Omar El-Baroudi and Joe Russack each saw the American dream on Magnolia Street in West Oakland, where two empty, dilapidated homes stood side by side.

Russack purchased one of the fixer-uppers in July 2008, and the following month El-Baroudi bought the other - each intending to rebuild the houses with their own hands to make up for what they lacked in cash.

But before long, the city of Oakland notified the new homeowners that they were breaking the law. Their offense: owning blighted properties.

What happened over the next three years to El-Baroudi and Russack echoes the experiences of dozens of other Oakland property owners who have been penalized by the city with fines and liens for blight that many say are exorbitant and have prevented them from actually fixing their properties.

"The city wasn't very interested in what happens on the ground and fixing up the house," said El-Baroudi, who is still unable to move into his house. "They were just interested in collecting money and fines."

Complaints of unprofessional, retaliatory and intimidating treatment by building inspectors as well as excessive fines, fees and liens against property owners were investigated over the past year by the Alameda County civil grand jury, which called the city's actions "appalling." Tonight, the City Council will hold its first hearing on the issue.

The city's Building Services Division investigates substandard buildings, construction work without permits, and the accumulation of trash, debris, graffiti and other blight on properties. In blight cases, the city can hire a crew to clean up a property at the homeowner's expense and without the homeowner's permission.

Among the problems found by the grand jury was that the city had awarded a disproportionate number of cleanup jobs to a contractor who had "inappropriate access to the private office of the former inspection manager," who at one time had lived at a property owned by the contractor. In many cases, the grand jury said, the contractor submitted the lowest bid, won the job and then later inflated the cost of the work by submitting change orders to the original bid.

Problems worsen

Building Services Division staff will respond to the allegations tonight, but critics of the division are doubtful the city will change. Some of the same problems raised in a grand jury report more than a decade ago not only remained uncorrected but grew worse, according to the latest grand jury findings.

"This is theater," said Russack, 42. "They've always known what the problem is."

In one of the most egregious cases of abuse of authority cited in the grand jury report, building inspectors entered a single-family home cited for blight and a substandard interior, and violated a search warrant by removing and disposing of everything in the house. The inspectors even had animal control take the homeowner's dog.

Forced from her home

Last week, 83-year-old Leola Matthis appeared before a council subcommittee and said she had been forced from her home. She said the city sent the warning letters to a wrong address.

At a time in her life when she is too frail to fight, the longtime civil service worker said in a barely audible voice that her house was everything to her: "I have to have something to hold on to, something to lean on."

In another case, the city charged a property owner $18,000 in fines and fees and forced the owner to demolish a garage that had been legally converted to a recreation room after citing the home for blight, according to the grand jury report. The blight turned out to be children's toys in the yard.

Changes ahead

City Administrator Deanna Santana, who was recently hired, said the city will make changes to respond to problems found by the grand jury. For one thing, the city will create, by 2012, an operations manual - which Building Services does not have. The city also has hired a consultant to help create a records management system.

Two weeks ago, in response to charges that property owners weren't being notified of problems, Building Services started posting signs on the actual properties deemed blighted, according to Deputy Director Ray Derania.

The city's sluggish pace baffles Michelle Cassens, who has spent three years fighting Building Services after it condemned the West Oakland home she, her husband and son live in.

One of the biggest problems with Building Services is that appeals are not handled by an independent party but often are dealt with by the same Building Services Division that had issued the citation or fine to begin with, according to the grand jury report.

"The elephant in the room is that today there still are people whose lives (are) in crisis because of this," Cassens said. "All these responses, as far as I'm concerned, are designed to divert the unaffected public's attention. ... You're not supposed to need an attorney to own a home."

Use of liens

One of the most controversial policies cited by the grand jury report is the long-standing practice of placing liens on homes the city declares blighted. Liens as high as $827,000 were put on homes as a warning to fix properties.

But sometimes they made little sense. In one case, Building Services closed a case after the property owner cleaned it up. But days later, the city placed a $35,000 lien on the home anyway.

A decade ago, the grand jury asked the city to stop placing liens on blighted homes. Oakland uses liens at the start of the process, as a way to notify owners of a problem. San Francisco and San Jose use liens on the back end - only after all invoices have been sent to the owner and payment has not been received for 30 days.

Oakland has temporarily suspended its practice, but Santana says the city will continue to use liens in the future. Santana says it's a good way to warn prospective buyers of problems with a house.

A lien is viewed as an encumbrance on a property and can interfere with financial transactions related to the property, making it difficult if not impossible for the homeowner to take out a loan against the property.

Homeowners suffer

Russack and El-Baroudi, the men who bought run-down homes next door to each other, think that's ludicrous.

The fines and liens each homeowner faced made it even more difficult for them to fix up the homes, particularly under the deadlines set by the city that neither homeowner was able to meet.

Russack gave up trying to fix up his home himself and took out loans to pay for contractors. At the time, El-Baroudi couldn't afford to.

Now, three years later, Russack's house is fixed, but he is loaded with debt. El-Baroudi, 45, however, can't get loans to fix his property because of the city's liens and fines. His home is unfinished and boarded up.

The only difference between the two, said Russack, is that "I had more cash on hand and resources."

The problems with blighted homes are self-evident, they say. Russack's home didn't have a roof, and he had to gut it from the ground up to remove mold. El-Baroudi's home had squatters in it until he bought it and changed the locks.

Ultimately, they say, the city is perpetuating the very blight problem it wants to remedy.

"Unfortunately, the way (Building Services) has treated people explained what never made sense: Why do you have houses that nobody buys or fixes up?" Russack said. "How could you have property that's 15 minutes from downtown San Francisco and close to public transportation be vacant? It's not fear of the ghetto. They make these places impossible to buy."