The Yampa Valley Housing Authority board and executive director sent a letter this week to the Steamboat Springs City Council and Routt County Board of Commissioners stating that the organization plans to suspend loan payments on its Elk River Village property this month.

Scott Franz/file

The Yampa Valley Housing Authority board and executive director sent a letter this week to the Steamboat Springs City Council and Routt County Board of Commissioners stating that the organization plans to suspend loan payments on its Elk River Village property this month.

Yampa Valley Housing Authority to suspend Elk River Village loan payments

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— The Yampa Valley Housing Authority board and executive director sent a letter this week to the Steamboat Springs City Council and Routt County Board of Commissioners stating that the organization plans to suspend loan payments on its Elk River Village property this month.

The Housing Authority’s decision to stop paying nearly $10,000 per month on the parcel it purchased in 2006 for $2.3 million is motivated by a need to restructure the agreement with First National Bank of the Rockies.

Bank President Peter Waller said Thursday that he could not comment on the situation because of financial privacy laws.

Until this past year, the Housing Authority had been paying only interest on the $2 million principal of the loan. It has been refinanced each year since its purchase. The most recent appraisal for the property was $1.5 million in 2011. The Housing Authority has been approached with two offers far lower than that in the past year.

The Housing Authority is a government entity that was formed in 2003 by an intergovernmental agreement between the city of Steamboat Springs and Routt County, which still fund the organization with annual appropriations totaling $168,000. The agreement that formed the Housing Authority states that neither the city nor county is responsible for debt incurred by the organization.

The Housing Authority’s letter states that First National Bank of the Rockies should know that because the organization’s funding is subject to yearly appropriation that it does not have the ability to independently repay the loan without successful development of the property.

According to Dee Wisor, a Denver-based attorney who is providing legal advice to the Housing Authority, the loan agreement is in violation of the Taxpayers Bill of Rights.

“What TABOR says is that any multiple-year fiscal obligation has to have voter approval,” Wisor said.

As the purchase of the Elk River Village parcel did not go before voters, the loan is unenforceable, according to Wisor.

To comply with TABOR, according to Wisor, the loan would have to be converted to a lease purchase transaction, where First National Bank of the Rockies would lease the property back to the Housing Authority subject to yearly appropriations by the organization.

Wisor said there is case law to support that lease purchase agreements comply with TABOR. Less clear, he said, is what would happen to the property if the issue of the loan’s enforceability was pressed. Depending on specific circumstances, the bank could keep the property but not be able to recoup the difference between the current value and the principal of the loan or it could lose both and end up with nothing.

It is unclear what position First National Bank of the Rockies or its counsel has taken on the enforceability of the loan.

In a meeting with the Steamboat Today, Housing Authority board President Kathi Meyer, former board President Rich Lowe and Executive Director Jason Peasley said the obligation also limits what the organization can accomplish.

The properties it manages are largely self-sufficient, but the Elk River Village loan payments use so much of the contributions from the city and county that the organization has little ability to pursue other projects.

The Yampa Valley Housing Authority hopes that by suspending payments, it can apply pressure on First National Bank of the Rockies to agree to a deal that addresses the TABOR issue and reduces the organization’s obligation.

The letter to the city and county states that the organization would like to see the loan principal reduced between $800,000 and $1 million, which is what it estimates to be the current value of the parcel.

City Council members and county commissioners were either not able to be reached for comment or had not read the letter.

To reach Michael Schrantz, call 970-871-4206 or email mschrantz@SteamboatToday.com

Yampa Valley Housing Authority suspends loan payments

Yampa Valley Housing Authority suspends loan payments

Comments

Fred Duckels 10 months, 2 weeks ago

The bank loaned for this project mostly as a community assistance project and do not deserved to be treated much like the SB700 folks. This knife in the back approach has become too common when dogooders run amok.

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Scott Wedel 10 months, 2 weeks ago

They did it NOW!?!

4 years after the value plummeted to be far less than owed.

A half million dollars wasted on four years of payments.

The City and County that have seen their taxpayer dollars wasted supporting YVHA's incompetence of purchasing a lot at a high price with never a concrete plan on how it was to be used and then making payments for four years should demand an outside audit of YVHA and how they are able to reach such comically inept decisions.

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mark hartless 10 months, 2 weeks ago

Is there ANYTHING, at ANY TIME, in ANY CONTEXT, in the face of EMPIRICAL DATA, which would cause you champions of the "fix-it" state to EVER, EVER, EVER feel like complete and total SUCKERS???

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Scott Wedel 10 months, 2 weeks ago

Mark,

There are competent housing authorities that use their access to cheaper loans and grants to provide lower cost rental housing than the private sector. The competent ones are run very conservatively, buying a property with strong cash flow well above their loan payments. Their cash flow can cover maintenance and there are charities that will give grants to housing authorities so they might be able to do a renovation without adding to their costs.

Nor do I think it is plausible political option to straight out abolish YVHA because they own too many properties with too many local tenants.

But YVHA is among the most exceptionally incompetent housing authorities in existence. Not only have they made horrific mistakes, they still don't even accept that their mistakes were inevitable for a housing authority acting as a speculative developer. If somehow Elk River had been successfully developed prior to a recession then their next purchase for their next speculative investment would have been the one that financially crippled them.

And I would be extremely surprised if FNBR did as YVHA wants and accepted a cram down of the remaining debt. FNBR, if they want to limit their losses, cannot allow other borrowers to see that YVHA can dictate terms and force FNBR to accept a new loan at 33% less than recent appraised value in a now appreciating market . So it will be cheaper for them to lose more on this parcel if it doesn't cause them to lose more on other loans. And YVHA cannot claim that Elk River is worth much more to YVHA than it is to anyone else. YVHA will never get funding to develop it after this move. All YVHA can hope to do is sell it. But FNBR can sell it just as easily as YVHA. FNBR is less of a distressed seller than YVHA and does not have to get approvals from an incompetent YVHA board. So FNBR is not going to be selling it at any lower of a price than YVHA.

If I was the FNBR loan officer then I'd see if we have any other loans to YVHA. If so, then I'd accept YVHA's TABOR argument and file notices of technical default on every other YVHA loan. FNBR knows YVHA is not going to get voter approvals for refinancing their loans.

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Scott Wedel 10 months, 2 weeks ago

Also, YVHA's legal theory strikes me as being extremely self destructive. When an organization does not use their current lawyer, Bob Weiss, and instead finds an outside lawyer then you know they are on legal thin ice.

YVHA organizes itself into various "enterprises" such as Hillside apts, Fish Creek Mobile Home Park and "Development". To comply with TABOR, each of those enterprises have to be self sufficient funds receiving less than 10% of their budget from state or local government. For YVHA to argue the Elk River debt was improperly issued then argues the rest of the debt was improperly issued.

It appears that YVHA issued basically all of their debt in 2007 without ever seeking required taxpayer approvals.

YVHA argues they have illegally promised to pay some $2.5M in debt to Wells Fargo and another $1M promissory note with City of SB for Fish Creek Mobile Home Park for that 2007 purchase.

They have a $1+M debt to USDA for Hillside Apts issued in 2007.

They owe around $100K to Millennium Bank for two Sierra View lots in Oak Creek.

How they can to claim to have entered into only one of those loans improperly escapes me. Seems to me that YVHA has a compelling argument that they violated TABOR when making all of those loans and that they cannot legally make payments on any of them without voter approvals.

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Scott Wedel 10 months, 2 weeks ago

Editor,

The letter from YVHA to city and county officials state that attached is a letter from their lawyer. That attached legal letter did not make it to your website. The attached letter is mentioned at the end of the Acquisition and Financing of Elk River Village section.

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John Fielding 10 months, 2 weeks ago

. Looking at the bright side, this is an excellent opportunity to correct a mistake and get the housing authority back on track. There still appears to be sufficient support for its mission that it will not be eliminated. Hopefully there will be new parameters established that limit its future actions to those that conform to a financially sustainable model. Possibly part of those will be a mandate to continually divest itself of ownership, always transitioning it to the residents themselves.

The bank will likely simply assume title to the property and sell it for the best price they can get. In an ordinary short sale scenario the difference is often written off and the borrower forgiven. There seems to be enough potential difficulty with collecting the deficiency that the bank would not pursue it.

The issue of whether the authority can legally borrow must be examined and determined. If it can, it should still be subject to restrictions that prevent another similar situation.

.

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John St Pierre 10 months, 2 weeks ago

Looking at the YVHA website I see that one its Board of Directors is an FNBR employee ...now thats awkward to say the least....

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Scott Wedel 10 months, 2 weeks ago

John,

I look at the website and wonder how out of date it is. The article says Kathi Meyer is the Board President and the website doesn't even list her as being on the board! The website shows Nancy Stahoviak as the County Commissioner representative and she left office six months ago.

The YVHA board sure looks to have many of the same inept people as Routt County Habitat for Humanity that screwed up the development of the duplex and then refused to sell it on the terms promised to the families that helped built what was supposed to be their homes.

The depth of the management incompetence is that YVHA wasn't smart enough to do speculative development like a speculative developer. Any decent speculator forms a new LLC for each project. So one can fail and that holding company can collapse without affecting the speculator's other assets.

Another hallmark of YVHA's incompetence is that it is their policy to operate their current properties to break even. Competent housing authorities have a policy of setting rent at a particular percentile of the regional median income. That way the housing authority's properties can generate significant positive cash flow to help finance purchases (of positive cash flow properties) while still providing below market affordable housing.

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Fred Duckels 10 months, 2 weeks ago

A deal is a deal and to stick the bank that was providing a public service with the loss in inconceivable. Let the YVHA liquidate to pay off this debacle but don't welch in my name.

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Scott Wedel 10 months, 2 weeks ago

Fred,

I think the bank is going to come out OK since YVHA did pay close to $700,000 in interest. The bank's loss on that parcel purchased in 2007 is going to be a lot less than most properties they financed in 2007.

Plus, the real estate market is recovering and the bank will probably be able to sell it for close to appraised value.

There would seem to be a real possibility that YVHA will have to get voter approval of their debt or be forced to liquidate. Their argument that they are covered by TABOR appears to be true. It would appear that not just Elk River is covered by TABOR, but all of their debt. So it would appear they need voter approvals to continue paying on any of the debts.

Regardless, most of their debt comes due in 2017. TABOR allows voter approved debt to be refinanced if at lower costs, but this would be first issuance by YVHA as a TABOR restricted entity. So the debt would appear to be approved by the voters prior to 2017.

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Fred Duckels 10 months, 2 weeks ago

The do gooders and the rests of us unwilling participants need to come to terms, what is going to be done to curb this nonsense? Finding fine print is only enabling the zealots.

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mark hartless 10 months, 2 weeks ago

There IS no "comming to terms" with the "do-gooders". They are addicts...addicted to OPM.

Empirical data means nothing to the do-gooders. All one can do is pick up their cash (property) and leave their realm.

When the OPM dries up the do-gooders will be forced to sober up, but not until.

It wasn't good enough for them to destroy California, they want to "fix" the rest of the world too. They are like the Borg. "Resistance is futile... you WILL be assimilated."

As long as there is someone else to plunder in the name of "charity" they will petition the government to put a gun to our heads and make US pay for it..

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Scott Wedel 10 months, 2 weeks ago

There was no cost to the public for Hillside Apts or Fish Creek Mobile Home park. Both generate enough cash for YVHA to pay for their loans. The big difference is that these were existing developments with established cash flow when purchased.

Fish Creek Mobile Home Park was even purchased in 2007 at nearly the same time as the Elk River parcel. But it's cash flow was not decimated by the recession anything like how Elk River's value plummeted.

California is hardly decimated. The major cities along the coast are the homes to major companies leading the world. The Central Valley and other outlying areas are suffering far more. San Francisco's unemployment rate is 6%. Fresno's is 14%.

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mark hartless 10 months, 1 week ago

There is no "cost to the public" when an entity like YVHA stops paying its debt to a bank weith which the rest of the public must do business???

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Scott Wedel 10 months, 2 weeks ago

I think the severity of YVHA's mishandling of this issue is in their letter to the City Council and County Commissioners. It has three fundamental errors.

1) From the letter: "The YVHA Board believes FNBR must consider restructuring options that recognize the current value of the property, the circumstances under which the loan was made, and the various legal problems related to the loan."

The YVHA board is assuming that FNBR has not considered those issues or has reached different conclusions than YVHA. In particular, YVHA's view is that FNBR must agree to YVHA's proposals. There is an alternative possibility that FNBR would rather foreclose upon the property than agree to YVHA. That FNBR's legal advice may be that the legal issues are YVHA's problems and further justify dealing with YVHA by foreclosing. The TABOR situation is YVHA's problem of arguably not legally being able to make payments. It was YVHA that failed to disclose its TABOR situation to FNBR. Maybe YVHA can avoid FNBR from getting additional damages, but there is not an clear risk to FNBR of damages.

In particular, the lease option scenario is particularly unattractive to a lender such as FNBR. The lease option benefits YVHA if the property appreciates and puts all of the downside on FNBR if the property decreases in value. I think it is entirely reasonable for FNBR to prefer foreclosing than agreeing to YVHA's lease option.

2) YVHA's letter fails to describe how this decision affects the rest of YVHA. Their two Sierra View lots have the exact loan agreement wording as Elk River and was done at about the same time. Surely, YVHA must also think that loan agreement is invalid and must be converted to lease option with Millennium Bank. They cannot believe they can continue to legally pay on those lots.

YVHA also has loans on the Hillside Apts and Fish Creek Mobile Home Park. Their letter fails to describe why YVHA thinks those loans are different from the Elk River loan. Does YVHA intend to ask the USDA and Wells Fargo to convert their loans on those properties to lease options?

3) From the end of the letter: "... thus the remedy available to FNBR in the best case would be to compel YVHA to convey the land to FNBR without further liability."

Well, I think FNBR's opinion would be that getting back the land is automatic and in the worse case there is no further YVHA liability. That if TABOR prevented YVHA from getting a loan without a public vote then maybe YVHA could be sued for damages for fraudulently applying for a loan stating that they could make payments. TABOR is written to protect the taxpayer and protects the taxpayer from tax hikes to pay for debt not approved by voters. TABOR was not written to be a shield to protect government from liabilities.

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Scott Wedel 10 months, 2 weeks ago

Overall YVHA's letter is written as a negotiating ploy with FNBR and completely fails to suggest the YVHA board has considered the implications of their legal theory as it relates to the rest of YVHA or YVHA's future.

And FNBR can look at YVHA's finances and other properties and decide what of many options it wishes to pursue. FNBR could see that YVHA lacks the money for an expensive legal fight and conclude that neither the City or County is going to fund YVHA's legal battles. FNBR could decide to be very aggressive and file suit against YVHA on their other loans to force YVHA to defend the legality of loans in one case while arguing against the legality of an identical loan in another case.

It is like YVHA Board concluded that being in an acid pit and being eaten away is a bad place to be. So they tell FNBR to agree on a way out of the acid pit or else. But FNBR can look around and says "You, not us, are in the acid pit. These are the terms which we will help you out of the deep part of the acid pit. But we are not going to enter the acid pit with you".

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