HomeMy WebLinkAbout16 NOTICE OF DEFAULT-370 FLYERS LANE• AGENDA REPORT Agenda Item 16
Reviewed:
Finance Director
MEETING DATE: DECEMBER 7, 2010
TO: HONORABLE MAYOR AND COUNCIL MEMBERS
VIA: DAVID C. BIGGS, CITY MANAGER
FROM: CHRISTINE SHINGLETON, ASSISTANT CITY MANAGER
SUBJECT: NOTICE OF DEFAULT- AFFORDABLE HOME LOCATED AT 370
FLYERS LANE
SUMMARY
City Council direction is requested in order to cure a homeowner default under the City's
Affordable Housing Program at Tustin Legacy.
RECOMMENDATION
It is recommended that:
1) At the City Council's pleasure, authorize the City Attorney to pursue the City's
exercise of its right of redemption and/or option to purchase the unit at 370 Flyers Lane,
prior to expiration of the statutory default period (January 5, 2011) or any foreclosure
sale of the subject property (on or about January 25, 2010), and also authorize the City
Manager or Assistant City Manager to execute any required documents, as may be
necessary, to implement such action as recommended by the City Attorney.
2) Appropriate up to $145,000 from the MCAS Tustin un-appropriated Low and
Moderate Income Housing Fund, as may be necessary, to exercise either the amount of
any Option Purchase Price required under the Affordable Housing Covenant,
Affordable Housing Option Agreement, or to exercise the City's right of redemption
under the Reimbursement Agreement based on any direction from the City Council and
the homeowner's response to the lender's Notice of Default and Election to Sell under
the Deed of Trust.
Agenda Report
December 7, 2010
Page 2
FISCAL IMPACT
The Agency is required to utilize funds deposited in its Low and Moderate Income
Housing Fund to increase, maintain and preserve the community's affordable housing
supply. Adequate balances exist in the Fund to accommodate any direction that the
City Council may provide on this matter.
BACKGROUND/DISCUSSION
A report from the City Attorney's office is attached summarizing the City's alternatives
with regard to a Notice of Default that has been issued to a homeowner at 370 Flyers
Lane (located in the Tustin Field II project) participating in the City's Affordable Housing
Program at Tustin Legacy.
In the event that the subject homeowner is not able to obtain a mortgage modification
with his/her lender, the City is at risk of losing the affordable unit.
Section 33413 (a) of California Redevelopment Law ("CRL") requires that whenever a
dwelling unit housing a low to moderate income household that is subject to a written
agreement or where financial assistance has been provided by the Agency, is destroyed
or removed from the low and moderate income housing market as part of a
redevelopment project, the Agency shall be required to replace the dwelling unit with a
replacement dwelling unit within four years which has an equal or greater number of
bedrooms as those removed at affordable housing costs within the jurisdiction of the
Agency. In the case of the subject affordable units within Tustin Field II, the creation of
the affordable unit was subsidized by the Redevelopment Agency under a
Reimbursement Agreement between the Agency and City.
Pursuant to Section 33334.2 of CRL, not less than twenty percent (20%) of all tax
increment allocated to the MCAS Tustin Redevelopment Project Area and other
Redevelopment Project Areas within the City shall be used by the Agency for purposes
of increasing, improving and preserving the community's supply of low and moderate
income housing available at affordable housing costs as defined by CRL.
Adequate fund balances currently exist in the Agency's Low and Moderate Income
Housing Fund as may be needed to ensure that the unit at 370 Flyers is not lost to the
Agency's affordable housing supply. Given the expected cost of acquiring new housing
even in today's burdened economic environment, the costs associated with any
exercise of the City's option rights as identified in the City Attorney's memorandum will
Agenda Report
December 7, 2010
Page 3
be far less than the cost of acquiring and replacing a unit lost to the affordable housing
supply.
Approved for Forwarding By:
~'~~ ~ f°
Christine A. Shinglet David C. Biggs
Assistant City Manager City Manager
Attachments: City Attorney's Office Memorandum and Notice of Right of Redemption to Bank of America
;~ WOODRUFF, SPRADLIN ~ SMART
555 ANTON BOULEVARD, SUITE 1200
COSTA MESA, CA 92626-7670
(714)558-7000
DIRECT DIAL: (714) 415-1062
DIRECT FAX: (714) 415-1162
E-MAIL: jeggart~wss-law.com
MEMORANDUM
VIA E-MAIL ONLY
TO: Christine Shingleton, Assistant City Manager
City of Tustin
FROM: James H. Eggart, Assistant City Attorney
DATE: November 23, 2010
RE: Notice of Default on Property Subject to City Affordable Housing Loan
Pursuant to your request, the following is a summary of the City's options with respect to
the above referenced matter.
Background
On October 15, 2010, the City of Tustin ("City") received a Notice of Default and
Election to Sell Under Deed of Trust ("Notice of Default") related to property located at 370
Flyers Lane in Tustin (the "Property"). The Notice of Default indicates it was filed on October
7, 2010. The City holds a subordinate Deed of Trust on the Property (the "Second Lien")
securing a Promissory Note in the amount of $385,752.00 in conjunction with an Affordable
Housing Covenant (Lower Income) and related agreements entered into between the City and the
Homeowner on August 16, 2005.
Description of Defaulted Loan and Related Banking Entities
The Notice of Default was filed by Recontrust Company, N.A. ("Recontrust"), the agent
for Mortgage Electronic Registration Systems, Inc. ("MERS"), the nominee of Bank of America
(as successor in interest to Countrywide Home Loans). Bank of America services the loan,
which was originally in the amount of $122,785.00, and is secured by a deed of trust (the "First
Lien"). According to the Homeowner, the current principal amount of the loan is approximately
$116,000.00. According to the Notice of Default, the Homeowner was $18,347.89 in arrears as
of October 6, 2010.
Information from Homeowner
The Homeowner has us advised that he fell behind on his mortgage payments as a result
of a motorcycle. accident in 2008 that left him disabled and unable to work. He has told us that,
upon receiving Notice of Default, he contacted Bank of America to request a mortgage
739862.2
Christine Shingleton, Assistant City Manager
City of Tustin
Page 2
modification and that he would be able to make the reduced mortgage payments in the event
Bank of America grants his request for modification. As of the date of this memorandum, we
have not been advised as to whether the Homeowner's request for a mortgage modification has
been granted.
City's Leal and Contractual Rights
The Property is subject to a recorded Affordable Housing Covenant ("Covenant"), a
recorded Affordable Housing Option Agreement ("Option"), and an unrecorded Reimbursement
Agreement ("Reimbursement") (collectively, "Agreements").
Pursuant to the foregoing Agreements, the City has two alternatives available to preserve
the Covenant and protect its financial interest in the Property:
1. Reimbursement. Both the Covenant and the Reimbursement grant to the
City a right of redemption upon Notice of Default from the First Lien. Said right authorizes the
City to make payment to Bank of America to cure the default thereby preventing a foreclosure
sale and transfer. Thereafter, the Homeowner is obligated to reimburse the City for the payment
made to Bank of America within thirty (30) days of written demand for payment from the City to
the Homeowner. The Reimbursement is secured by the Second Lien. Consequently, in the event
that the Homeowner fails to make the reimbursement payment, the City would have the right to
foreclose on the Second Lien and subsequently take title to the Property.
The City must exercise this right prior to the expiration of the statutory default period,
which is ninety (90) days from the recordation date of the Notice of Default, on or about January
5, 2011. After that date, the only remaining alternative would be the Option. The cure amount
listed on the Notice of Default is $18,347.89, which amount will increase slightly based on
accrued interest to the actual payment date.
2. Option. Both the Covenant and the Option grant the City an option to
purchase the Property upon the occurrence of a default. Receipt of the Notice of Default from the
First Lien constitutes a default. The City must send written notice to the Homeowner of its
election to exercise the Option. The Homeowner would have the right to cure and revoke the
City's exercise of the Option by paying Bank of America the full amount due.
The Option Price the City would need to pay for the Property is the "Affordable Housing
Cost of the Unit for Lower Income Households" as defined in the Covenant and the California
Health and Safety Code. According to a calculation prepared by City Staff, the Option Price for
this Property would be approximately $173,862.00. Upon exercise of the option, the City must
open an escrow within five (5) days of the exercise notice and deposit the Second Lien and
related Affordable Housing Promissory Note, the cancellation of which shall serve as payment of
a portion of the purchase price. Since the amount owed under the Second Lien ($385,752.00)
exceeds the Option Price ($173,862.00), the City could exercise the Option without paying the
Homeowner anything. However, in order to avoid foreclosure under the First Lien, the City
would need to pay off all amounts due under the First Lien, including all accumulated interest
and penalties. Based on information known to date, this amount is estimated to be
approximately $130,000 to $150,000.
739862.2
Christine Shingleton, Assistant City Manager
City of Tustin
Page 3
The City may pursue the Option at any time prior to the foreclosure sale of the Property.
The statutory timeframe leading up to the actual foreclosure sale would include the ninety (90)
day period set forth hereinabove together with a twenty (20) day period upon Notice of Trustee's
Sale, on or about January 25, 2010.
A Notice of Right of Redemption has been sent to Bank of America, Reconstruct, MERS,
and the Homeowner, in order to ensure preservation of the City's rights. A copy of the Notice is
attached.
Please contact me if you have any questions or wish to discuss this matter further.
739862.2