HomeMy WebLinkAbout1999-03-15 City Council (14)City of Palo Alto
City Manager’s Report
TO: "HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: PLANNING AND
COMMUNITY ENVIRONMENT
AGENDA: MARCH 15, 1999 CMR:169:99
SUBJECT:APPROVAL OF THE SALE OF BELOW MARKET RATE UNIT AT
922 BAUTISTA COURT AND USES OF SALES PROCEEDS; AND
AUTHORIZATION TO AMEND BELOW MARKET PROGRAM
ADM~ISTRATION CONTRACT BETWEEN CITY AND PALO ALTO
HOUSING CORPORATION
REPORT IN BRIEF
The City recently acquired title to the Below Market Rate (BMR) unit at 922 Bautista Court
as a result of a legal settlement that became necessary after the former owner over-financed
the property, resulting in a default and foreclosure sale. Approximately $188,000 was
expended by the City and the Palo Alto Housing Corporation (PAHC) for direct costs to
preserve the unit, including legal fees and the cost of acquiring title under the settlement
agreement. In order to reimburse PAHC for its legal expenses, authority is requested for the
City Manager to amend the 1998-99 BMR Administrative Services Contract to add $8,372
to the contract amount. The unit is ready to be re-sold to a qualified buyer from the BMR
program waiting list. Council approval of the sale of the property at a price of $188,000 is
requested. The resale proceeds will be used to reimburse the direct costs expended by the
City and PAHC.
CMR:169:99 Page 1 of 4
RECOMMENDATION
Staff recommends that the Council:
1. Approve the sale of the Below Market Rate (BMR) unit at 922 Bautista Court for a
price of $188,000 to a qualified buyer from the program’s waiting list.
Direct the City Manager to execute the grant deed transferring title to the unit to the
selected buyer.
Authorize the City Manager to execute a contract amendment in the amount of $8,372
with the Palo Alto Housing Corporation (PAHC) for reimbursement of its legal
expenses connected with the Bautista Court litigation.
BACKGROUND
On January 11, 1999, the Council approved a Budget Amendment Ordinance (BAO) in the
amount of $149,500 to allow the City to purchase the BMR unit at 922 Bautista Court. The
purchase was a result of a legal settlement that became necessary after the owner of the unit
over- financed the property, resulting in a foreclosure and foreclosure sale. On January 19,
1999, the City purchased the unit and is now ready to place it back in the BMR program.
922 Bautista Court is one of the duplex BMR units developed by PAHC in former school site
subdivisions. In its role as developer, PAHC retained a secondary right in each property’s
deed restrictions to purchase the BMR unit at the restricted price. Thus, PAHC was a
participant in the litigation and its rights were instrumental in the settlement negotiations.
DISCUSSION
Cost of the Unit: In reaching the legal settlement on the property, both the City and PAHC
have incurred various expenses summarized below. Reselling the unit for $188,000 will
permit recovery of the City’s and PAHC’s direct expenses and still keep the resale price
within City BMR.program guidelines for affordability. Under the City’s BMR housing price
guidelines, the current average price for a new three-bedroom BMR unit is $198,950, based
on 1998 income levels.
The proposed resale price of $188,000 would recover the following estimated and actual
costs incurred by the City and PAHC:
Purchase price and related closing costs under settlement:
PAHC’s attorney and arbitration fees:
City of Palo Alto outside counsel fees:
Estimated City costs for termite work, property taxes,
resale escrow, and miscellaneous:
TOTAL
$128,524
8,372
46,015
5,063
$187,974
CMR: 169:99 Page 2 of 4
Contract Amendment for PAHC’s Legal Expenses
The amount of the FY 1998-99 PAHC contract with the City for the administration of the
BMR program is $50,000, and PAHC’s CDBG contract for housing information and referral
is $32,000, for a total of $82,000 for both of PAHC’s contracts. The BMR administration
contract’s scope of services and budget authorizes PAHC to incur legal fees related to the
preservation of the BMR units within the-program. In January 1998; Outside counsel advised
the City and PAHC that PAHC’s continued involvement in the matter would be beneficial
to the City’s objective of preserving the unit in the BMR program. In order to reimburse
PAHC for its Bautista Court costs, the BMR administration contract must be amended to
increase the contract amount. The current maximum of $50,000 is insufficient to cover both
the $8,372 incurred by PAHC for Bautista Court and its normal annual expenses
administering the BMR program. Authorization is requested pursuant to Section 2.30.100
(a) of the Municipal Code for the City Manager to execute a contract amendment with PAHC
to add $8,372 to the 1998-99 BMR Administrative Services Contract No. C81107247, for
a total contract amount of $58,372, to reimburse PAHC for Bautista Court legal costs to be
paid from the sales proceeds of the unit.
RESOURCE IMPACT
On January 11, 1999, the Council approved a BAO in the amount of $149,500 from the
City’s Residential Housing In-Lieu Fund. This included a $100,000 loan from the
Commercial Housing In-Lieu Fund for the purchase of Bautista Court. When the unit is sold
for $188,000, the $100,000 interfund loan will be repaid to the Commercial Fund. The
General Fund will be reimbursed for the Real Estate Division’s transaction and repair costs
of about $5,000; $46,015 will be credited to the General Fund to reimburse the General Fund
expenditures for City Attorney outside legal services; and $8,372 will be paid to.PAHC for
its legal expenses. The remaining funds, estimated at $28,550, will be deposited in the
Residential Housing In-Lieu Fund.
POLICY IMPLICATIONS
This action is consistent with previous Council direction.
ENVIRONMENTAL ASSESSMENT
The provision of City funds to preserve a single-family ownership unit as affordable housing
is categorically exempt under Section 15326 of the California Environmental Quality Act
(CEQA).
ATTACHMENTS
None
PREPARED BY: James E. Gilliland, Assistant Planning Official
CMR: 169:99 Page 3 of 4
DEPARTMENT HEAD REVIEW:
G. EDWARD GAW~F xo
Director of Planning and Community Environment
CITY MANAGER APPROVAL:
CC:Palo Alto Housing Corporation
CMR: 169:99 Page 4 of 4