HomeMy WebLinkAbout05 NOTICE OF DEFAULT 14554 NEWPORT• Agenda Item 5
AGENDA ~,EPORT Reviewed:
,~.
+ Finance Director _
MEETING DATE: MARCH 1, 2011
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 14554
NEWPORT AVENUE #3
SUMMARY:
City Council direction is requested in order to cure a homeowner default under the City's
Affordable Housing Program at the Arbor Walk development.
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 moderate-income
affordable housing unit at 14554 Newport Avenue #3, prior to expiration of the statutory
default period (March 14, 2011) or any foreclosure sale of the subject property (on or
about April 4, 2011), 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) Authorize up to $380,000 from the recently approved Affordable Housing Default
Revolving Fund 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.
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
Agenda Report
March 1, 2011
Page 2
supply. Adequate balances exist in the Affordable Housing Default Revolving Fund to
accommodate any direction that the City Council may provide on this matter
BACKGROUND:
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 moderate-income
homeowner at 14554 Newport Avenue #3 (located in the Arbor Walk development)
participating in the City's Affordable Housing Program. In the event that the subject
homeowner is not able to obtain a mortgage modification with their 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 unit within the Arbor Walk development,
the creation of the affordable unit was established through along-term Affordability
Assistance Loan to the developer, Olson Urban Housing, LLC. The Agreement required
the developer to provide ten affordable units (four very-low income and six moderate-
income) within the 63 unit development with the affordability requirements secured by
long term covenants fora 45-year period.
Pursuant to Section 32334.2 of CRL, not less than twenty percent (20%) of all tax
increment allocated to the South Central, Town Center and MCAS 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.
Although the City Attorney's memo quotes an Option Price of $368,639, a more current
calculation indicates the City's exercise of our Option could result in an Option price of
$365,009 (this number would adjust based on market interest rates at the time of any
final exercise of the option). If the City chooses to exercise the Option to purchase, the
property owner may not receive any proceeds from the sale depending on any of the
following expenses which would need to be first deducted from the Option price: the
City's Promissory Note of $98,000; the remaining balance from the first mortgage; the
payments in arrears; and all City Attorney costs associated with this Notice of Default.
The property owner's original loan in December 2005 was for $362,740 and the owner
was $11,712.51 in arrears as of December 9, 2010.
There are currently three, three bedroom moderate income units, including 14554
Newport Avenue #3, listed for sale in Arbor Walk. In the past twelve months, there have
been two market rate transactions in Arbor Walk, both were three bedrooms. One unit
Agenda Report
March 1, 2011
Page 2
supply. Adequate balances exist in the Affordable Housing Default Revolving Fund to
accommodate any direction that the City Council may provide on this matter
BACKGROUND:
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 moderate-income
homeowner at 14554 Newport Avenue #3 (located in the Arbor Walk development)
participating in the City's Affordable Housing Program. In the event that the subject
homeowner is not able to obtain a mortgage modification with their 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 unit within the Arbor Walk development,
the creation of the affordable unit was established through along-term Affordability
Assistance Loan to the developer, Olson Urban Housing, LLC. The Agreement required
the developer to provide ten affordable units (four very-low income and six moderate-
income) within the 63 unit development with the affordability requirements secured by
long term covenants fora 45-year period.
Pursuant to Section 32334.2 of CRL, not less than twenty percent (20%) of all tax
increment allocated to the South Central, Town Center and MCAS 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.
Although the City Attomey's memo quotes an Option Price of $368,639, a more current
calculation indicates the City's exercise of our Option could result in an Option price of
$365,009 (this number would adjust based on market interest rates at the time of any
final exercise of the option). If the City chooses to exercise the Option to purchase, the
property owner may not receive any proceeds from the sale depending on any of the
following expenses which would need to be first deducted from the Option price: the
City's Promissory Note of $98,000; the remaining balance from the first mortgage; the
payments in arrears; and all City Attorney costs associated with this Notice of Default.
The property owner's original loan in December 2005 was for $362,740 and the owner
was $11,712.51 in arrears as of December 9, 2010.
There are currently three, three bedroom moderate income units, including 14554
Newport Avenue #3, listed for sale in Arbor Walk. In the past twelve months, there have
been two market rate transactions in Arbor Walk, both were three bedrooms. One unit
Agenda Report
March 1, 2011
Page 3
that is 200 square feet larger located at 14536 Newport Avenue #3 sold for $390,000
and the 14552 #2, and the same size as at 14554 Newport Avenue #3 sold for
$360,000. Currently, there are two market rate units in Arbor Walk listed for sale: a
three bedroom unit that is 200 square feet larger with an asking price of $378,000; and
a four bedroom unit, 200 square feet larger with an asking price of $410,000.
In the event the Agency repurchases the unit, the Agency would actively market the
property. Although the Agency does not maintain a waiting list for those interested in
purchasing resale affordable units, a list of affordable units for resale is available on the
City's website and the Agency would work with Neighborhood Housing Services of
Orange County and other affordable housing agencies to quickly identify potential
moderate income homebuyers.
Adequate fund balances currently exist in the Agency's Affordable Housing Default
Revolving Fund as may be needed to ensure that the unit at 14554 Newport Avenue #3
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 be far less than the cost of acquiring and replacing a unit
lost to the affordable housing supply.
Approved for Forwarding By:
C
Christine A. Shingleton Davi C. Biggs, City Manager
Assistant City Manag
Attachments: City Attorney's Office Memorandum and Notice of Right of Redemption to Guild Mortgage Company
;~ WOODRUFF, SPRADLIN~SMART
555 ANION BOULEVARD, SUITE 1200
CosTa M&sA, CA 92626-7670
(714) 558-7000
MEMORANDUM
VIA E-MAIL ONLY
TO: Christine Shingleton, Assistant City Manager
City of Tustin
FROM: James H. Eggart, Assistant City Attorney
DATE: January 24, 2011
RE: Notice of Default -Affordable Homeowner - 14554 Newport Avenue, #3
On December 17, 2010, the Tustin Community Redevelopment Agency ("Agency")
received a Notice of Default and Election to Sell Under Deed of Trust ("Notice of Default")
related to property located at 14554 Newport Avenue, #3 in Tustin (the "Property"). The Notice
of Default indicates it was filed on December 14, 2010. The Agency holds a subordinate Deed
of Trust on the Property (the "Second Lien") securing a Promissory Note in the amount of
$98,000.00 in conjunction with an Affordable Housing Covenant (Moderate Income) and related
agreements entered into between the City and the Owners on December 28, 2005. You have
requested the City Attorney's Office provide you with a written plan of action.
Descriution of Defaulted Loan and Related Banking Entities
The Owners originally borrowed $362,740.00 from Home123 to purchase the Property.
This loan is presently serviced by Guild Mortgage Company and is secured by a deed of trust
(the "First Lien"). The Notice of Default was filed by Guild Administration Corp., the appointed
trustee under the First Lien, the beneficiary of which is Mortgage Electronic Registration
Systems, Inc. ("MERS"), the nominee of Guild Mortgage Company. According to the Notice of
Default, the Owners were 11 712.51 in arrears as of December 9, 2010.
City's Leal and Contractual Rights
The Property is subject to the Second Lien, 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 fmancial interest in the Property:
~a9oal. i
Christine Shingleton, Assistant City Manager
City of Tustin
January 24, 2011
Page 2
1. Reimbursement. State law and the Agreements grant to the City the right to
reinstate the Owners' delinquent debt and cure the default by making payment of the outstanding
delinquencies and costs to the holder of the First Lien, thereby preventing a foreclosure sale and
transfer. Pursuant to the Reimbursement, thereafter, the Owners are obligated to reimburse the
City for the payment made to the Lender within thirty (30) days of written demand for payment
from the City to the Owners. The Reimbursement is secured by the Second Lien. Consequently,
in the event that the Owners fail 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 may exercise this "right of reinstatement" at any time until five business days
prior to the date of the foreclosure sale. No date of sale may be set until after the expiration of
the statutory default period, which is three months from the recordation date of the Notice of
Default, or on or about March 14, 2011. The cure amount listed on the Notice of Default is
$11,712.51, which amount will increase slightly based on accrued interest to the actual payment
date.
2. Option. The Agreements also 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 Owners of its election to exercise
the Option. The Owners would have the right to cure and revoke the City's exercise of the
Option by paying Guild Mortgage Company 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 Moderate Income Households" as defined in the Covenant and the California
Health and Safety Code. According to a calculation prepared by Kimberly McAllen, the Option
Price for this Property would be approximately $368,639. Upon exercise of the option, the City
must open an escrow 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. 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. It is unknown at this point
whether this amount would exceed the Option Price.
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 three-month
period set forth hereinabove together with a twenty (20) day period following Notice of Trustee's
Sale. The earliest a foreclosure sale could take place is on or about Anri14, 2011.
In the event the Owners refuse to cooperate with the execution of a Grant Deed to
transfer title, the City has the right to bring an action for specific performance wherein the court
can issue an order directing the Owners to execute the Grant Deed. Since this would delay the
close of escrow, it is not recommended that the City wait to exercise the Option immediately
prior to the Trustee's Sale.
749021.1
Christine Shingleton, Assistant City Manager
City of Tustin
January 24, 2011
Page 3
Recommended Plan of Action
• Although not legally required, we have sent a Notice of Right of
Redemption/Reinstatement to Guild Mortgage Company, Guild Administration Corp.,
MERS, and the Owners in order to ensure preservation of the City's rights. A copy of
this Notice is enclosed with this memorandum.
• We will attempt to contact the Owners to determine the circumstances leading to their
default, whether they intend to cure to avoid foreclosure, whether they are in the process
of requesting a loan modification and the status of any such request, and the current
amount owed on the First Lien. We will also request the Owners authorization to obtain
information from Guild Mortgage Company and Guild Administration Corp. regarding
their loan and the foreclosure action.
• We will provide additional information as we learn it and assist City Staff in its analysis
and determination of whether it is necessary to exercise either the City's right to
redemption/reimbursement or the Option.
Please contact me if you have any questions or wish to discuss this matter further.
~a9oai.1
~' ~r WOODRUFF, SPRAVLIN ~ SMART
~~ A P r o f e s s i o n a I C o r p o r a c i o n
JAMES H. EGGART
DIItECT DIAL: (714) 415-7062
DIRECT FAX: (714) 415-116?
E-MAIL: JEGGART@WSS-LAW.COM
January 24, 2011
VIA CERTIFIED MAIL
RETURN RECEIPT REQUESTED & U.S. MAIL
GUILD MORTGAGE COMPANY
P.O. Box 85304
9160 Gramercy Drive
San Diego, California 92186-5304
GUILD ADMINSTRATION CORP.
Attn: Trustee Department
P.O. Box 85304
San Diego, California 92186-5304
14554 Newport Avenue, #3
Tustin, California 92780-1007
Re: Notice of Right of Redemption /Reinstatement
1454 Newport Avenue, #3, Tustin, CA 92780 ("Property")
APN #: 93935617
TS No. 20101061
Ladies and Gentlemen:
This fum represents the City of Tustin ("City") and the Tustin Community
Redevelopment Agency ("Agency"). The Agency has received a copy of the Notice of Default
and Election to Sell Under Deed of Trust filed in the Office of the County Recorder, County of
Orange on or about December 14, 2010. This shall serve as NOTICE OF RIGHT OF
REDEMPTION/REINSTATEMENT by and from the Tustin Community Redevelopment
Agency ("Agency") pursuant to an Affordable Housing Covenant and Affordable Housing Deed
of Trust with Assignment of Rents recorded against the Property as Document Nos.
2005001045094 and 2005001045096, respectively, in the Office of the County Recorder, County
of Orange, on December 30, 2005, copies of which are enclosed herewith and incorporated
herein by this reference. Please be advised that prior to proceeding with any foreclosure sale, you
are required to provide notice and an opportunity to cure to the Agency. Said notice shall be sent
to:
555 ANTON BOULEVARD, SUITE 1200 ~ COSTA MESA, CA 92626-7670 ~ (714) 558-7000 ~ FAX (774) 835-7787
WWW.WSS-LAW.COM
'748977. I
GUILD MORTGAGE COMPANY
GUILD ADMINSTRATION CORP.
January 24, 2011
Page 2
Tustin Community Redevelopment Agency
Attention: Christine Shingleton, Assistant City Manager
300 Centennial Way
Tustin, California 92780
With a copy to:
Woodruff, Spradlin & Smart
Attention: James H. Eggart, Esq.
555 Anton Boulevard, Suite 1200
Costa Mesa, California 92626
Please contact the undersigned at (714) 415-1062 if you have any questions.
Sincerely yours,
WOODRUFF, SPRADLIN & SMART
A Professional Corporation
JAMES H. EGGART
Assistant City Attorney,
City of Tustin
Enclosure
cc: Christine Shingleton, Assistant City Manager, City of Tustin
Douglas C. Holland, City Attorney, City of Tustin
748977.1