2002 AGN JAN 15 I16 - Laserfiche WebLink

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CITY OF COLTON Item #16 AGENDA REPORT FOR COUNCIL MEETING OF January 15,2002 Honorable Mayor and City Council FROM: City Attorney SUBJECT: Housing Rehabilitation Loan/Deferred Loan Program; Conversion of Schulte Loan to a Grant TE: January 7, 2002 BACKGROUND: On April 3, 1984, the City Council adopted Resolution No. 4446 approving the creation of the Housing Rehabilitation Loan/ Deferred Loan Program ("Loan Program") to provide assistance to certain low-income residents desiring to rehabilitate their primary residences in the City of Colton. The Loan Program was funded, at least in part, with Community Development Block Grant ("CDBG") funds. Eligible recipients received loans up to $15,000 and were required to repay the loan either: (i) within fifteen (15) years at six percent (6%) interest annually; or (ii) upon the transfer of ownership of the residential property for which the rehabilitation was performed. George and Tempest Schulte received a loan ("Loan") under the Loan Program to perform work on their residential property ("Schulte Property") in May of 1985. The Schultes executed an installment note secured by a deed of trust evidencing the Loan. The deed of trust was then recorded by the City against the Schulte Property. Both George and Tempest Schulte have been deceased since November 5, 1988. City staff has determined that prior to their deaths, the Schulte's complied with the requirements of the Loan Program. The Schulte Property was subsequently destroyed by fire in December 1995 and a pendency was recorded against the Schulte Property for approximately $5,582.81 for other reasons. The Administrator of the Schulte estate has requested that the City forgive the Loan and release the lien on the Schulte Property. City staff directed the City Attorney to review two issues: (i) to determine whether CDBG Regulations (24 CFR 570 et seq.) prevented the City from forgiving the Loan; and (ii) to determine whether CDBG Regulations included a separate statute of limitations with respect to claims concerning the non -repayment of CDBG funds. DISCUSSION/ANALYSIS: The CDBG Regulations do not contain a statute of limitations provision addressing claims made with respect to the failure of sub -recipients, such as the Schultes, to repay CDBG-ftmded loans. Additionally, the CDBG Regulations do not directly address forgiveness of CDBG-ftmded loans. Because recipients of CDBG funding, such as the City, are afforded relatively broad discretion with respect to how CDBG funds are used, the City Attorney recommends that the City may, upon the adoption of certain findings, determine that the Loan be deemed a grant no longer requiring repayment. The findings include the following: 1) The Loan Program constituted an eligible CDBG activity in accordance with 24 CFR section 570.202(a)(1) and Title I of the Housing and Community Development Act of 1974; and