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HRA Agenda 05-20-1987 SpecialAGENDA MONTICELLO HOUSING AND REDEVELOPMENT AUTHORITY SPECIAL MEETING Wednesday, May 20, 1987 - 7:30AM City Hall 1. Call To Order. 2. Consideration to Adopt and Authorize the Execution of a Subordination Agreement for Construction Five Tax Increment District 05. 3. Adjournment. HRA Agenda - 5/20/87 V 2. CONSIDERATION TO ADOPT AND AUTHORIZE THE EXECUTION OF A SUBORDINATION AGREEMENT FOR CONSTRUCTION FIVE TAR INCREMENT DISTRICT 15. A. REFERENCE AND BACKGROUND. The HRA having adopted the Development Agreement between itself and Construction Five and later, having executed the Quit Claim Deed for the property described as Lots 1-5, Bloch 1, Construction Five Additiion, City of Monticello. The purpose of the Quit Claim Deed which has been recorded at the Wright County Recorder's office, was the inclusion of covenants to protect the NRA is case of default by the developer. One covenant gave the NRA first lien position on the property. However, as time has passed the attorney representing Twin City Federal, Mr. Lyle Ward advised against TCF financing the project for Construction Five. The developer signed the development agreement with some misrepresentation stating the the project was financed. The sale of bonds has been awarded by the City Council. Upon the advise of Bob Deike of Holmes and Graven, legal representation for the City of Monticello, is to adopt uud exacutc the subordination agreement. The subordination agreement gives TCF first lien of the property, and the HRA second position. Meaning, if the developer defaults. TCF acquires the property and TCF can sell the property with or without the approval of the HRA. TCF does not have 141 to complete the construction but the new buyer must complete construction of the improvements to not less than the market value of $1,350,000.00 and will be consistent with the Development Contract. B. ALTERNATIVE ACTION. 1. To adopt and authorize the execution of a subordination agreement for Construction Five Tax Incrmont District 05, in order for the project to continue as planned. 2. To deny the adoption and authorization to execute the subordination agreement, whereby causing the project to halt. This not being in the best interest of the City since the sale of bonds have been awarded. C. STAFF RECOMMENDATION. Staff recommends the HRA to adopt and authorize the execution of a subordination agreement for Construction Five Tax Increment District /5 which will allow Construction Five the approval for financing and to insure the continuation of the planned project. 7 D. SUPPORTING DATA. V Subordination Agreement. SUBORDINATION AGREEMENT This Agreement is made effective as of the day of , 1987, by and between THE HOUSING AND REDEVELOPHENT AUTHORITY IN AND FOR THE CITY OF MONTICELLO, MINNESOTA (the "Authority") and TCF BANKING AND SAVINGS, F.A. (the "Lender") Recitals The Authority entered into a Contract for Private Redevelopment dated March 16, 1987 (the "Development Contract"), with Construction 5, inc., a Minnesota corporation (the "Redeveloper") whereby the Authority agreed to sell the premises described in Exhibit A attached hereto (the "Land") to the Redeveloper and the Redeveloper agreed to construct thereon a 30 -unit apartment building and a 24 -unit apartment building (the "Project"). Pursuant to the Development Contract, the Authority has executed and delivered to the Redeveloper a quit claim deed in the Land, which deed (the "Deed") was recorded on nay_t5 , 19 67 in the office of the County Recorder in and for Wright County as Document No. 426037 To secure performance of the Redeveloper's obligations under the Development Contract, the Authority has retained certain reversionary and other rights in and to the Land, all as more fully set forth in the Development Contract and the Deed. The Redeveloper has conveyed to Joseph M. LaFromboise and Mamie R. LaFromboise (the "owners") its interest in the Land and the Project (the "Premises") for completion of development in accordance with the Redevelopment Contract. The Lender has entered into a Construction Loan Agreement of even date herewith with the Owners (the "Construction Loan Agreement") under which the Lender has agreed to make advances up to the aggregate sum of $1,285,000 to finance construction of the Project. Each advance under the Construction Loan Agreement is evidenced by the owners' promissory note of even date herewith in the principal amount of $1,285,000 (the "Moto"). The Owners' obligations under the Note and the Construction Loan Agreement are secured by a certain Combination Mortgage, Security Agreement and Fixture Financing Statement of even date herewith (the "Mortgage") and by an Assignment of Rents and Leases of even date herewith (the "Assignment"). As a condition to entering the Construction Loan Agreement, the Lender has required that the Authority fully subordinate all righto and interests of the Authority in or to the Project of any kind whatsoever under the Development Contract or Deed, including but not limited to the Authority's rights to reversion of title and re-entry, to the lien of the Mortgage and to any other lien or security interest at any time hereafter acquired by the Lender in all or any portion of the Project located on the Premises in connection with completion of the Project in accordance with the Construction Loan Agreement. Accordingly, the Authority and the Lender hereby agree as follows: 1. The Authority acknowledges and agrees that all rights and interests of the Authority in or to the Premises, including but not limited to the Authority's rights to reversion of title and re-entry, are hereby made and shall be fully subordinate and subject to the liens of the Mortgage and the Assignment and all liens or security interests now held or at any time hereafter acquired by the Lender to secure other loans or extensions of credit made by the Lender to facilitate completion of the Project in accordance with the Construction Loan Agreement. 2. The Authority acknowledges receipt of copies of the Mortgage, Assignment and Construction Loan Agreement and acknowledges that the Mortgage and Assignment and the development. contemplated Ly the Construction Loan Agrcemcnt are authorized by and approved under the Development Contract. 3. If an Event of Default occurs under the Mortgage, the Lender will not exercise its right to foreclose the Mortgage, accept a deed to the Project from the owners, or complete the Project without giving the Authority thirty days' written notice of its intention to do so. The notice given pursuant to this paragraph 3 shall be in addition to, not in lieu of, any notice required by statute. 4. If, following any Event of Default under the Mortgage, the Lender accepts a deed to the Premises from the owners', the Authority agrees that upon the recording of such deed all rights and interest of the Authority in and to the Premises under the Development Contract or the Deed, including but not limited to the Authority's rights to reversion of title and re-entry as provided in the Deed and in the Development Contract, shall be automatically null and void without the need for the execution or recording of any other document. 5. If the Lender becomes the owner of the Premises as a result of foreclosure or by virtue of a deed from the Owners, the Lender shall have no obligation to complete the Project, but if it elects to do so, it will do so substantially in accordance with plans and specifications approved by the Authority pursuant 7 to the Development Agreement. Alternatively, if the Lender shall 141 sell the Premises, the purchaser shall first have demonstrated to -2- the reasonable satisfaction of the Authority that it has the financial capability of completing the Project substantially in accordance with such plans and specifications, provided, however, that the Authority shall not unreasonably withhold its consent to any such sale, and provided further that the Lender shall have the unconditional right to sell the Project to any purchaser whatsoever, with or without the Authority's approval, upon the expiration of three months following the Bank's receipt of title thereto; provided, however, that such purchaser will agree to complete a project whic such purchaser anticipates will have a minimum assessed market value of not less than $1,350,000. 6. The Authority represents to the Lender as follows: (a) The making,,delivery and performance of this Agreement have been duly authorized by all necessary action and this Agreement, when executed, shall be the valid and binding obligation of the Authority, enforceable in accordance with its terms; (b) The Project is permitted by, and if completed in accordance with the aforesaid plana and specifications and if used as apartment buildings as contemplated under the Development Contract, will be consistent with the Redevelopment m Plan (as defined in the Development Contract); 7 (c) The making, delivery and performance of the Development Contract have been duly authorized by the Authority and is the valid and binding obligation of the Authority. 7. The Lender represents to the Authority that the making, delivery and performance of this Agreement have been duly authorized by all necessary action, and when executed and delivered will constitute the legal, valid and binding obligation of the Lender enforceable in accordance with its terms. 8. Nothing hereby shall be construed to waive applicable building codes or other ordinances of the City of Monticello. 9. The Authority further agrees that upon the commencement of any action, proceeding or lawsuit challenging compliance of the Project with any applicable law or regulation other than building, fire and safety codes, during construction of the Project, so long as the Project is being constructed in accordance with the aforesaid plane and specifications, the Authority will cooperate with the Owners and the Lender, but at the Owners' expense, in defending ouch action, proceeding or lawsuit to the extent not prohibited by law. -3- 10. The Authority and the Lender acknowledge that the Lender is not a party to the Development Contract and that this Subordination Agreement contains the entire Agreement between the Authority and the Lender with respect to any rights or obligations either might otherwise have with respect to each other under the Development Contract, and that this Agreement may be amended only in writing signed by both parties hereto. By executing and delivering this Agreement, the Lender shall not incur any obligations to the Authority of any kind whatsoever, except those expressly set forth herein, and the Lender may administer its extension of credit under the Construction Loan Agreement in such manner as it shall deem appropriate. 11. This Agreement shall be binding upon and inure to the benefit of the Authority and the Lender and their respective successors and assigns. Executed as of the day and year first above written. STATE OF MINNESOTA ea. COUNTY OF HENNEPIN TCF BANKING AND SAVINGS, F.A. By Its THE HOUSING AND REDEVELOPMENT AUTHORITY IN AND FOR THE CITY OF MONTICELLO By Olive M. Koropchack, Executive Director The foregoing instrument was acknowledged before me this _ day of , 1987, by , the of TCF Banking and Savings, F.A., a federally chartered stock savings and loan association, on behalf of said association. Notary Public -4- z STATE OF MINNESOTA ) ) ss. COUNTY OF WRIGHT ) The foregoing instrument was acknowledged before me thisday of 1987, by Olive M. Koropchack, the Execu�ve Director of The Housing and Redevelopment Authority in and for the City of Monticello. Notary Public CONSENT AND ACKNOWLEDGMENT TO AGREEMENT The Owners hereby acknowledge and consent to the terms of this Agreement. Joseph M. LaFromboise Mamie R. LaFromboise Datedi , 1987 STATE OF MINNESOTA ) ) ss. COUNTY OF HENNEPIN ) The foregoing instrument was acknowledged before me this day of , 1987, by Joseph M. LaFromboise and MamieR. LaFromboise, husband and wife. Notary Public -5- EXHIBIT A Lots 1, 2, 3, 4 and 5, Block 1, Construction Five Addition, City of Monticello.