#4 Authorize City Manager to sell 189 S High Street (Revised File Res. #2010-749)
NEIGHBORHOOD SERVICES MEMORANDUM
November 16, 2010
TO: City Council
FROM: Kelly Lee, Neighborhood Development Specialist
Jennifer Petruzzello, Neighborhood Services Director
SUBJECT: Reconsideration of Resolution 2010-749 and Action on Proposed
Resolution Authorizing to the City Manager to Sell Property Located
at 189 South High Street as Part of the Buy Rehab and Resell
Project (File Revised Res. 2010-749)
Summary
On November 8, 2010 the City Council approved file resolution #2010-749,
authorizing the City Manager to proceed with the sale of property located at 189
South High Street. This resolution included a provision that the property remain
an owner occupied dwelling until such time as the Community Development
Authority and the City Council remove the requirement following a request by the
property owner. The accepted offer to purchase the home included language that
this requirement would be met through a deed restriction.
Upon receiving the deed restriction language, the lender was unsuccessful in
securing investor approval of the provision. This appears to be an industry-wide
issue with the current lending climate. Staff is proposing that the Council consider
revised resolution 2010-749, which replaces the original owner occupied
requirement, with language that would allow the City of Janesville to have a “First
Right of Refusal” to purchase the property.
Department Recommendation
The Neighborhood Services Department recommends that the City Council
support a motion to reconsider Resolution #2010-749 and approve revised
Resolution #2010-749 authorizing the sale of the property located at 189 South
High Street at a sale price of $95,000.00. This revised resolution replaces the
requirement that the property remain owner occupied until CDA and Council
agree otherwise with a first right of refusal. Under the first right of refusal, the City
Council could facilitate the goal of maintaining the property as owner occupied
and would have 60 days in which to consider whether they would like to
purchase the property from the owner to ensure it remains owner occupied.
City Manager Recommendation
Based on the current economic environment, I believe the proposed right of first
refusal is the best option for the Council concerning your desire to create more
homeownership in this area.
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Suggested Motion
I move to reconsider file resolution #2010-749. I move to approve revised file
resolution 2010-749 authorizing the sale of 189 South High Street at a sales
price of $95,000.00.
Background
The overall goals of the Housing and Homeownership Programs, including the
Buy, Rehab, Resell program, consist of: stabilizing the neighborhoods by
increasing the number of owner-occupied properties, reducing the incidences of
slum and blight by providing low or no interest loans to property owners to
encourage appropriate rehabilitation, maintaining the quality of the affordable
housing stock of the community, and reducing the density of housing units within
these neighborhoods.
On December 8, 2008 the City Council approved the purchase of 189 S High
Street to be rehabilitated under the Buy, Rehab and Resell program. This home
was chosen for the project because it is located on a corner lot with a high
degree of visibility. The home has a great deal of architectural character and
significance in the neighborhood. Assessment roll and directory research
indicate that J.W. St. John owned the land on which this house was built in about
1890. St. John was a physician and served as mayor of Janesville in 1875-76
and as president of the board of education.
The project involved the conversion of a two unit rental property into a single
family dwelling. A small addition was removed from the rear of the property in
order to make room for a new 1 ½ car detached garage. The entire inside was
gutted, the home was insulated, and a new furnace and new windows were
installed with the goal of making the building much more energy efficient. All
lead paint was removed from the home. Staff maintained as much of the original
structure and character of the house as possible including the hardwood flooring
on the first floor and the original stairway extends to the top of the turret. The
carpeting on the second story is made of recycled soda bottles and the mulch in
the landscaping is made of automobile tires.
The project was put on the market on August 23, 2010 and Neighborhood
th
Services received an offer from Linda Wells on September 8, 2010 with a
purchase price of $95,000.00 contingent upon an appraisal. An appraisal was
done and the property appraised at $95,000.
The City Council approved the sale of the property on November 8, 2010. At that
time, it was envisioned that the property would be deed restricted as owner
occupied, single family, and the adopted resolution included language which
indicated the property would remain owner occupied until such time as the CDA
and the City Council remove the requirement following a request by the property
owner. The inclusion of this provision was intended to facilitate one of the City’s
local goals; that of increased owner occupied units.
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Upon receiving the deed restriction language, the lender was unsuccessful in
securing investor approval of the deed restriction language. The lender contacted
multiple institutions regarding their willingness to approve the language. The
lender was unable to locate an investor willing to approve the requested deed
restriction. In addition, Housing and Neighborhood Services in Beloit was
contacted as they frequently used similar deed restrictions in the past. Housing
and Neighborhood Services verified that they have experienced a similar inability
to obtain financing for their projects with this deed restriction, and they no longer
require the deed restriction.
Neighborhood Services staff explored alternative approaches that would facilitate
the sale of the home yet also give consideration for the goal of maintaining the
property as owner occupied. Among the options considered were: a right of first
refusal and securing a second mortgage with a period of time in which the
property would remain owner occupied.
Analysis
A. Deed restriction – Under a deed restriction, the condition would be recorded
and attached to the property, so that it could not be sold for rental property. This
option presents the greatest connection to the goal of owner occupancy, and is
the strongest legal action that can be taken to preserve this property condition.
However, it no longer appears that the City will be able to sell this property to any
buyer with this requirement.
B. Right of First Refusal – A First Right of Refusal is an agreement that the City
would have an opportunity to match another offer to purchase the property on a
potential future sale. The lender and the buyer are agreeable to enter into a First
Right of Refusal, which would be signed at closing and recorded by the Title
Company.
The First Right of Refusal would restrict the property owner’s ability to sell the
property to an investor, by allowing the City the opportunity to purchase the
property to ensure it remained owner occupied. The First Right of Refusal would
remain in effect for a period of time not to exceed 15 years. During this time, if
the owner wishes to sell the property, and they have received a legitimate offer to
purchase from another party that they are willing to accept, they would present a
copy of that offer to the City of Janesville for review. The City would then have a
set time period to determine whether they would like to purchase the property for
the same price. This approach could ultimately add additional expense to the City
for this property. This is not a commitment upon a future Council to purchase the
property; however, it would provide them an opportunity to evaluate their ongoing
interest in the property at the time a sale is being contemplated.
Beyond staff time, there is no additional cost to the City to obtain a Right of First
Refusal. Staff is recommending a First Right of Refusal agreement for a period of
3
10 years, with the City having 60 days, after presented with an alternative offer
the owner is willing to accept, to determine whether they have an ongoing
interest in purchasing the property. If approved by the Council, the City Attorney’s
office will draft a First Right of Refusal Agreement that is consistent with Council
direction.
C. Second Mortgage – The City could provide a financial incentive to the
prospective owner to maintain the property as owner occupied, by providing
down payment assistance in the form of a second mortgage. This would require
an additional financial cost to the City, which would be forgiven over a set period
of time based on the property remaining owner occupied. Disadvantages to this
approach include the added up-front investment, as well as leaving the decision
to sell the property entirely up to the homeowner. This option was not discussed
with the prospective purchaser of the property because it is not being
recommended. The lender would be agreeable to such an approach because
their mortgage would be secured prior to the City’s in the event of sale or
foreclosure.
While a deed restriction provides the strongest link to maintaining the property as
owner occupied, it no longer appears that this is an option that will be considered
by the lending community. Staff believes that securing a First Right of Refusal is
the best alternative in that it preserves the right of future City Council’s to
consider the benefits of subsequent purchase by the City as compared to
allowing the property to change ownership at a point in time when the
homeowner is contemplating resale of the property. This option results in no
additional cost to the City at this time.
cc: Eric Levitt, City Manager
Jay Winzenz, Dir. of Administrative Services/Assistant City Manager
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RESOLUTION NO. 2010 – 749 (Revised)
A resolution authorizing the City Manager to proceed with the sale of property located at 189
South High Street
WHEREAS,
the City of Janesville owns the following described parcel:
The S. 66’ of the W1/2 of Lot 46, Doe’s Addition, City of Janesville, Rock County, Wisconsin; excepting
the East 58 feet thereof.
WHEREAS
, The City of Janesville acquired the property located at 189 S High Street in December of
2008, through the Buy, Rehab and Resell Program with CDBG funds; and
WHEREAS,
The City of Janesville has rehabilitated the property consistent with the Buy, Rehab and
Resell Program Manual; and
WHEREAS
, The City of Janesville has negotiated an agreement to sell the property to Ms. Linda Wells
(with co-signer Julie Bittrick) for $95,000.00; and
WHEREAS,
The City of Janesville has obtained a copy of an appraisal of the property in the amount of
$95,000; and
WHEREAS,
The City of Janesville has verified that Ms. Wells is within the program criteria; and
in order to
WHEREAS,
The City of Janesville will have First Right of Refusal to purchase the property
facilitate the goal of maintaining the property as owner occupied; and
WHEREAS
, the Plan Commission has reviewed this land sale at their December 1, 2008 meeting and
found the sale to be consistent with established City plans and recommended that the City Council
proceed with the sale of this property, but further noted that the Plan Commission had not reviewed the
financial aspects of this transaction; and
NOW THEREFORE BE IT RESOLVED BY THE COMMON COUNCIL
of the City of Janesville that it
hereby authorizes and directs the City Manager and the City Clerk to execute on behalf of the City of
Janesville, the sale of such property; and to negotiate and execute such documents, papers and forms as
may from time to time be necessary and/or desirable to effectuate such transaction and the intent of this
resolution as the City Manager may decide; and
BE IT FURTHER RESOLVED
that the City Manager is hereby authorized to take whatever other actions
or to make whatever other minor changes that may be necessary to effectuate this land transaction.
ADOPTED:
Motion by:
Second by:
APPROVED:
Councilmember Aye Nay Pass Absent
Brunner
McDonald
Eric J. Levitt, City Manager
Perrotto
Rashkin
ATTEST:
Steeber
Truman
Voskuil
Jean Ann Wulf, City Clerk-Treasurer
APPROVED AS TO FORM:
__________________
City Attorney, Wald Klimczyk
Proposed by: Neighborhood Services Department
Prepared by: Neighborhood Services Department