Report Prepared by: Mark E. Hamilton, Housing Program Supervisor, Housing Division, Department of Economic Development
Title
SUBJECT: Request to Release Interest in Property Located at 1036 W. 10th Street to Allow a Short Sale
REPORT IN BRIEF
Request by the Estate of Manuel Valle to release the City's interest in property that was provided a Homeowner Rehabilitation Loan to allow for a short sale.
RECOMMENDATION
City Council - Adopt a motion authorizing the City of Merced Housing Division, second lien holder, to release interest in the property at 1036 W. 10th Street in order to allow a for short sale; and, authorizing the City Manager to execute the necessary documents.
Body
ALTERNATIVES
1. Approve, as recommended by Staff; or,
2. Approve, subject to other than recommended by Staff; or,
3. Deny; or,
4. Refer to the City Manager for reconsideration of specific items (specific items to be addressed in City Council motion); or,
5. Continue to a future City Council meeting (date and time to be specified in City Council motion).
AUTHORITY
City of Merced Housing Division's Community Development Block Grant Homeowner Rehabilitation Loan Servicing Plan.
CITY COUNCIL PRIORITIES
As provided for in the 2015-16 Adopted Budget.
DISCUSSION
Staff is requesting Council to authorize the release the City's financial interest in 1036 W. 10th Street to allow for a short sale of this property. The property owner is ill and no longer resides at the property. The property owner currently is living at the Franciscan Health Center suffering from dementia and is not able to care for himself. Knowing the current market value was below the total of the two notes, $142,495.04, the Housing Division received a request to allow a short sale (Attachment 1 - Letter from Property Owner) after the property was in escrow.
In researching the property, the $97,000 accepted offer from the buyer is approximately $4,000 above the $93,188 estimated property value listed on Zillow.com. The City’s note is in second position to Merced School Employees Federal Credit Union (primary mortgage holder). The first mortgage for the property has a current balance of $42,324.68. Though the City will not recapture the full loan value, the City has an opportunity to collect approximately 47% of the loan if the short sale transaction is approved. If the property were to go into default and ultimately foreclosure, the City may not receive the anticipated $47,288.91 payout anticipated from the close of this short sale.
Housing Staff recommends Council to authorize the release of the City’s interest by allowing the short sale. The recommendation is based upon the anticipated amount the City would receive. When considering other scenarios of either buying out the primary loan holder or allowing the property to go into default, the short sale makes the best economic sense as it minimizes the loss of negative asset.
DESCRIPTION
Short Sale Approval Requests from Current Property Owner (Attachment 2 - Short Sale Request Form).
Borrower(s):Manual Valle - No longer lives in the house due to medical reasons
Bertha Valle - Deceased
Property Address: 1036 W. 10th Street
Current City Loan Balance: $100,170.36
Estimated Short Sale Loan Payoff Amount: $47,288.91
Sales Price: $97,000
Current Loan Balance of First Mortgage: $42,324.68 (Merced School Employees F.C.U.)
Total Amount recorded on Deed of Trust: $142,495.04
IMPACT ON CITY RESOURCES
No appropriation of funds is needed.
The original loan and subsequent loss do not involve any General Funds. There will be a loss reported on this loan and there are no other requirements that need to be addressed. Staff is recommending the authorization to allow a short sale.
ATTACHMENTS
Attachment 1 - Short Sale Approval Request Form
Attachment 2 - Letter of Hardship
Attachment 3 - Estimated Settlement Statement
Attachment 4 - Residential Purchase Agreement