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, CITY OF RIVERSIDE REDEVELOPMENT AGENCY MEMORANDUM Honorable Mayor and Agency Board Date: Item No.: July 10,2001 6 Subject: Request Authorization to Negotiate in a Preforeclosure Process for a Settlement Amount for a CDBG Rehabilitation Loan - 5750 Eugene Street Background In 1996, Margaret A. Roberts, homeowner of 5750 Eugene Street ("Property") in the Magnolia Center area, sought rehabilitation assistance to make needed home repairs. Ms. Roberts qualified and received approval for a $5,000 Senior Grant and $20,000 Community Development Block Grant (CDBG) Rehabilitation Loan. The CDBG loan was secured by a Note and Deed of Trust on the Property that holds a second trust deed position behind a $70,000 first trust deed. The Property rehabilitation project included a new roof, upgrading the electrical system, replacing heating/cooling system, kitchenlbath repairs and exterior painting. In July 1999, the first trust deed holder, Directors Mortgage, filed a Notice of Default for nonpayment, which was cancelled when Ms. Roberts caught up on her payments. Directors Mortgage filed a second Notice of Default in March 200 I, when payments became delinquent once again. The homeowner has since vacated the premises and had to move in with her daughter. Current Issue Because the house has been vacant for many months, vagrants have deteriorated the property to such an extent that the Police have been called to clear the place of trespassers numerous times. The Redevelopment Agency has been approached by Steve Scott of Annstrong Realty, who has offered to purchase the Property from foreclosure and conduct needed repairs. Mr. Scott has obtained a Competitive Market Analysis, perfonned on June 1,2001, establishing the current market value of the home at $80,000 "As.ls", and $97,000 if needed repairs are done. Mr. Scott has also obtained a contractor's bid of$12,560 to make needed repairs and put the house in sellable condition. Agency staff concurs with Mr. Scott's market analysis on the Property. The Property's current value marginally exceeds the outstanding balance of the first trust deed mortgage loan. The outstanding balance of the Agency's CDBG second trust deed is $24,243.29. The combined outstanding first trust deed and CDBG loan balance, plus repairs and closing costs, will exceed the current "repaired" market value by over $20,000. Consequently, the realtor has asked the Agency if we would agree to a "short payoff' as a pre. foreclosure settlement. A "short payoff' is where the Agency agrees to accept less than what is currently owing on its note in exchange for a successful property disposition (salvaging loan value that might be lost in a foreclosure sale). Based on the circumstances, staff feels 50% of the original amount of the CDBG loan, $10,000, would be acceptable to cancel the loan. At this point, if the Agency does not consider the existing circumstances and negotiate for some type of settlement, the first trust deed lender will proceed with the foreclosure process. A foreclosure action would not be beneficial for any of the parties in the First Trust Deed, nor for the Agency. Analysis The current value of the property, established at $97,000, is insufficient to cover the underlying first and s~cond deeds of trust and rehabilitation costs to resell the house. Directors Mortgage, the first trust deed holder, IS willing to iss~e a short payoff as a preforeclosure settlement and allow the sales transaction to occur. The new 6-1