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Council Mtg. 9/14/82
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SEP 1 4 1982
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Santa Monica, California
TO:
Mayor and City Council
FROM:
City Staff
SUBJECT:
Proposed Amendment No.2 to Agreement for Sale of land for
Private Development by and between the City of Santa MonIca
and Ocean Park Villas
Introduction
On February 10, 1981, the Council approved the above-noted agreement to effect
the development of twenty-four family Section 8 units on City-owned sites located
at 2019-25 and 2219-21 Fifth Street. On July 27, 1982, the Council approved the
first amendment to this agreement which increased the purchase orice for the
property by 5117,679. Counsel to the U.S. Department of Housing and Urban Develop-
ment (HUD) recently reviewed the document and has advised the City that certain
portions of t~e Agreenent conflict with the U.S. Housing Act of 19~7 and \Jith
administration's stated pol icies regarding the disposition of foreclosed properties.
HUD counsel has prepared the attached amendment whIch would be acceptable to the
DepartMent and would permit conveyance of the land and executIon of the mortgage
documents prior to the Septe~ber 30, 1982 deadline. Funds for projects not closed
prIor to that date are subject to recapture.
DISCUSSion of the Issues
The major issues of concern to HUD and which are reflected in proposed Amendment
No.2 are as follows'
1.
Part 1, SectIon 8 (a) (i) of the Agreement
prohibits the developer from discharging the
mortgage debt prior to its due date without
the consent of the City. HUD's instructions
for bond financing pursuant to the U.S. HOUSing
Act specifically require the developer to per-
mit refinancing at a lower interest rate if re-
quested to do so by the Department.
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SEP 1 4 1982
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Mayor and City counci~
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41111t14/82
Paragraph 1 of proposed Amendment No.2 would
subordinate the Agreement to HUD's Regulatory
Agreement, the National Housing Act, the Housing
Act of 1937, and applicable regulations thus
eliminating this and other possible conflicts.
2.
Section 8 (a) (il) of the Agreement provides that
the City shall have the option to repurchase the
site within 30 years or upon the maturation of the
mortgage for the amount of the original mortgage
($1,557,000). Should the City fail to exercise
this option, the developer would have the option
to purchase the property for its then fair market
value less the original purchase price. Should
the developer fail to exercise this option, title
to the land and i~provements would revest with the
City.
HUD has recently promulgated policies which emphaSize
HUD's ability to recapture its investment in the
event of foreclosure. In the opinion of HUD Counsel,
the section of the Agreement described above would,
to the extent that it might lessen the value of the
property, run counter to current policy regarding
property disposition Paragraph 2 of the instant
Amendment would require the City to exercise its
option to purchase within 90 days of foreclosure and
acquisition by HUO in order to impact the disposition
of the property or to recoup funds invested in the
land. This provision would apply only to the Depart-
ment if it acquires title to the project.
3.
Paragraph 3 of the Amendment clarifies Part II,
Section 604 of the Agreement which provides that title
shall revest with the City should there be a default
during the construction period. The Agreement currently
Intends that the City would proceed with the project
subject to HUO requirements, but does not provide a
complete list of the agreeMents and documents by which
the City would abide. The amendment subordinates the
Cityls rights in Section 604 to all applicable docu-
ments.
4.
Paragraph 4 of the A~endment would require the City
and developer to obtain HUD approval prior to entering
into any agree~ent which would modify the AMend~ent.
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Mayor and City ~oun~
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~9/14/82
Ana1ysis
The Amendment accompanying thIs report would require the City to exercise its
option to purchase in the event of foreclosure if the City then desires to control
the subsequent use of the property. To date, no Section 8 projects have been
foreclosed and prospects for a foreclosure during the term of the twenty year
rent subsidy contract, particularily in view of the developer's financial stability,
are remote. The only other foreseeable impact of the Amendment on the Cityls
ability to control the use of the property could occur at the expiration of the
rent subsidy contract and only if federal law required the future use to be some-
thing other than Jow housing for low and moderate income persons.
While staff does not endorse subordinating the City's ability to assure operation
of the apartments as low and moderate income housing, it is staff's judgeMent that
it will not be possible to argue these issues without Jeopardizing proJect funding
by failing to meet the deadline for closing the loan. Under the Amendment, the City
will be able to assure the provision of affordable housing for a minimu~ of twenty
years, and probably longer.
Staff Recommendation
Staff recoMmends that the Council approve the attached amendment and authorize
its execution.
Prepared by: Mindy Leiterman