ENCINITAS -- Three North County residents have sued Encinitas and financially strapped developer Barratt American, alleging that actions by the city and the company have left the trio unable to sell a roughly $2 million home bought in Leucadia two years ago.

The lawsuit, filed Oct. 24 in Vista Superior Court by Rancho Santa Fe residents George and Sara Shafer and Sara's sister, Anne Pitzer, demands that the city lift restrictions on the property that have prevented them from selling it.

The Shafers and Pitzer paid about $1.9 million for the home in Barratt's Nantucket subdivision in 2006. The three leased the property back to Barratt to be used as a model home while the rest of the subdivision was being finished, according to the suit.

Under Barratt's agreement with Encinitas, one lot in the nine-home development was to be set aside for affordable housing. To make sure Barratt would fulfill its end of the deal, the city decided to withhold a certificate of occupancy on one of the full-price homes until the affordable unit was built.

The lawsuit alleges that Barratt asked the city to shift which home would be denied the certificate, and that the restriction was placed on the Shafers' home after they purchased it.

In the past year or so, Barratt has fallen into financial difficulties and has been unable to complete the project. Meanwhile, the city has refused to lift the restriction, fearing it will lose any leverage it has in getting Barratt to build the promised affordable housing unit.

A representative with the Carlsbad-based developer declined to comment on the lawsuit.

Without the city's certificate, the Shafers say they are unable to sell their home, which has fallen out of escrow at least once already.

"They (plaintiffs) don't feel there's any other way to get this done in the short term," said Scott Barber, a Carlsbad real estate attorney representing the homeowners. "We can't wait for another year for Barratt to reorganize or the economy to get better. They need to get this resolved."

Kerry Kusiak, a senior planner for the city, said it is fairly typical for cities to put restrictions on lots in high-density subdivision to ensure affordable housing is built before all the lots in the development are sold.

Barber said that when the Shafers bought the home, no certificates of occupancy had been issued in the subdivision, west of Interstate 5 and south of La Costa Avenue in Leucadia.

At least twice, the city changed which lot in the subdivision would be restricted, according to a staff report.

Barber said he suspects the restriction was ultimately put on the Shafer lot because the city thought it was still owned by the developer.

Contact staff writer Ruth Marvin Webster at (760) 901-4074 or rwebster@nctimes.com.