Agenda - 09-09-2008- 1 - Laserfiche WebLink

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In practice, in the event of default, there is a large penalty imposed on the non-profit organization because the principal and 10% interest due from non-profit organizations could accrue to an astronomical number. Further, the requirement to cony this potentially enormous debt as a contingent liability can also significantly impact the organization's financial statement. It can be argued that the county's ability to recover all of our initial investment (plus interest) may be unlikely in the event of default, however, it is in the County's best interest to require a significant penalty if the property does not remain affordable long-term. Non-Recourse Lans~uage Initially, the language of the County's Promissory Note did not include non-recourse language, thus, if a default occurred and the proceeds from the property did not repay the entire County investment, then the County could look to other assets of the Borrower to recover the indebtedness, However, recent conversations with a local non-profit organization coupled with the County's lack of interest in pursuing the holdings of non-profit organizations to satisfy outstanding debts has led County staff to revise the language of the Promissory Note to include non-recourse language. This will allow the County to only seek to satisfy its indebtedness to the extent of the proceeds of the mortgaged property except when the property has been neglected by the project developer. In the event of property negligence, the non-recourse nature of the loan would be void and the County could seek repayment from all available assets of the Borrower. Project Maintenance It is expected that the affordable property and/or project remain affordable to low and moderate income families and in good condition throughout the term of the County's loan or for 99 years. Thus, the borrower or project developer must pay any applicable taxes and insurance, in addition to making repairs when necessary while continuing to maintain the property as affordable. Second Model In the Land Trust Model, the financial assistance provided by the County is structured as a grant and is linked to the Land .Trust ground lease that guarantees affordability for 99 years A Declaration of Restrictive Covenants is recorded on the property to secure the County's long- term affordability interests. If you have questions or need additional information, please feel free to contact me.