to: james app, city manager from: susan decarli, acting ... · pdf file82479.04005\9495173.3 1...

$: TO: James App, City Manager FROM: Susan DeCarli, Acting ... · PDF file82479.04005\9495173.3 1 TO: James App, City Manager FROM: Susan DeCarli, Acting Community Development Director$
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TO: James App, City Manager FROM: Susan DeCarli, Acting Community Development Director SUBJECT: Habitat for Humanity: Second Amendment to Loan Agreement to Conditionally Forgive

CalHome Loan Interest DATE: January 21, 2015 Needs: For the City Council to consider a request by Habitat for Humanity for San Luis Obispo

County to waive a requirement to pay 6% interest accrued on a CalHome loan. Facts: 1. In 2001, the City was granted approximately $500,000 in CalHome funds by the State

Department of Housing and Community Development (“HCD”) for the purpose of making deferred-payment second trust deed loans to lower income, first-time homebuyers.

2. In August 2010, Habitat for Humanity (Habitat) requested that the City provide

financial assistance to help them purchase a vacant lot (Assessor’s Parcel No. 008-391-021) located at 2811 Vine Street (“Property”) for development of five homes for low- and very-low income first-time homebuyers. The City Council approved a loan of $225,000 in CalHome funds (“Loan”) to Habitat to assist in purchasing the Property, and the City and Habitat entered into a Loan Agreement Regarding Acquisition of Real Property by Habitat for Humanity for San Luis Obispo County, dated May 23, 2011 (“Loan Agreement”). See Attachment 1, Loan Agreement. The Loan Agreement provided for interest to accrue at 6% (simple) until the homes were completed and subsequently conveyed to the ultimate home buyers. Upon execution of new promissory notes by the ultimate homebuyers, the principal of the Loan would be reduced proportionately, and the applicable accrued interest would be forgiven.

3. On August 26, 2014, the Planning Commission approved a revised development plan

and subdivision to intensify development of the property with nine single-family detached units on the Property.

4. Subsequent to the Commission’s approval, the City received a request from Habitat to

grant a reduction in the cost of permits and fees, and approval to extend the schedule for payment of the fees. See letter in Attachment 2, dated September 22, 2014. Since there are no provisions or precedent to consider this type of request, this request was not approved.

5. Habitat subsequently determined that the project was not financially feasible, and

requested that the City provide extra time to allow Habitat to sell the Property in order to repay the Loan. See Attachment 3, letter dated October 7, 2014, and Attachment 4, letter dated November 3, 2014. Based on the City Council’s approval on November 18, 2014, the City and Habitat entered into a First Amendment to Loan Agreement, dated December 4, 2014 (“First Amendment”) setting out terms to allow Habitat additional time to sell the Property to repay the Loan. See Attachment 5, First Amendment to Loan Agreement.

01-20-15 CC Agenda Item 11 Page 1 of 33

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6. The First Amendment requires Habitat to repay the entire principal balance of the Loan, in the amount of $225,000, plus all accrued interest at the rate of six percent per annum, simple interest. Approximately $49,500 of interest has accrued on the Loan since May 2011, and this amount will continue to increase until the Property is sold. Habitat is diligently marketing the Property in its efforts to sell the Property. However, Habitat, in a letter dated December 18, 2014, has requested that the City waive the accrued interest. See Attachment 6, letter from Habitat dated December 18, 2014.

7. Following receipt of the request by Habitat, City staff confirmed with HCD that to

the City may waive the interest on the Loan.

Analysis and Conclusion: Habitat paid $225,000 as the purchase price for acquisition of the Property on Vine Street

(APN #008-391-021) in 2011. Since that time, about $49,500 of interest has accrued on the Loan, making the amount currently due to the City approximately $275,000. These funds were provided to the City by the State Department of Housing and Community Development to use for affordable housing loans.

Habitat has acted diligently since 2011 to obtain approvals and procure financing for development of affordable units on the Property, and has invested over $58,000 in direct costs from its general operating funds to move this project forward. Due to circumstances beyond the control of Habitat and the resulting increased costs and funding constraints, Habitat is not been able to secure the funding necessary to make the project financially feasible. The City received a formal request to waive the 6% interest on the Loan in December 2014, see letter in Attachment 5. The applicant is seeking this approval to help recover some of the costs incurred by Habitat for entitling the property for development. Although Habitat believes the sale of the Property will provide sufficient funds to repay the Loan, both Habitat and City staff do not believe that there will be sufficient net sale proceeds to also cover Habitat’s current losses and accrued interest. Staff recommends that, in lieu of waiving the interest accruing under the Loan, the City approve forgiving the accrued interest, upon repayment of the principal balance of the Loan, similar to what was anticipated under the original Loan Agreement. Forgiveness of the interest will be further conditioned upon (i) Habitat shall not be in default under the Loan Agreement, and (ii) Habitat shall use best reasonable efforts to market and sell the Property in accordance with the First Amendment. A Second Amendment to the Loan Agreement has been prepared to provide for forgiveness of the interest, and Habitat has agreed to this Second Amendment. See Second Amendment, Exhibit A to the resolution attached as Attachment 7.

Reference: State Regulations governing the CalHome Program (California Code of Regulations, Title 25, Division 1, Chapter 7, Subchapter 9, Sections 7715 et seq.)

Fiscal Impact: Habitat’s request would have no effect on the General fund. Further, the CalHome funds

were obtained by the City as a grant, and the City is not required to pay any interest on those funds.

Options: a. Adopt the attached resolution to approve a Second Amendment to the Loan Agreement,


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conditionally authorizing the forgiveness of the 6% interest upon repayment of the principal balance of the $225,000 CalHome Loan made to Habitat for Humanity for San Luis Obispo County.

b. Amend, modify, or reject the above option.

ATTACHMENTS: 1. Loan Agreement, dated May 23, 2014 2. Correspondence from Habitat, dated 9-22-14 3. Correspondent from Habitat, dated October 7, 2014 4. Correspondence from Habitat, dated November 3, 2014 5. First Amendment to Loan Agreement, dated December 4, 2014 6. Correspondence from Habitat, dated 12-18-14 7. Resolution to Approve Forgiveness of the CalHome

Loan Interest for Habitat (together with Second Amendment to Loan Agreement attached as Exhibit A)


RESOLUTION NO. 15-xxx

RESOLUTION OF THE CITY COUNCIL OF THE CITY OF EL PASO DE ROBLES APPROVING AND AUTHORIZING EXECUTION OF A SECOND AMENDMENT TO

LOAN AGREEMENT WITH HABITAT FOR HUMANITY FOR SAN LUIS OBISPO COUNTY WHEREAS, the City and Habitat for Humanity for San Luis Obispo County (“Habitat”) entered into a Loan Agreement Regarding Acquisition of Real Property by Habitat for Humanity for San Luis Obispo County, dated May 23, 2011 (the “Agreement”) whereby City provided financial assistance to Habitat in the form of a loan in the amount of Two Hundred Twenty-Five Thousand Dollars ($225,000.00) (the “Loan”) in CalHome Funds, to acquire the real property located at 2811 Vine Street, Paso Robles, California (the “Property”) for development of five single family homes for occupancy by low- and very-low income households (the “Project”); and

WHEREAS, Habitat acted diligently since 2011 to obtain approvals and procure financing for development of the Project on the Property, but due to circumstances beyond the control of Habitat and resulting increased costs and funding constraints, Habitat was unable to secure the financing necessary to make the Project financially feasible; and

WHEREAS, Habitat notified the City that it was not able to obtain sufficient financing to make the Project financially feasible, and requested the City provide additional time to allow Habitat to sell the Property and repay the Loan; and

WHEREAS, at its meeting of November 18, 2014, the City Council authorized staff to work with Habitat and enter into an agreement, and based on such authorization the City and Habitat subsequently entered into a First Amendment to Loan Agreement Regarding Acquisition of Real Property by Habitat for Humanity for San Luis Obispo County, dated December 4, 2014 (the “First Amendment”), to allow Habitat additional time to sell the Property and repay the Loan, plus accrued interest; and

WHEREAS, during various communications between Habitat and City staff, both prior and subsequent to execution of the First Amendment, Habitat requested that the City consider waiving the interest accruing on the Loan;

NOW, THEREFORE BE IT RESOLVED, by the City Council of the City of El Paso de Robles as follows: 1. The City Council hereby approves the Second Amendment to the Agreement, in substantially the form set forth in Exhibit A, attached hereto and incorporated herein by reference, including without limitation the conditions set forth in Section 1 of said Second Amendment. 2. The City Manager is authorized and directed to execute the Second Amendment on behalf of the City, subject to any minor clarifying, conforming or technical changes authorized by the City Attorney. The City Manager, or his designee, is further authorized and directed to take such actions and execute such further documents as may be necessary to carry out the City’s obligations under the Agreement, as amended by the First Amendment and further amended by the Second Amendment. PASSED AND ADOPTED by the City Council of the City of El Paso de Robles this 20th day of January, 2015, by the following vote:

AYES: NOES: ABSENT: ABSTAIN:

Steven W. Martin, Mayor ATTEST:

Caryn Jackson, Deputy City Clerk


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EXHIBIT A

SECOND AMENDMENT TO LOAN AGREEMENT REGARDING ACQUISITION OF REAL PROPERTY BY

HABITAT FOR HUMANITY FOR SAN LUIS OBISPO COUNTY

[See Attached]


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SECOND AMENDMENT TO LOAN AGREEMENTREGARDING ACQUISITION OF REAL PROPERTY BY

HABITAT FOR HUMANITY FOR SAN LUIS OBISPO COUNTY

THIS SECOND AMENDMENT TO LOAN AGREEMENT REGARDING ACQUISITION OF REAL PROPERTY BY HABITAT FOR HUMANITY FOR SAN LUIS OBISPO COUNTY(this "Second Amendment") is made and entered into as of _________________, 2015, by and between the CITY OF EL PASO DE ROBLES, a municipal corporation of the State of California, ("City"), and HABITAT FOR HUMANITY FOR SAN LUIS OBISPO COUNTY,a California nonprofit public benefit corporation (“Habitat”), who agree as follows:

RECITALS

A. City and Habitat entered into a Loan Agreement Regarding Acquisition of Real Property by Habitat for Humanity for San Luis Obispo County, dated May 23, 2011 (the “Agreement”)whereby City provided financial assistance to Habitat in the form of a loan in the amount of Two Hundred Twenty-Five Thousand Dollars ($225,000.00) (the “Loan”) in CalHome Funds, to acquire the real property located at 2811 Vine Street, Paso Robles, California (the “Property”) for development of five single family homes for occupancy by low- and very-low income households (the “Project”).

B. The Loan is evidenced by a Promissory Note, dated May 25, 2011, executed by Habitat in favor of the City, in the principal amount of the Loan (the “Note”), and is secured by a Deed of Trust, Security Agreement and Fixture Filing, dated May 25, 2011, which was recorded against the Property (the “Deed of Trust”).

C. Habitat acquired the Property on June 28, 2011, in accordance with the Agreement. Pursuant to the Agreement, Habitat was required to begin construction of the residential units by the third (3rd) anniversary of the close of escrow, or the Loan was to be repaid in full, together with interest as set forth in the Agreement and the Note.

D. On October 7, 2014, Habitat sent to the City a letter stating that Habitat was unable to continue with the Project because it could not assemble sufficient financing to make the Projectfinancially feasible. Habitat requested that the City provide extra time to allow Habitat to sell the Property in order to repay the Loan, plus accrued interest.

E. At its meeting of November 18, 2014, the City Council authorized staff to work with Habitat and enter into an agreement, and based on such authorization the City and Habitat subsequently entered into a First Amendment to Loan Agreement Regarding Acquisition of Real Property by Habitat for Humanity for San Luis Obispo County, dated December 4, 2014 (the “First Amendment”), to allow Habitat additional time to sell the Property and repay the Loan,plus accrued interest.

F. During various communications between Habitat and City staff, both prior and subsequent to execution of the First Amendment, Habitat requested that the City consider waiving the accrued interest.


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G. At its meeting of January 21, 2015, the City Council conditionally authorized a second amendment to the Agreement to eliminate the requirement that Habitat repay the 6% interest accruing on the Loan. This Second Amendment contains the terms and conditions agreed to by the parties relating to such change in terms.

AGREEMENTS

1. Elimination of Requirement to Repay Loan Interest (simple) of 6%. Notwithstanding anything in the Agreement, the First Amendment or this Second Amendment to the contrary, upon the sale of the Property by Habitat, as anticipated under the First Amendment, and repayment of the entire principal balance of the Loan in the amount of $225,000, then all interest that has accrued under the Note shall be forgiven in full, and City shall execute such documents as may be necessary to release the Property from the lien of the Deed of Trust securing the Note. The forgiveness of interest as provided in this Second Amendment shall be conditioned on the following:

a. Habitat shall not be in default under the Agreement, as it may be amended from time to time; and

b. Habitat shall use best reasonable efforts to market and sell the Property in accordance with the First Amendment, including without limitation the time period set forth in the First Amendment or any extensions of such time as may be approved by the City.

2. No Further Amendment. This Second Amendment shall be effective on the date this Second Amendment is signed by the City. Except as specifically set forth in this Second Amendment, all of the provisions of the Agreement as amended by the First Amendment and further amended by this Second Amendment, shall remain unchanged and in full force and effect.

[SIGNATURES TO APPEAR ON THE FOLLOWING PAGE]


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IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed effective the date first mentioned above.

CITY:

CITY OF EL PASO DE ROBLES

By: ___________________________ James L App, City Manager

APPROVED AS TO FORM:

By: ____________________________ Iris P. Yang, City Attorney

ATTEST:

By: _____________________________ Caryn Jackson, Deputy City Clerk

HABITAT:

HABITAT FOR HUMANITY FORSAN LUIS OBISPO COUNTY, aCalifornia nonprofit public benefit corporation

By: ___________________________ ____________________, Chief Executive Officer


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