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HomeMy WebLinkAbout07 NOTICE OF DEFAULT-AFFORDABLE UNIT AT 103 LIBERTY ST• Agenda Item ~ AGENDA REPORT Reviewed: City Manager Finance Director MEETING DATE: OCTOBER 18, 2011 TO: WILLIAM A. HUSTON, INTERIM CITY MANAGER FROM: CHRISTINE SHINGLETON, ASSISTANT CITY MANAGER SUBJECT: NOTICE OF DEFAULT -AFFORDABLE UNIT AT 103 LIBERTY STREET SUMMARY City Council direction is requested in order to cure a homeowner default under the City's Affordable Housing Program at the Tustin Field I development. RECOMMENDATION It is recommended that the City Council: 1. At its pleasure, authorize the City Attorney to pursue the City's exercise of its right of redemption and/or option to purchase the moderate-income unit at 103 Liberty Street, prior to expiration of the statutory default period (December 5, 2011) or any foreclosure sale of the subject property (on or about December 25, 2011), and also authorize the Assistant City Manager to execute any required documents, as may be necessary to implement such action as recommended by the City Attorney. 2. Authorize any necessary draw-down from the Affordable Housing Default Revolving Fund to exercise the amount of any Option Purchase Price required under the Affordable Housing Covenant, Affordable Housing Option Agreement, or any necessary lower amount to exercise the City's right of redemption under the Reimbursement Agreement for the unit at 103 Liberty Street based on the City Council's direction and the homeowner's response to the lender's Notice of Default and Election to Sell under the Deed of Trust. FISCAL IMPACT Adequate balances exist in the City's 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 amoderate-income homeowner at 103 Liberty Street (Tustin Field I development) participating in the City's Affordable Housing Agenda Report -Notice of Default of Affordable Unit at 103 Liberty Street October 18, 2011 Page 2 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 Tustin Field I development, the creation of the affordable unit was established through the City selling the property at a land value, sufficient enough to permit the developer to feasibly provide seventy-eight affordable units: twenty-two (22) very-low income units; twelve (12) low income units; and forty-four (44) moderate income units. The affordable units are secured by long term covenants fora 45-year period. Since the affordability accommodation was an Agency requirement, the City and Agency entered into an Agreement to reimburse the City for the land write-down necessary to support creation of the affordable unit. If the City chooses to exercise its Option to purchase the unit as discussed in the City Attorney's memo, a current calculation indicates the City's exercise of the Option would result in an Option price of $364,639. However, if the City chooses to exercise the Option to purchase the unit, the property owner would only receive proceeds from the sale after the following expenses are deducted from the baseline Option price calculation: the City's Promissory Note of $210,019; 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 on May 31, 2005 was for $284,910 and the owner was $16,673.67 in arrears as of September 2, 2011. After deducting the City's Promissory Note, first mortgage balance, payments in arrears, and all City Attorney costs from the Option Price, at this time it is not anticipated that the owner would receive any proceeds from the sale. There are currently five, three bedroom moderate income units listed for sale in Tustin Field I. Over the last three months in 2011, there have been several sales for three bedroom homes in this development that have finalized. Two of these sales were for affordable units while the others were market rate units. One affordable unit located at 104 Liberty Street sold for $310,000 on July 29 while the other unit located at 14 Flyers Lane sold for $329,900 on August 1. Both of these units were comparable in size to the unit located at 103 Liberty Street. A market rate unit located at 10 Flyers Lane which is approximately 200 square feet larger than the unit located at 103 Liberty Street sold for $395,000 on September 29. Three additional market rate units comparable in size to the unit at 103 Liberty Street sold recently. These units are located at 324 Flyers Lane, 208 Windy Lane, and 172 Zephyr Run. The property located at 324 Flyers Lane sold for $375,168 on October 7. The property located at Agenda Report -Notice of Default of Affordable Unit at 103 Liberty Street October 18, 2011 Page 3 208 Windy Lane sold for $399,000 on October 3. The property located at 172 Zephyr Run sold for $394,000 on September 30. Additionally, there are several market rate units currently listed for sale. Two of these units are located at 85 Liberty Street and 125 Liberty Street and are 559 square feet larger than the unit located at 103 Liberty Street. The unit located at 85 Liberty Street is currently listed for $439,000 while the unit located at 125 Liberty Street is listed for $399,000. In the event the City 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. On February 1, 2011, the City Council approved the establishment of the City's Affordable Housing Default Revolving Fund by transferring the Agency's Low and Moderate Income funds into the newly created account (100-00-00-2700). The Fund was established prior to the passage of AB1X 26 and AB1X 27 and the State Supreme Court's decision to allow certain provisions of A61X 26 to remain in effect while the Court considers the constitutionality of A61X 26 and AB1X 27. Those provisions remaining in effect do not allow the Agency to enter into agreements or acquire real property. However, as a result of the funds being transferred prior the legislative and court actions, and the City, not the Agency, potentially acquiring the property, the recommended actions are allowable under current State Supreme Court orders. Adequate fund balances currently exist in the City's Affordable Housing Default Revolving Fund as may be needed to ensure that the unit at 103 Liberty Street is not lost to the City's affordable housing supply (current balance is approximately $885,200). 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. Christine A. Shingleton Assistant City Manager Attachments: City Attorney's Office Memorandum Notice of Right of Redemption to Guild Mortgage Company ;~ WOODRUFF, SPRADLIN 6 SMART 855 ANTON I3OULE VARD, SUITE 1200 Cosrn MESA, CA 92626-7670 (714)558-7000 DIRECT DIAIr (714) 415-1023 DIR1rCT FAX. (714) 415-1123 L•'-MAIL. TTRANI~WSS-LAW.COM MEMORANDUM VIA E-MAIL ONLY TO: Christine Shingleton, Assistant City Manager City of Tustin FROM: Pram T. Trap, Deputy City Attorney DATE: October 11, 2011 RE: Notice of Default -Affordable Housing The City of Tustin ("Tustin") received a Notice of Default and Election to Sell Under Deed of Trust ("Notice of Default"), recorded on September 6, 2011, related to property located at 103 Liberty Street in the City of Tustin (the "Property"). The Agency holds a subordinate Deed of Trust on the Property (the "Second Lien") securing a Promissory Note in the amount of $210,019.00 in conjunction with an Affordable Housing Covenant (Moderate Income) and related agreements entered into between the City and the Owners on May 21, 2005. Pursuant to the City's request, the following written opinion sets forth the City's available alternatives to preserve the Affordable Housing Covenant and protect the City's financial interest in the Property. 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., the nominee of Bank of America (as successor in interest to Countrywide Home Loans Services). The Owners originally borrowed $284,981.00 from Countrywide Mortgage Ventures, LLC. This loan is presently serviced by Bank of America and is secured by a deed of trust (the "First Lien"). According to the Notice of Default, the Owners were $16,673.67 in arrears as of September 2, 2011, and have failed to pay the installment of principal, interest and impounds which became due February 1, 2011, and all subsequent installments of principal, interest and impounds. 790381.1 Christine Shingleton, Assistant City Manager City of Tustin October 11, 2011 Page 2 Citv's Legal 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 financial interest in the Property: 1. Reinstatement. State law and the Agreements grant to the City the right, but not the obligation, 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 of the Property. Pursuant to the Reimbursement Agreement dated May 21, 2005, 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. (Reimbursement Agreement ("RA"), ¶2.) The Reimbursement is secured by the Second Lien. (RA, ¶3) 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. (Civil Code §2924c) 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 December 5, 2011. (Civil Code X2924 (a).) The cure amount listed on the Notice of Default is $16,673.67, which amount will increase slightly based on accrued interest to the actual payment date. 2. Option to Purchase. The Agreements also grant the City an option to purchase the Property upon the occurrence of a default. (Affordable housing Covenant ("Covenant") ¶7, Affordable Housing Option Agreement ("Option") ¶1.) 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. (Option, ¶3.) The Owners 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 Moderate Income Households" as defined in the Covenant and the California Health and Safety Code. Within five (5) days after the City has exercised the Option, an escrow must be opened. The City must deposit into escrow 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 Affordable Housing Cost of the Unit for Moderate Income Households. 790381.1 Christine Shingleton, Assistant City Manager City of Tustin October 11, 201 1 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 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 December 25, 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. Please advise our office as to which of the above alternatives, if any, the City wishes to pursue at this time. Recommended Plan of Action Although not legally required, it is recommended that a Notice of Right of Redemption/Reinstatement be sent to Bank of America, Reconstruct Company, and the Owners immediately in order to ensure preservation of the City's rights. Our office 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. Our office will also request the Owners' authorization to obtain information from Bank of America and Reconstruct Company regarding their loan and the foreclosure action. Our office will provide additional information as it becomes available 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. TRAM T. TRAN cc: David E. Kendig, Esq. 790381. I ~~ ~i WOODRUFF, SPRADLIN ~ SMART ,~ A P r o f e s~ f o n• ~ C o r p a r• i i v n TRAM T. TRAM DIRECT DUI,. (114) 415-1023 DIRECT FAX: (7l4) 415-1123 E-MAI[.: T'IRAN®WSS-LAW.COM October i 1, 201 I VIA CERTIFIED MAIL RETURN RECEIPT REOUESTED & U.S. MA,I,~,, BANK OF AMERICA, N.A. Foreclosure Department 400 National Way Simi Valley, CA 93065 RECONTRUST COMPANY 1800 Tapo Canyon Road CA6-914-01-94 Simi Valley, CA 93063 103 Liberty Street Tustin, CA 92782 Re: Notice of Right of Redemption /Reinstatement 103 Liberty Street, Tustin, CA 92782 ("Property") APN #: 93526165 TS No. 11-0092815 Title Order No.: 11-0074015 Dear Ladies and Gentlemen: This firm 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 Seli Under Deed of Trust filed in the Office of the County Recorder, County of Orange on or about September 6, 2011. This shall serve as NOTICE OF RIGHT OF REDEMPTION/REINSTATEMENT by and from the Agency pursuant to an Affordable Housing Covenant and Affordable Housing Deed of Trust with Assignment of Rents recorded against the Property as Document Iv'os. 2005000415643 and 2005000415645, respectively, in the Office of the County Recorder, County of Orange, on May 31, 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: S55 ANTON BOULEVARD, SUITE 1200 ^ COSTA MESA, CA92626-7670 ~ (714) 558-7000 ~ FAX (714) 835-7787 www.wss-LAw.COM 790380 I BANK OF AMERICA, N.A. Notice of Right of Redemption/Reinstatement October 11, 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: Ms. Tram T. Tran, Esq. 555 Anton Boulevard, Suite 1200 Costa Mesa, California 92626 Please contact the undersigned at (714) 415-1023 if you have any questions. Sincerely, WOODRUFF, SPRADLIN & SMART A Professional Corporatign ,~~~,--- F~._.-~- ~ r- TRAM Enclosures cc: Christine Shingleton, Assistant City Manager, City of Tustin David E. Kendig, City Attorney, City of Tustin 790380.1