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HomeMy WebLinkAbout1997-04-22 - AGENDA REPORTS - CDBG SUPPLEMENTAL (2)NEW BUSINESS DATE: SUBJECT: DEPARTMENT: VULDle "I.1 [ ' 1 April 22, 1997 City Manager Approv. Item to be presented by: Kevin Tonoian CDBG SUPPLEMENTAL APPROPRIATION: HOME PROGRAM Community Development Following the January 17, 1994 Northridge Earthquake, Santa Clarita created the HOME Program that assists eligible homeowners with the repair of their earthquake damaged single family homes. Facilitated through the California State Housing Department, this program allows households that earn 80% or less of the area medium income ($47,800) to borrow up to $40,000 to assist with the repair of all types of earthquake damage. The City's HOME Program has been structured in a manner that allows local homeowners (who are unable to secure traditional funding sources such as FEMA or SBA Loans) to repair earthquake related damage with no additional increase to their monthly mortgage. The loan is structured in a manner that encompasses the payment of all title, appraisal and credit report fees, so there are no actual out of pocket expenses to the homeowner. Finally, Santa Clarita's HOME Program offers a below market interest rate of three percent (3%), and is completely. deferred (repayment of the loan, plus interest, is due in full only when there is a title transfer or sale of the property). On August 13, 1996, the City submitted a "Project Set -Up Report" to the California State Department of Housing and Community Development for a Ms. Joyce Berset, a resident of Santa Clarita residing at 28048 Langside Avenue. This Project Set Up Report served as the City's formal request to approve a HOME Program Loan for Ms. Berest in the amount of $28,500. This loan request was approved, and made available to the Ms. Berest to make repairs to her property at 28048 Langside Avenue. Through this program, the City became the "Second Note Holder" on Ms. Berest's property Repairs to the homeowners' property began in September of 1996, and were completed on January 30, 1997. On April 7, 1997, City staff provided the State with a formal notice of project completion, and indicated that all loan funds had been drawn down. On April 10, 1997, the City received a telephone call from a Ms. Arlyne Sherman (Ms. Berest's Real Estate Agent) regarding the potential sale of the property. at 28048 Langside Avenue. At no 1! �-.' Agenda Idem: iJ r t that time, Ms. Berest's Realtor informed staff that her client would be relocating out of state, and was in the process of selling her home. During her telephone conversation with staff, Ms. Sherman discussed the sale of the home and indicated that, after repayment of the "First Note" to the primary lender ($120,000), fees and closing costs, Ms. Berest would be able to provide the City with a partial repayment of the Second Note that the City holds on her property. It is important for the City Council to note that, at this time, the combined financial obligation placed upon the property owner by the First and Second Note has placed Ms. Berest in a position of owing more on the property than it's present value. While an independent appraisal of the property (facilitated by the City in April of 1996) established the value of the unrepaired property at $151,000, at this time the best offer received for the potential sale of the home amounts to $142,750. This represents an $8,250 depreciation on the assessed value of the home within the last twelve (12) month period. For the benefit of the City Council, staff has developed the following list of options (and the pros and cons of each) that could potentially be utilized to address this matter. These options include: 1) That the City require the property owner to make full repayment of the HOME Loan in the amount of $28,500, plus applicable interest at 3%, at the time of sale. Pros - The City receives full repayment of the HOME Loan Cons - There is a strong possibility that the property owner will allow the property to go into foreclosure. At this time the City holds the second note on the property which realistically would make it difficult to recover any portion of the loan, as the primary lender may only seek to recover what they are owed on the property; The City could seek a judgement against the property owner for the fall repayment of the HOME Loan, plus interest, plus penalties. However, if the property owner allows the home to go into foreclosure, the City's only recourse would be to show up at the Bankruptcy Hearing and ask the Court to reaffirm Santa Clarita as the Second Note Holder. At that time, the City could get a judgement from the Court in the full or partial amount owed Santa Clarita. 2) If the property owner were to allow the property to go into foreclosure, the City would have the option to assume responsibility for the First Note that is currently held on the property by the primary lender. Pros - The City could potentially recover the full amount of the HOME Loan through the eventual sale of the property. Cons - The City would be responsible for maintaining the monthly obligation on the First Note until such time when the property was sold; The City would have to market the home and attempt to sell it for an amount that would repay the First Note in full ($20,000). Any additional monies received after all closing costs were paid would then be applied to the Second Note held by the City; The City would be responsible for any additional rehabilitation the home needed in order to be prepared for sale; There is no guarantee that the City will be able to recover the full amount of the Second Note (the $28,500 amount owed to the City) 3) The property owner can choose to retain ownership of the home, and continue making payment on the First Note. Once again, the property owner is not required to repay the City's Second Note on the property until the title is transferred or refinanced. Pros - The City takes no action and continues to accrue interest on the loan amount until such time as a title change occurs, and loan repayment is made to the City Cons - The property owner must maintain ownership of the home 4) Based upon Ms. Barest current position of owing more on the property than its present value, City staff has negotiated a proposed settlement with the property owner that will allow the City to recover, at the time of sale, a partial payment of $19,000. If the City Council was to accept this proposed settlement, the City would agree to accept this as payment in full, and forgive the remaining balance owed to the City of $9,500. Pros - The City receives a substantial portion of the amount owed on the Second Note; The property owner is allowed proceed with the sale the home; Cons - The City does not receive full repayment of the loan amount Overall, it is staff opinion that the rehabilitation that occurred at the property at 28048 Langside Avenue has provided an overall benefit to the entire surrounding area. Based upon this overall community benefit, and the good faith effort of the property .owner to provide a significant partial repayment of the total amount owed the City, staff is requesting that the City Council consider approval of option #4. That the City Council approve option #4, accept the amount of $19,000 as payment in full on the Second Note held on the property by the City, and allow the sale of property owner's home to proceed. m\c&g\emeraupp\bereet