CR 92-228 Suboridination Agreement
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. November 4, 1992
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Council Report 92-228
SUBORDINATION AGREEMENT
Proposed Action.
staff recommends the adoption of the following motion: "Move to atlprove
execution of a subordination agreement between the City and Harold/Gerald
steile."
Adoption of this motion will allow staff to execute a subordination
agreement between the City and Harold/Gerald Steile.
overview.
In 1987, Harold and Gerald steile borrowed $50,000 from the City under
the City's Commercial Rehab. Loan Program for improvements to 804-808
Mainstreet. (Broadway Pizza) Presently the principal amount of that loan
is $33,339.00.
The remaining $33,339.00 Commercial Rehab. Loan is secured by a 2nd
mortgage on the property, behind an existing 1st mortgage of
approximately $70,000. The present request is for the city to subordinate
it's position to $86,000. The request is a result of refinancing of the
. property.
Over the past 5 years the Steile's have completed additional improvements
to the property by collateralizing these improvements with other
properties which they own. Now that they are undertaking a refinancing of
804-808 Mainstreet, they wish to payoff debt borrowed against those
other properties, and roll it all into a 1st mortgage on 804-808
Mainstreet.
Primary Issues to consider.
o What additional amount of debt is the city subordinating to?
o Would this loan still qualify under our current program
guidelines?
o What are the loan terms?
~5~-
Paul T. steinman
Community Development Specialist
Subordination Agreement
. steile
Page 2
Analysis of the Issues.
Based on the above information the HRA has the following issues to
consider:
o what additional amount of debt is the city subordinating to?
Currently the city's $33,339.00 loan is secured by a 2nd mortgage behind
a 1st mortgage of approximately $70,000. The steile's are now requesting
the city subordinate it's $33,339.00 loan by a 2nd mortgage behind a 1st
mortgage of $86,000.
Upon subordination, the city would be in a 2nd position behind an
additional $16,000. Staff has reviewed an appraisal of the property which
was completed in August of 1992, which indicates a value of $175,000.
The financing breakdown would occur as follows:
o
o
$86,000
$33.339
1st position (bank)
2nd position (City)
$119,339
Total mortgages on the property
$175,000
Appraised value
.Total mortgages on the property equal 68% of the value.
o Would this loan still qualify under current program guidelines?
The steile's would still qualify under our current loan program
guidelines. state Statute requires that the amount borrowed against the
property can not be greater than 80% of the value of the property. As
explained above, total loans on the property will be only 68% of the
value of the building, which is well within the state requirements. For
this reason staff feels the loan is in a secure position. Staff has also
reviewed steile's past payment history and found no delinquencies since
the loan was made in July of 1987.
o What are the loan terms?
The loan terms will remain the same as they are currently. Original
amount of the loan was $50,000. The interest rate is 6%, and the loan is
to be paid off in 1999. Current principal balance is $33,339.
Alternatives.
Based on the above information, the Council has the fOllowing
alternatives to consider:
.
1. Adopt the motion as presented by staf~.
2. Deny the motion.
3. Continue for further information.