Men, women, children – they were all there, packed in like canned fish. No furniture, no heat, no windows. More than 60 people, up to 12 to a room. Two bathrooms. No real kitchen. A veritable riot of daily life squeezed into a space never intended for habitation at all.

If you’re imagining a Cambodian refugee ship or some flophouse on old San Francisco’s Barbary Coast, you’re straining your imagination.

Men, women, children – they were all there, packed in like canned fish. No furniture, no heat, no windows. More than 60 people, up to 12 to a room. Two bathrooms. No real kitchen. A veritable riot of daily life squeezed into a space never intended for habitation at all.

If you’re imagining a Cambodian refugee ship or some flophouse on old San Francisco’s Barbary Coast, you’re straining your imagination. Don’t think “then and there.” Think “here and now.”

More specifically, think of a commercial two-story industrial building on a corner of 24th and Folsom in the Mission District in San Francisco. Think of one of the darkest examples of underground “affordable housing” that has ever met the California light of day.

There is much talk about the dearth of truly affordable housing in pricy San Francisco, yet every day, poor people make their way to this city and manage to find shelter – without sleeping in the streets, without getting a voucher for government-subsidized housing, without ending up in some nonprofit program. They are not the chronically homeless, nor are they average Americans who have fallen on hard times. They are the immigrants for whom American poverty is an economic step up, for whom survival has always meant making the most of scant resources and sacrificing for their families back home.

It all began around March of 2002, when a group of recent and not-so-recent undocumented immigrants from Mexico took up residence on the upper floor of 2779-83 Folsom St. Just how this habitation first occurred (like many other details surrounding this unusual case) is a matter of some dispute.

Former residents say they recall responding to a “For Rent” sign in the window. They also say the landlord, a 31-year-old, small-time real estate investor named James Chau, was building makeshift drywall rooms and filling them with people as fast as he could finish them. Within a couple months, they say, the place was teeming with residents. It was also a riot of code violations.

“It was incredibly dirty, and people were getting foot infections from walking in the bathroom,” recalls Rosa Ramirez, in Spanish. The 29-year-old mother shared an 8-by-10-foot room in the building with her three sons (ages 8, 9 and 10) for about six months. Since then, she has become one of the central plaintiffs in a wrongful-eviction and habitability suit against the owner.

While her three sons watched Saturday-morning cartoons, I met with Ramirez and Juan Carlos Hernandez, another former Folsom Street tenant, in their shared three-bedroom apartment on Alabama Street. Nickolas Pagoulatos, director of St. Peter’s Housing Committee, and Philip O’Brian, the lawyer representing the former residents, were also present; Pagoulatos helped translate Ramirez’s words into English.

“There was a lot of fighting, drinking,” Ramirez said. “I was always calling the police. And all the time, [Chau] was bringing in more and more people who were moving in. When anyone complained about things, he would threaten to call Immigration.”

Ramirez’s own propensity to call the police soon got her on the wrong side of Chau: “He told me that if I kept calling the police, I couldn’t live here anymore. I said I would stop calling the police if he would speak to his tenants. But that didn’t happen, so I kept calling the police.”

At one point, according to Ramirez, Chau decided to deal with tenant misbehavior by installing live-in managers to keep the peace. Although this sounds like a reasonable enough idea, Ramirez said the “management team,” two men and one woman who had keys to everyone’s room, were actually gang members who dealt drugs and stole money from other tenants.

Ramirez also describes Chau locking up the possessions of tenants he wasn’t on good terms with and refusing tenant access to them. One woman, she said, arrived home to find Chau had moved her roommates to another room, thereby making her responsible for the entire original room’s rent herself.

If Ramirez paints a picture of a profit-maximizing landlord quick to resort to retribution and threats, Chau’s lawyer, LeRue Grim, portrays him as a guy whose generosity and naiveté led him to help people who then turned on him.

Chau declined to be interviewed for this story, but, according to Grim, the landlord bought the place a couple years ago in a real estate trade for a value of about $500,000. He was in the process of remodeling the cavernous upper floor into offices for dot-com companies when the silicon gold rush suddenly ran dry and the office-rental market imploded. Grim said Chau got into renting out rooms in the building only after discovering squatters there and allowing them to pay rent to continue to stay, and then meeting their friends, who were equally desperate for places to live.

“He’s a nice, meek, gentle person,” Grim said. “He’s an immigrant, too. His family was Chinese American, but he arrived in the 1970s via Cambodia and Vietnam. And he felt sorry for these people. He wanted to use his experiences as an immigrant to help them assimilate.”

However big-hearted Chau might have felt, it couldn’t have been lost on him that running a rooming house for illegal immigrants had the potential to be a very lucrative business – with financial awards equivalent or even superior to those he might receive by renting to some high-flying dot-com company.

According to Ramirez, rental rates varied, depending on room size, from $600 to $1,200. She estimates that in all, more than 40 rooms were rented at the peak of occupancy, when about 75 residents lived in the building. If she is correct, Chau’s take could have been well over $25,000 a month. For a relatively undeveloped building on a tough corner of the Mission District, that’s probably record-high rent. Grim said that such numbers are wildly inflated, however, and that Chau made rental agreements with only 18 people, and any others who might have stayed there were visitors whom he never actually received money from. And although some rent receipts are available, it’s difficult to verify just how many people were actually rent-paying tenants at any given time.

“It’s hard to talk about these people without sounding like you’re criticizing them,” Grim said. “But it’s just that they had nowhere else to go, so they brought more and more people with them. It’s morally hard to deal with and legally hard to deal with. I don’t blame them at all. They come from Mexico, and they are trying to make a better life, and they responded to agitation to sue him.”

What isn’t in dispute is that, whatever his motivation, Chau didn’t actually have the legal right to rent the rooms, since the building is zoned for industrial use. It didn’t take but a couple of visits from the police (usually responding to calls from Ramirez) to quell some disorderly behavior or respond to a marital dispute before word got out to the San Francisco Fire Department and city building inspectors that the building, which had no smoke alarms, no fire extinguishers and no sprinkler system, plus inadequate toilets, a single stove and several other code violations, was uninhabitable on several fronts.

In June 2002, just a couple months after Ramirez moved in, various city agencies notified Chau that he was violating housing laws. Chau failed to remedy the situation, so eventually the city attorney’s office took him to court over fire and zoning violations and won. In November, Chau was enjoined to cease and desist renting of the building until it was brought up to code and rezoned for residential use. He was also told to pay all tenants still in the building $3,000 apiece.

But according to Philip O’Brian, who represents 26 former tenants in a suit filed in January 2003 against Chau and several other landlords, the way Chau managed to empty his building was highly irregular and illegal. The current case demands that Chau and other landlords pay damages for 16 violations, including wrongful eviction, breaking a number of habitability laws and intentional infliction of emotional distress.

“He had plenty of time to serve them 30-day notices,” O’Brian said. “But, instead, he chose to continue to collect rent as long as possible and then forcibly move people or threaten them.”

According to O’Brian, Chau sometimes said he’d report tenants to the Immigration and Naturalization Service if they didn’t leave. Other times, he locked up their possessions and informed them they could no longer live there. On several occasions, tenants arrived home and discovered that all their possessions had been moved to new locations owned by Chau or master leased by him from other landlords.

Ramirez recalls coming home and being told she had to move right away to a new location. “I only had time to get our clothes and my mattress,” she said. She later returned and moved her box spring, refrigerator and television using a Safeway (grocery store) cart.

One group of men ended up living in a garage without heat or a bathroom. Others found themselves in places without kitchens, heat or windows. Some tenants had their rent raised. In one case, a group was forcibly moved twice, and their rents were increased each time.

“What’s amazing about this case is that everyone you talk to has their own horror stories,” O’Brian said.

According to Grim, however, all such complaints are a “fabrication.” He said Chau put himself at risk by trying to help the residents keep their homes.

“He was hoping that he could get some fire-safety measures in place so they could stay and, with the city’s help, get permits and move toward making this a legal residence,” Grim said. In the meantime, the attorney said, Chau worked hard to find alternate places for the tenants to live.

“It was difficult,” Grim said. “Chau would go and rent a house, and then, when the landlord would find out who was going to live there, he would say no.” Eventually, however, almost all the residents found another place to live with Chau’s help or on their own. By the time the court ordered Chau to pay relocation fees to the residents, only 12 tenants remained in the Folsom Street building.

“When they got involved with…St. Peter’s, their attitude completely changed,” Grim said. “I don’t blame them; they have a hard life, but the tenants’ attorney – I’m an attorney, and I know attorneys are very greedy.”

(Grim, an experienced and prominent criminal lawyer, knows all too well the bad raps lawyers can get. In 1997, the California Supreme Court suspended him from practicing law for 2 ½ years after he slept with the wife of an imprisoned client and subsequently lied to investigators about the incident.)

What’s happening with Folsom Street now? According to Grim, it’s completely vacant: “My client is broken hearted. He’s made plans to turn it into a bed-and-breakfast, but right now, he’s scared, and he’s thinking of just selling it. I don’t think he knew what he was getting into.”

However, lights still glow behind a few of the curtained windows at night, and some neighbors have told O’Brian they’ve seen men going in and out of the building in the evenings. Since the city case has ostensibly been closed, it’s possible the building has again reverted to a living space for tenants or squatters.

Welcome to the underground rental market. Below the radar of the rent board, beyond the legal trappings of apartment houses, single-family homes, single-residency-occupancy hotels (SROs) and government-supported housing projects, there operates a world of makeshift dwellings owned by private landlords who see opportunity to make a fortune from the unfortunate.

“There are dozens of places all over the city, especially in the Mission,” said Nickolas Pagoulatos of St. Peter’s Housing. “It’s a very difficult situation, because these people often do not know their rights, and, no matter how ridiculous the situation is, they don’t complain.”

Sometimes, the dwellings take the form of rooming houses – chopped-up single-family homes and apartments rented out by the room with or without kitchen privileges. Sometimes, they are bigger SRO-type complexes in what was once a hotel or a commercial building. Other times, they are simply substandard structures: sheds in backyards, or apartments squeezed into dirt-floor basements.

When asked about such living situations, Rosa Ramirez and Juan Carlos Hernandez begin naming addresses all over the Mission District where they and their family and friends have ended up in illegal rooming houses. In one such property, at 30th and Mission, a volatile landlord had residents living four persons to a room, and when a new toolshed was built, she moved someone in. “If you did anything she didn’t like, she would throw water on you,” Hernandez said.

O’Brian described Ramirez, who came here seven years ago from Veracruz, as one of his “success stories,” but a secure residence still eludes her and her family. One of the tenants to receive $3,000 in relocation money from Chau, she put down first and last month’s rent ($3,400) on a small, bare-bones three-bedroom apartment she shares with her children, Hernandez, a couple and two other men. Contrary to rent-board laws, however, they pay another $250 per month for water and utilities no matter what the bills are. Recently, they were told, without any formal eviction notice, that they had to leave.

Sure, such landlords sound downright fit to be sued. But it’s also true that they offer a service few other landlords would consider providing. After all, if you owned a house, would you rent to illegal immigrants, who often lack proper identification, checking accounts and credit histories? No doubt many of these immigrants would be decent – nay, exemplary – tenants, but they often lack the basic documentation that put most landlords at ease.

O’Brian said many good landlords out there don’t take the presence of immigrant tenants as a license to break housing and eviction laws, but, sadly, many others do. Some of the very landlords who willingly ignore their tenants’ illegal status do it because they expect something in return: Residents must accept sky-high rents, uninhabitable homes and no rights. These may not be even close to equitable arrangements, but in a market fueled by a seemingly bottomless need for very low-income housing, it’s not going away anytime soon.

Carol Lloyd’s Surreal Estate column appears every Tuesday on sfgate.com. She can be contacted at carol@creatingalifeworthliving.com.

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