The Crested Butte News Serving the Gunnison Valley since 1999
Protection from potential foreclosures is the problem
By Katherine Nettles
The Mt. Crested Butte Town Council has been working to protect the deed restriction viability of its upcoming affordable housing units in the Homestead subdivision, even in the event of foreclosure. But challenges from the local lending community are now holding up the developer’s progress.
The Town Council approved a measure on February 19 to extend the contract objection deadlines with developer Lance Windel of Homestead Housing, LLC from February 19, to allow more time for finding solutions to the possible foreclosure issue. The new resolution deadline is March 22.
The need for an extension request stemmed from the amended deed restriction, which included a clause that allowed for the survival of the deed restriction if the property were to go into foreclosure. The council had requested the clause be included because the town of Mt. Crested Butte has lost several other deed-restricted properties in the past when the homeowners went into foreclosure and the town did not have the funds to “buy” the property back.
Mt. Crested Butte community development director Carlos Velado confirmed that the town of Mt. Crested Butte has lost at least three deed-restricted homes this way since 2010.
However, the deed-restriction survivability clause may not be tenable to banks. Velado wrote in a memo to the Town Council that “Upon vetting the Amended Deed Restriction with multiple local lenders, we discovered an unwillingness to be able to finance the Homestead homes under the current deed restriction.”
Velado explained that the applicant, Windel, had worked with the town and Gunnison Valley Regional Housing Authority (GVRHA) to vet the concept of deed restriction survivability with multiple lenders in the valley to “get their temperature” on potential buyers. He said they repeatedly ran into “complications with lenders not wanting to do a loan for certain products.”
GVRHA executive director Jennifer Kermode spoke about extensive efforts to get conventional loan pre-approvals for this project, and said she understood the lenders’ “hesitancy to be impaired in their foreclosure process.”
“I can understand where that might be a problem, because your ‘assumability’ option requires the foreclosing lender to do things—and they don’t like to do things when they are foreclosing. They just want to foreclose, they just want to go through the process, and get it done. They have been hit so hard since 2007 and 2008 and the … costs they had to pay for an unclear, complicated and frequently unfair process,” Kermode said.
Velado echoed that the problem with the survivability clause is that once a property enters the foreclosure process, lenders might have to hold the property for an extended period of time in order to find another qualified deed-restricted buyer from a limited clientele.
“When we initially drafted it … we knew that this was ambitious,” said Velado. “We were trying to model this [document] off of one that has apparently had some success in Telluride … but [banks] were not willing.”
“Who backed those loans?” asked Mt. Crested Butte mayor Todd Barnes, referring to the model used in Telluride.
“We aren’t really sure,” said Velado.
Councilmember Nicholas Kempin argued for the town putting together savings to help in foreclosure situations. “It seems to me that the way we fix this problem is that we have the money [to help in an emergency],” he said.
Barnes said when foreclosures happen, it is often during an economic downturn, when “nobody else has any money to help, either—including the town.”
Town attorney Kathleen Fogo, who has been working with the staff, agreed that the survivability clause might not work. “This is still a work in progress with the banks,” she said. “It seems like this is a moving target … and we may have to find some common ground.”
Meanwhile, Windel cannot move forward without a loan on the project.
“If potential buyers can’t get financing, then we do not have people to put into the units, and in that case Lance does not feel comfortable,” said Velado.
Windel called in to the meeting and spoke about his doubts in getting any banks to approve the clause. “My only concern is that I have a soft application with two banks in the valley, because you don’t have a takeout on the backside,” he said. “We thought we had a bank that was on board … but banking rules are very, very fluid. And what is acceptable to them today may not be tomorrow.”
The Town Council approved the extension, and also agreed that the survivability clause in the amended deed restriction could be removed if needed and replaced with a more commonly practiced deed restriction. Town staff has since followed through with amending the extension and clause to further clarify the process for when a property begins to move into foreclosure. It states that if a homeowner defaults on a loan, the town has three options to rescue the property for the purposes of saving the deed-restriction.
The first option is to “cure” the default: The town could pay all, or portions of, delinquent payments on behalf of the owner and then bill the owner. This would be pre-foreclosure.
The second option would be for the town to assume the loan and make remaining payments on the promissory note. This would also be pre-foreclosure.
The third option would be acquiring the unit out of foreclosure by exercising the town’s first right of refusal, or “option to purchase.”
The amended document states that if the first lien foreclosed on was a HUD-insured, FHA-, or VA- or USDA-issued loan, and the town exercises none of the options, the deed restriction will be released and become a free-market unit.
Now armed with a deed restriction amendment, the plan is to once again vet terms with local lenders in order to finance the proposed homes in Homestead.
Windel is continuing to work with the town in the early stages of developing the units, and according to the memo from the town staff, the town does not anticipate the extension affecting the original closing date of July 1 for the property.
