.

There’s reason to be cagey. By informing the District’s Department of Consumer and Regulatory Affairs (DCRA) that an occupied house is vacant, a property owner can avoid paying a 5 percent condo-conversion fee. That fee is supposed to go into a housing-assistance fund for District residents displaced by the real-estate boom.

The law, which requires a building to be “fully vacant,” does not make an exception for owners. The DCRA disagrees, says agency spokesperson Karyn-Siobhan Robinson: Owners don’t count. “That’s unbelievable,” says Ward 1 Councilmember Jim Graham, who chairs the committee that oversees the DCRA. “It’s another example of how DCRA has worked ceaselessly to benefit landlords.”

Property records show the house on Vermont was purchased in 2003 by Kenneth and Ramona Jones for $1.12 million. Even assuming that the property hasn’t increased in value since then and that breaking it into separate condos wouldn’t add additional value, the Joneses would still owe $55,750 to the city’s housing-assistance fund if they converted to condos. With a vacancy exemption, they owe nothing.

Thousands of apartments have converted to condos in recent years. Collecting the proper fees would have netted the city tens of millions of dollars it could use toward providing affordable housing. Because of the exemption, the housing-assistance fund has only about $300,000 in it, according to the DCRA.

The dwindling fund dates back to a mid-’90s attempt to fix a kink in the condo-conversion law.

For years in the District, if a building owner wanted to convert a vacant building into condominiums, he had to send somebody in there to spend the night. The overnight tenant would convene a one-person meeting, hold a “tenant election,” vote to convert, and move out the next morning. The charade was necessary because of poorly written District law that didn’t exempt vacant properties from the requirement that an election always be held before a condo conversion.

In 1995, when the D.C. Council reauthorized its condo-conversion law, that nonsense was amended out by adding an exemption for vacant properties. What the council didn’t know at the time—and what the landlord lobby surely did—is that the city was inadvertently signing away millions of dollars in future funds.

The committee report that accompanies the bill, which is the lawmakers’ way of describing the intent of the law, gives no mention of any intention to create an exemption to the fee—only an exemption to the election.

The temptation of avoiding the high 5 percent fee and the possible exemption makes for a strong incentive to vacate a building before converting it to condos, says Graham. Or, at least, to claim it’s vacant.

Vacancy-exemption applications have skyrocketed in recent years. The number filed has roughly doubled each year since 2001, when they jumped from 24 to 59 in 2002, then to 90 in 2003, and then to 181 in 2004, according to numbers provided by Graham’s office. The DCRA says that in 2005, 308 vacancy-exemption applications were filed and only one was rejected. In 2006, at least 206 have already been filed, with two rejected. Over that same time period, at least 472 buildings were converted from apartments into condominiums, most of them invoking the vacancy exemption to avoid the fee.

But were all those buildings actually vacant? Robinson claims an inspector is sent out to verify each vacancy-exemption claim.

“That’s not true,” says one housing inspector who has been with the agency for almost 30 years.

It doesn’t appear that an inspector checked out the Ashford Manor development in Washington Highlands. In September 2005, the project’s developers paid $4.86 million for three Southeast buildings. In October, they applied for a vacancy exemption in order to convert all 81 units into condos. Carl Bradford, a housing-regulations officer with the DCRA, approved the application in November.

But none of the buildings were vacant. Two of the buildings had one person still living in each; the third had at least a half-dozen. An attorney with the Legal Aid Society of the District of Columbia informed the DCRA of its blunder, and Bradford revoked the exemption, calling it an “unfortunate over site” in a letter to the developers. Bradford apologized for the mistake—but not to the tenants. “We apologize for any inconvenience and if at any time you have questions or concerns please contact our office,” he wrote.

The developers paid the lone holdouts in the two buildings $500 each to agree to move out. Their second application for a vacancy exemption was granted; condos are now on sale for about $200,000 apiece. Each sale at that price could be netting the assistance fund $10,000. Because the tenants moved out, the District gets nothing.

As currently written, there’s no time limit to the exemption, either. One DCRA employee told Graham’s office that a building on Arkansas Avenue NW was registered as vacant in 1985 and converted to condos 20 years later. Suspicious, the worker went to the address to check if it was vacant in 2005. It wasn’t, but the conversion went ahead, and no fee was collected.

The Washington Interfaith Network (WIN), which recently persuaded DCRA Director Patrick Canavan to perform an audit of the agency’s files to determine why the housing-assistance fund is nearly empty, met with Canavan to discuss the issue. The Rev. Jeff Krehbiel of Dupont Circle’s Church of the Pilgrims says that Canavan told the group that he performed a spot check of the files in advance of the meeting and quickly found millions in uncollected fees. “I’ve got a much bigger problem than I thought I had,” Krehbiel says Canavan told him.

Robinson would not comment on the meeting with WIN and refused to make Canavan available for an interview. She says it is “inappropriate for DCRA to comment before the audit is complete.”

Regardless of the audit’s outcome, the days of dodging the conversion fee may be coming to an end. Legislation to repeal the exemption, introduced by Graham, passed by council vote unanimously in May but must be voted on a second time in June in order to become law.

Graham says it was the bankrupt housing-assistance fund that raised eyebrows. “The fund at one point was producing income at just a couple of hundred dollars. That was a dead giveaway something was wrong, at a time when buildings are converting left and right,” he says. “The most interesting question here is the issue of whether the D.C. government can go back in time to collect these fees.”

Graham says that Canavan told him he thinks the agency can legally pursue the delinquent fees and that it intends to do so. Krehbiel hopes it does: “This is too large a sum of money for the city to just say, ‘Oops.’”CP