HomeMy WebLinkAboutStaff Report 7206
City of Palo Alto (ID # 7206)
City Council Staff Report
Report Type: Consent Calendar Meeting Date: 9/12/2016
City of Palo Alto Page 1
Summary Title: Approval of the Purchase of the Below Market Rate (BMR)
Unit Located at 4250 El Camino Way Unit A310
Title: Authorize the Acquisition of the Below Market Rate (BMR) Unit Located
at 4250 El Camino Way, Unit A310 From Wells Fargo Bank for the Purpose of
Preservation for the Amount of $190,000 Plus Closing Costs and Approve a
Budget Amendment in the Below Market Rate Emergency Fund and Approval
of an Exemption Under Section 15326 of the California Environmental Quality
Act Guidelines
From: City Manager
Lead Department: Administrative Services
RECOMMENDATION
Staff recommends that the City Council:
1. Authorize the acquisition of the Below Market Rate (BMR) unit located at 4250 El
Camino Way, Unit A310 from Wells Fargo Bank for the purpose of preservation in the
amount of $190,000 plus closing costs; and
2. Approve resale as a BMR unit to a qualified BMR buyer identified by PAHC Housing
Services, LLC (PAHC); and
3. Approve setting the resale price at the City’s total direct costs (approximately
$195,000); and
4. Direct the City Manager or his designee to approve the final resale price, execute the
certificate of acceptance and all other documents and deeds necessary to complete the
purchase and the resale; and
5. Appropriate funds from Fund 230, BMR Emergency Fund in the amount of $190,000
plus closing costs to purchase the BMR unit from Wells Fargo; and
6. Amend the Fiscal Year 2017 Budget Appropriation Ordinance for the Below Market Rate
Emergency Fund by
a. Increasing the expenditure appropriation by $200,000; and,
b. Decreasing the ending fund balance by $200,000
7. Approval of an exemption under Section 15326 of the California Environmental Quality
Act Guidelines
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BACKGROUND
4250 El Camino Way, Unit A310 is one of twelve one-bedroom BMR units in the Redwoods
residential complex in the City of Palo Alto. The construction of this residential project was
completed in the spring of 1983. The development consists of 105 market rate units and 12
BMR units - all of the latter are one-bedroom/one-bath units.
Redwood Complex is an attractive development with average sales values for the market rate
units. The BMR units are located together in one building with two similar market rate units at
the rear of the complex. Unit A310 has not been occupied since late 2011.
Presently the subject unit is owned by the Wells Fargo Bank (Wells Fargo) as a result of a
foreclosure. The previous owner purchased the property in September 1983 from First
Nationwide Savings, a Federal Savings and Loan Association. The previous owner took title
subject to a deed restriction in favor of the City of Palo Alto (City), which granted the City an
option to purchase the property in the event of sale or transfer of the property (hereinafter
referred to as the “Deed Restriction” or “Option to Purchase).
Due diligence, on the record of this property indicates that the owner subsequently over
encumbered her property by refinancing in early 1993. The new lender, World Savings and
Loan, issued and approved a loan in the amount of approximately $400k (this is an estimate
based on a review of the loan balance when the owner lost the unit).
The loan was then sold to Wells Fargo shortly thereafter. It appears that starting at some point
around November of 2010, the previous owner of the property defaulted on her loan payments
and homeowner association dues. Wells Fargo foreclosed on the property in August 2011 and
promptly recorded a trustee’s deed (“Deed of Trust”) on August 16, 2011. The Deed of Trust
indicates that previous owner’s outstanding debt at the time of foreclosure was $351,707.30.
Despite the clear language in the Deed Restriction requiring notice to the City, the City received
neither notice of default nor notice of the foreclosure from Wells Fargo at any time prior to the
foreclosure.
The City was notified of the property’s foreclosure by formal letter from Fidelity on May 4,
2012. On June 14, 2012, the City sent written notice of intent to exercise the option to purchase
the property. Thereafter, Wells Fargo filed a civil action against the City in which Wells Fargo
sought a judicial confirmation of clear title to the subject property, which had been previously
included as part of the City’s below-market-rate (BMR) housing program.
Following a lengthy legal process, the City of Palo Alto and Wells Fargo Bank reached an
agreement for the sale of the property. In January 2016, Council (in closed session) authorized
the City Attorney to settle the matter and to purchase and return the subject property to the
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City’s BMR inventory. The City and Wells Fargo Bank have executed the Mutual Release and
Settlement Agreement (see Attachment A). Once the City acquires the property, it will be
marketed for subsequent resale to a qualified below market purchaser. (See Attachment A
CMR: 227:07).
DISCUSSION
Staff’s recommendation is to repurchase the unit and then resell it to a qualified BMR buyer
from the BMR waiting list at a price that recoups the City’s direct costs. In general, the City’s
practice has been to assume ownership of BMR units as a last resort. This would occur if there
were no options to preserve the unit in the program due to financial risks and a significant
increase in staff workload.
As the property owner, the City would need to pay the $558 monthly holding costs for HOA
dues. The City’s investment/direct cost in the unit will total a little over $195,000 once the City
takes title from the Wells Fargo Bank.
Purchase price, $190,000
Title and Escrow $ 1,500
HOA Dues $ 558 per month
Minor cleanup & Repairs: $ 1,000
Contingencies: $ 2,000
Total City Investment $195,058
The City will purchase this property from the bank and place it again into BMR stock. Assuming
the unit is being added to the BMR stock for the first time and using 90% AMI for a one person
household, the unit would be sold for approximately $195,000. A waiting list applicant
purchasing this unit would need to have a minimum net monthly income of $1,686 to cover
housing costs. Due to the limited supply of new or one bedroom BMR units, staff believes this
unit will be attractive to those on the BMR waiting list and will sell quickly. The property will be
offered at the resale price to the BMR waiting list for 30 days.
Fund 230, BMR Emergency Fund: This Fund may be used for activities related to the
preservation of the City’s BMR ownership housing stock. In September 2002, Council
authorized:
1. An assessment loan program to provide deferred payment, low interest loans to assist
BMR owners facing severe financial hardship in paying major capital assessments on
their condominium homes. Regular monthly homeowner’s dues do not qualify for
these loans. The Director of Planning and Community Environment establishes specific
eligibility criteria and procedures within the general guidelines set by Council.
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2. Protection and preservation of units within the program from loss due to
foreclosure, typically by legal action and / or direct purchase by the City;
3. Repair, holding, and resale costs of BMR units acquired by the City; and
4. Short-term loans to correct deferred maintenance or rehabilitate older BMR units
at resale
RESOURCE IMPACT
The BMR Emergency Fund has sufficient funds for this transaction. This Fund will be used to pay
all costs related to the preservation of the subject property which includes: the purchase price
and holding and transaction costs estimated at $195,000. The proceeds from the eventual
resale will be deposited back into the BMR Fund. It is projected that there would be a net
decrease to the fund’s balance of approximately $5,000, which would consist of the difference
between the $200,000 necessary for the purchase price, additional contingencies and
transaction costs and the estimated resale value of $195,000.
POLICY IMPLICATIONS
The staff recommendation does not represent any change to existing City policy which is to
protect and preserve the BMR ownership units in the City’s affordable housing stock.
TIMELINE
Should Council approve the staff recommendation, a purchase contract will be prepared and
executed with the City as the buyer without any contingencies other than City review. Lastly,
the unit will be offered for sale to the BMR waiting list.
ENVIRONMENTAL REVIEW
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:
Attachment A: Settlement Agreement Wells Fargo and CPA (PDF)
ATTACHMENT A
ATTACHMENT A
ATTACHMENT A
ATTACHMENT A