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HomeMy WebLinkAbout2001-01-22 City Council (15)City of Palo Alto City Manager’s Report TO: FROM: HONORABLE CITY COUNCIL CITY MANAGER DEPARTMENT:PLANNING AND COMMUNITY ENVIRONMENT DATE:JANUARY 22, 2001 CMR:119:01 SUBJECT:APPROVAL OF THE ACQUISITION AND RESALE OF THE BELOW MARKET RATE UNIT AT 2464 WEST BAYSHORE ROAD, UNIT # 1 AND APPROVAL OF A BUDGET AMENDMENT ORDINANCE IN THE AMOUNT OF $130,000 TO PROVIDE FUNDS FOR THE ACQUISITION AND THE PRESERVATION OF THE UNIT IN THE BELOW MARKETRATE PROGRAM REPORT IN BRIEF The Below Market Rate (BMR) program unit at 2464 West Bayshore Road was acquired by the current owner in 1984. The City initiated litigation to prevent the loss of the unit from the BMR program through the foreclosure initiated by lenders in 1998. The City negotiated a Settlement Agreement to enable the City to acquire title to the unit for a payment of the unit’s current value under the BMR deed restrictions. In return, the lenders will remove the liens on the unit. The City must also clear the other liens against the property. The requested $130,000 Budget Amendment Ordinance (BAO) will provide the funds needed to acquire clear title to the BMR unit. Funds are also included in the BAO for estimated repairs and a contingency. Once the unit is acquired and vacated, the City will work with the BMR program administrator, the Palo Alto Housing Corporation (PAHC), to resell the unit to an eligible homebuyer from the waiting list maintained by PAHC. The City will resell the unit for the lesser of $130,000 or the total sum of the City’s actual out-of-pocket costs incurred in preserving the unit in the BMR program. CMR:119:01 Page 1 of 5 RECOMMENDATION Staff recommends that the City Council: 1. Approve the acquisition by the City of the Below Market Rate (BMR) unit located at 2464 West Bayshore Road, Unit # 1 pursuant to the terms of the Settlement Agreement and Mutual Releases (Settlement Agreement) negotiated by the City Attorney and following the procedures ordered by the Superior Court of the County of Santa Clara in that Interlocutory Judgement dated October 2"7, 2000; and Approve the resale of the BMR unit to a qualified buyer identified according to established procedures by the Palo Alto Housing Corporation (PAHC) from the BMR program waiting list and for a resale price of the lesser of $130,000 or the total sum of the City’s actual out-of-pocket costs incurred in acquiring and reselling the unit; and Approve the attached Budget Amendment Ordinance to appropriate $130,000 in Residential Housing In-Lieu Funds for costs related to preserving the unit as BMR housing; and Direct the City Manager, or his designee, to execute the certificate of acceptance in connection with the City’s acquisition of the unit and to execute the grant deed to transfer ownership to the selected BMR program buyer and to execute any other documents necessary to implement the Settlement Agreement and to preserve the unit in the BMR program. BACKGROUND The BMR unit known as 2464 West Bayshore Road, Unit #1 is a two-bedroom, one-bath condominium located in the Oregon Green development. The unit was placed in the BMR program in 1984 as an off-site unit for another housing development. It is the only BMR unit in the Oregon Green complex. The current owner is the original BMR owner who acquired the unit in August 1984 for $45,000. The present market value of the unit is about $325,000 without the BMR program restrictions. In October-1998, the owner approached PAHC seeking financial counseling because she was several months behind in her payments on the two loans secured by the unit. The owner’s financial difficulties related to a permanent medical disability that had left her unable to work and limited her income to about $16,600 per year from social security and a small pension. The owner holds title as an unmarried woman and has continued to live by herself in the unit during the legal proceedings of the last three years. When the situation was researched, the City learned that there were two loans secured by the property that were in arrears and that the property had been over-financed by about $44,000 in excess of its present $56,000 value under the deed restrictions. The original purchase moneY loan had been refinanced in January 1994 with a new $65,000 loan. That first deed CMR:119:01 Page 2 of 5 of trust is now held by GMAC. In January 1995, an equity line of credit loan of $31,000 was obtained by the owner and secured against the property. This loan was subsequently increased to $45,000. The owner has been through bankruptcy. Those proceedings were completed in March 1998 and the court discharged about $100,000 in unsecured debts. On January 28, 1999, GMAC recorded a notice of default and, despite written ~bjections from the City Attorney, GMAC scheduled the trustee’s sale in May 1999. The City Attorney secured an injunction against the trustee’s sale to prevent the likely loss of the unit from the BMR program should the sale occur. The City Attorney then retained outside counsel to negotiate a settlement with the two lenders and the property owner. By August 2000, an agreement had been reached and the Settlement Agreement was circulated for signature. All the parties except the property owner have executed the Settlement Agreement. The owner has ceasedto cooperate and has not responded to letters or attempts at legal service of the documents. DISCUSSION Settlement Agreement Under the terms o f the Settlement Agreement, the City will pay the first deed of trust lender (GMAC) the current BMR resale price under the deed restrictions ($56,000) in return for GMAC’s forgiving the total amount due on its loan and dropping its foreclosure action. Wells Fargo Bank, the holder of the deed of trust for the credit line loan, agreed to drop its claim entirely and has already executed a deed ofreconveyance on its loan. The City agreed to pay the outstanding property taxes and homeowner’s association dues and assessments (totaling about $15,000). While the property owner participated in the settlement negotiations and had verbally indicated her willingness to sign the document, when the final settlement agreement was presented to the owner for signature, she did not sign the document. On October 27, 2000, the City obtained a Superior Court ruling ordering the property owner to execute the settlement agreement. Repeated attempts at legal service of the Court’s order were unsuccessful. On December 22, 2000, the City obtained an order from the Court appointing the Clerk of the Court to act as the.property owner in complying with the terms of the Settlement Agreement and directing the Clerk to execute a grant deed conveying title of the unit to the City. Escrow is.ready to close as soon as the City can deposit the necessary funds. ¯ While there is no specific deadline for the closing, the Homeowners Association and GMAC are concerned about the time that has elapsed since the Agreement was finalized. In addition, a judgement was recorded against the property by Harvey’s Casino in May 2000. Additional time increases the interest and penalties on the back taxes and dues and could expose the City to liability for other judgements or claims affecting title to the unit that may materialize. CMR: 119:01 Page 3 of 3 Cost of Preserving the BMR Unit The City will incur various costs in acquiring and reselling the unit. The following estimates include all expenses known at this time and are based on the assumption that escrow will close before the end of February 2001. An estimate of $6,000 is included for repairs and fix- up costs. The unit has not yet been inspected. The listed costs include full payoff of the $19,900 judgement recorded against the property last May while the Settlement Agreement was being negotiated. It may be possible to negotiate a settlement of this claim for less than the full amount, but, for the purposes of the BAO, staff has assumed that full payment will be necessary to establish clear title for the subsequent buyer of the property. About $29,000 has been added to the BAO amount as an allowance for expenses incurred by the City Attorney’s Office for litigation costs including the outside counsel’s fees and for any unforeseen costs that could possibly arise. While all of these funds may notbe used, the City needs to be able to act quickly to conclude the transaction and preserve the unit. Total anticipated costs to the City are outlined below. Payment to GMAC: Homeowner’s Association - Delinquent dues, penalties and fees: Homeowner’s Association- Unpaid assessment: Property taxes and penalties for fiscal year 1998-2000 and first installment of fiscal year 2000-01 taxes: Title and escrow fees for the acquisition and resale transactions: Allowance holding costs for 3- 4 months pending resale and for minor repairs, painting, clean up, etc. Sub-total:. Harvey’s Casino Judgement TOTAL ESTIMATED CITY COSTS: Legal Expenses and Unforeseen Costs TOTAL BUDGET AMENDMENT REQUEST $56,000 $11,000 $1,907 $2,049 $4,000 $6,000 $80,956 $19,874 $100,830 $29,170 $130,000 RESOURCE IMPACT The BAO in the amount of $130,000 will reduce the unrestricted balance in the Residential Housing In-Lieu Fund from approximately $1.4 million to $1.3 million. Upon completion of the sale, the proceeds will be deposited in the Residential Housing In-Lieu Fund and in the General Fund to cover legal costs incurred by the City Attorney’s Office. As stated above, the unit has an open market value of about $325,000. The price range for newly constructed two-bedroom units in the BMR program is from $126,900 to $217,700. By taking title to the BMR unit, the City can set a resale price it considers sufficient to re-coup its expenditures. This was done in the Bautista Court case in 1999. The resale price in these situations is not controlled by the deed restriction formula. Because this is a modest unit with two bedrooms and only one bath located in an equally modest condominium complex, staff proposes that the resale price be capped a( the amount of the BAO, which is $130,000. CMR:119:01 Page 4 of 5 The actual resale price would be approved by the City Manager and would be the lesser of the final amount of the City’s out-of-pocket costs or $130,000. POLICY IMPLICATIONS This action does not represent any change to existing City policies. TIMELINE Escrow, transferring title to the BMR unit to the City, should close within two weeks of Council approval of the BAO and the other recommendations in this staffreport. Staff will then initiate proceedings to evict the current owner. PAHC will immediately initiate the resale process. Once the unit is vacant, necessary repairs and work, such as painting, will be done. The resale process usually takes 90 to 120 days. Upon close of escrow and sale to a new BMR buyer, the City will be reimbursed for its costs and a new 59-year deed restriction will be recorded preserving the unit in the BMR program. 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. ATTACHMENTS Budget Amendment Ordinance PREPARED BY: Catherine Siegel, Housing Coordinator DEPARTMENT HEAD REVIEW ~ " G. EDWARD Director of Planning and Community Environment CITY MANAGER APPROVAL:AUD~REY SEYMOUR Assistant to the City Manager cc: Palo Alto Housing Corporation CMR: 119:01 Page 5 of 5 ORDINANCE NO. ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO AMENDING THE BUDGET FOR THE FISCAL YEAR 2000-01 TO PROVIDE AN ADDITIONAL APPROPRIATION OF $130,000 FOR PRESERVATION OFA BELOW MARKET RATE UNIT AT 2464 WEST BAYSHORE ROAD, UNIT #I WHEREAS, pursuant to the provisions of Section 12 of Article III of the Charter of the City of Palo Alto, the Council on June 19, 2000 did adopt a budget for fiscal year 2000-01; and WHEREAS, acquisition of the Below Market Rate (BMR) housing unit at 2464 West Bayshore Road, Unit #i has been approved by the Superior Court pursuant to the terms of a settlement agreement dated October 27, 2000; and WHEREAS, funds in the amount of $130,000 are needed from the Housing In-Lieu Residential Fund to complete the purchase of the unit and the transfer to the City; and WHEREAS, sufficient funds are available in the Residential Housing-In-Lieu Fund; and WHEREAS, the additional appropriation of funds requested from the Residential Housing-In-Lieu Fund is for a one-time cost and no future year General fund ongoing costs are anticipated; and WHEREAS, City Council authorization is needed to amend the 2000-01 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 Thirty Thousand Dollars ($130,000) is hereby appropriated to non-salary expenses in the Residential Housing In-Lieu Fund. SECTION 2. This transaction will reduce the Residential Housing In-Lieu Fund reserve from $1,436,491 to $1,306,491. SECTION 3. 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. SECTION 4. The Council of the City of Palo Alto hereby finds that this project is exempt from the provisions of the California Environmental Quality Act, and therefore, no environmental impact assessment is necessary. SECTION 5. 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:APPROVED: CityClerk Mayor APPROVED AS TO FORM:City Manager Senior Asst. City Attorney Director of Administrative Services