Loading...
HomeMy WebLinkAbout1996-11-04 City Council (9)TO: FROM: City of Palo Alto City Manager’s HONORABLE CITY COUNCIL CITY MANAGER DEPARTMENT: Report Planning and Community Environment AGENDA DATE: November 4, 1996 CMR:449:96 SUBJECT:Budget Amendment Ordinance to Provide Funds for Preservation of Below Market Rate Unit at 922 Bautista Court REQUEST Council action is requested to approve a temporary $100,000 loan from the Commercial Housing In-Lieu Fund to the Residential Housing In-Lieu Fund and to adopt a Budget Amendment Ordinance authorizing the appropriation of $130,000 in Residential Housing In- Lieu Funds for possible costs related to the preservation of the Below Market Rate (BMR) Program unit at 922 Bautista Court. RECOMMENDATIONS Staff recommends that the Council: 1) 2) Approve a temporary loan of $100,000 in Commercial Housing In-Lieu Funds to the Residential Housing In-Lieu Fund; and Adopt the attached Budget Amendment Ordinance to appropriate $130,000 in Residential Housing In-Lieu Funds for possible costs related to the preservation of 922 Bautista Court in the BMR program. POLICY IMPLICATIONS The recommended actions are consistent with Council policies to maintain and preserve affordable housing, especia!ly units in the BMR program, as stated in the adopted Housing Element of the Comprehefisive Plan. EXECUTIVE SUMMARY 922 Bautista Court is a three bedroom, two bath, zero lot line house that was constructed, along with the adjoining 924 Bautista Court, in 1987 by the Palo Alto Housing Corporation (PAHC) and sold for $100,000 in July 1987 with BMR program deed restrictions. The unit is one of eight duplex BMR units developed by PAHC as part of the subdivision of four CMR:449:96 Page 1 of 3 former school sites. The duplex BMR units are among the most desirable units in the BMR program. The City. restrictions recorded with the property’s grant deed limited the resale price, but did not contain specific language requiring City consent to refinancing or prohibiting refinancing in excess of the BMR value. This language has been included in all deed restrictions since 1993. In October 1994, the City and PAHC became aware that the owners had over-financed the property by about $75,000 in excess of its $110,000 value under the deed restrictions, by obtaining a line of credit loan secured by the property. By April 1995. the line of credit loan was in default. There are numerous complicating personal and legal factors related to the owners’ divorce, their financial resources, title issues and the City’s deed restrictions that have delayed the foreclosure process and prolonged a legal settlement. Presently, the foreclosure sale related to the line of credit loan default is scheduled for early November. In addition, the first deed of trust held by Home Savings is now in default, as well. Funds are needed immediately to cover the costs of preserving the unit. including the cost of acquiring clear title, fixing up the unit for resale, holding costs pending resale and paying off the loan secured by the first deed of trust, should that be necessary,. Some costs are "known exactly, and others are approximate estimates. Worst case assumptions have been made, but staff will make every, effort to limit expenditures. The resale price will be set at a figure that will allow the City to recoup its out-of-pocket costs and repay the loan from the Commercial Fund. FISCAL IMPACT The Residential Housing In-Lieu Fund has, as one of its purposes, the preservation of existing affordable housing. However, the Residential Fund has a balance of only about $30,813. The Commercial Housing In-Lieu Fund has a balance of about $396,102 in uncommitted funds. A loan from the Commercial Housing In-Lieu Fund to the Residential Housing In-Lieu Fund is necessary, because the Housing Reserve Fund guidelines do not allow the use of the Commercial Fund for the preservation of existing affordable housing. The recommended loan will temporarily reduce the Commercial Housing In-Lieu Fund by $100,000, leaving an uncommitted balance of about $296,102. The loan will be repaid from the proceeds from the resale of the BMR unit to a new buyer. There have been two prior occasions where Council has approved loans from the Commercial Fund to the Residential Fund. One was in 1990, to provide fimds for the purchase of the 36-unit, Oak Manor Townhomes by PAHC. The second loan was approved by Council in November 1994, to provide funds for PAHC to acquire the 6-unit Emerson North apartments. Both loans were repaid with in-lieu fees and other revenues deposited into the Residential Fund. In both cases, loans were made to the Residential Fund to permit CMR:449:96 Page 2 of 3 PAHC to take advantage of market opportunities to acquire desirable rental housing properties. ENVIRONMENTAL ASSESSMENT The provision of City funds to preserve a single-family ownership unit in an existing City affordable housing is not a project subject to the California Environmental QualiU Act (CEQA). ALTERNATIVES If Council does not approve the funding to implement the plan to preserve the unit, the unit might be lost from the BMR program after the foreclosure sale. STEPS FOLLOWING APPROVAL Staffwill monitor the foreclosure process and the City will acquire the property immediately after the foreclosure sale, which is currently scheduled for November 19. As soon as the property is vacant, PAHC will make arrangements for any necessal~’ repairs and will offer the unit to prospective buyers from the waiting list. Although the unit will have to be resold at a higher price, in order for the City to recoup the direct costs involved in this process, it will remain in the BMR program inventor5,. ATTACHMENTS 1.Budget Amendment Ordinance to Appropriate Funds for the Preservation of 929_ Bautista Court as a Below Market Rate Unit PREPARED BY: Catherine Siegel, Housing Coordinator DEPARTMENT HEAD REVIEW: KENNETH R. SCHREIBER Director of Planning and Community Environment CITY MANAGER APPROVAL: CJ~£LEM]~G " " lty anager @ CC:Palo Alto Housing Corporation CMR:449:96 Page 3 of 3 Attachment 1 ORDIN~CE NO. ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO AMENDING THE BUDGET FOR THE FISCAL YEAR 1996-97 TO PROVIDE AN ADDITIONAL APPROPRIATION FOR PRESERVATION OF A BELOW MARKET RATE UNIT AT 922 BAUTISTA COURT WHEREAS, pursuant to the provisions of Section 12 of Article III of the Charter of the City of Palo Alto, the Counci! on June 24, 1996 did adopt a budget for fiscal year 1996-97; and WHEREAS, the Below Market Rate (BMR) unit at 922 Bautista Court has been over-financed by the owner and is in danger of foreclosure; and WHEREAS, in order to retain the unit in the BMR program, the City must expend $130,000 to acquire and repair such unit and then sell the unit with BMR deed restrictions; and WHEREAS, the City will recoup this cost through sale of the unit; and WHEREAS, this funding will come from the Residential Housing- In-Lieu Fund, which will require a loan of $i00,000 from the Commercial Housing-In-Lieu Fund to be repaid in full at a later date plus $30,000 from the Housing-In-Lieu Residential Reserve; and WHEREAS, City Council authorization is needed to amend the 1996-97 budget as hereinafter set forth. NOW, THEREFORE, the Council of the City of Palo Alto does ORDAIN as follows: SECTION i. The sum of One Hundred Thousand Dollars ($i00,000) is hereby transferred from the Commercial Housing-In-Lieu Fund Reserve to the Residential Housing-In-Lieu Fund, a receivable is established in the Commercial Housing-In-Lieu Fund, and a loan payable is established in the Residential Housing-In-Lieu Fund. This transaction will decrease the Commercial Housing-In-Lieu Reserve and correspondingly increase the Reserve for Notes Receivable for said fund. SECTION 2. This transaction will reduce the Housing-In-Lieu Commercia! Fund reserve from $396,102 to $296,102. SECTION 3. The sum of One Hundred Thirty Thousand Dollars ($130,000) is hereby appropriated to nonsalary expenses in the Housing-In-Lieu Residential Fund, of which no more than $i0,000 is authorized to be spent on repair and maintenance, and the remainder is authorized to be spent as needed to acquire the property. The Residential Housing-In-Lieu reserve is reduced by $30,000. SECTION 4. This transaction will reduce the Housing-In-Lieu Residential Fund reserve from $30,813 to $813. SECTION 5. As specified in Section 2.28.080(a) of the Palo Alto Municipal Code, a two-thirds vote of the City Council is required to adopt this ordinance. SEGTION 6. The Council of the City of Palo Alto he}eby finds that this is not a project under the California Environmental Quality Act and, therefore, no environmental impact assessment is necessary. $EgTION..7. As provided in Section 2.04.350 of the Palo Alto Municipal Code, this ordinance shall become effective upon adoption. INTRODUCED AND PASSED: AYES: NOES: ABSTENTIONS: ABSENT: ATTEST: Senior Asst. City Attorney City Clerk APPROVED AS TO FORM: APPROVED: Mayor City Manager Deputy City Admini s trat ive Department Manager, Services Director of Planning Community Environment and