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HomeMy WebLinkAbout6237RESOLUTION NO. 6237 A RESOLUTION APPROVING AN AGREEMENT FOR HOUSING REHABILITATION LOANS BETWEEN PUEBLO, A MUNICIPAL CORPORATION AND COLORADO NATIONAL BANK - PUEBLO, INC. AND AUTHORIZING THE PRESIDENT OF THE CITY COUNCIL TO EXECUTE SAME BE IT RESOLVED BY THE CITY COUNCIL OF PUEBLO, COLORADO, that: SECTION I. The Lump Sum Draw Down and Interest Subsidy Agreement between Pueblo, a Municipal Corporation and Colorado National Bank - Pueblo, a copy of which is attached hereto and incorporated herein, having been approved by the City Attorney, is hereby approved. The President of the City Council is authorized and directed to execute the Agreement for and on behalf of the City and the City Clerk is directed to affix the seal of the City thereto and attest same. INTRODUCED Julv 25, 1988 ATTEST: i T y Clerk BY MICHAEL OCCHIATO Councilman APPROV r sident of Council LUMP SUM DRAWDOWN AND INTEREST SUBSIDY AGREEMENT THIS AGREEMENT made and entered this 22nd day of July , 1988 by and between the City of Pueblo, a municipal corporation ( "City ") and Colorado National Bank - Pueblo, a federally chartered national bank ( "Bank "). WHEREAS, City is recipient of certain Community Development Block Grant ( "CDBG ") funds provided through the United States Department of Housing and Urban Development ( "HUD "); and WHEREAS, the elimination of substandard housing and provision of suff icient decent, safe and sanitary housing for low and moderate income persons serves municipal and public purposes; and WHEREAS, the rehabilitation of existing owner occupied dwellings through grants and loans is an authorized use for CDBG funds which furthers the aforesaid public and municipal purpose, preserves the viability of neighborhoods, and cost - effectively provides suitable housing; and WHEREAS, the need in the community for funds for rehabilita- tion of owner occupied dwellings for low and moderate income families cannot be satisfied by the City and may be better met through the application of private as well as public funds; and WHEREAS, Bank is a private financial institution approved for participation in programs under Title I of the National Housing Act and is willing to make funds available for housing rehabilita- tion loans to low and moderate income persons; and WHEREAS, interest subsidies are necessary in order to make housing rehabilitation loans affordable to many otherwise quali- fied low and moderate income persons and constitute an allowed use of CDBG monies; NOW, THEREFORE, The parties hereto, for and in consideration of the above recitals and the covenants and conditions set forth herein and below, hereby agree as follows: 1. A rehabilitation interest subsidy fund, hereinafter called "Fund ", shall be established at Bank by City with CDBG funds drawn down in a lump sum from the City's letter of credit from HUD. The amount of drawdown shall be in the initial sum of $60,000.00, and shall be maintained by Bank in a special interest bearing account segregated from all other accounts which may be maintained by City with Bank. Interest shall accrue on the amount in the Fund at the market rate for deposits of similar maturity and size, and shall be credited to the Fund and accounted for as provided herein. The parties agree that, in any event, market rate interest shall not be less than four points below the average of the interest rates on one year Treasury obligations sold during the most recent preceding calendar year period; and nothwithstand- ing the foregoing, interest shall, in any event, accrue at a rate not less than 5 -1/4% per annum simple interest compounded quarter- ly. The use and application of any and all monies in Fund shall be subject to the terms of this Agreement and all laws and regulations applicable to the use of CDBG monies and the Fund, including but not limited to 24 C.F.R. 570.513 and Part 570 of 24 C.F.R. 2. The City may, but shall not be obligated to, deposit additional City or CDBG monies in the Fund. The Fund may, during the term of this Agreement upon direction by the City, also be credited with the unearned portion of interest subsidy (calculated on a pro -rata basis) on loans repaid before maturity and the unearned amount of interest subsidy recovered upon loan default and acceleration. 3. Disbursements from the Fund shall be made only for the purpose of payment of interest subsidies on housing rehabilitation loans made during the term of this Agreement by Bank with private funds, said disbursements to be made only upon specific written authorization of each disbursement by City. 4. Bank agrees to commit the aggregate sum of $180,000.00 for the purpose of making reduced interest rate housing rehabili- tation loans to eligible and qualified applicants referred to Bank by City and who are approved by both Bank and City in accordance with the procedures set forth below. 5. Applicants shall be pre - qualified by City for interest subsidy assistance and must (a) have owned and occupied the home for not less than 90 days prior to program participation and loan application, (b) meet applicable income guidelines for a low or moderate income household, (c) have not more than one outstanding mortgage or deed of trust lien against the residence, and (d) present a reasonable credit risk and have sufficient regular income to be able to repay any subsidized rehabilitation loan. Upon initial prequalification of applicants, City shall consult with applicant and prepare a detailed scope of work necessary and desirable in order to correct housing code violations, make other needed repairs and improvements, and otherwise render the resi- dence decent, safe and sanitary. Based upon such scope of work, City shall prepare an estimate of the cost of the rehabilitation work, and prepare a preliminary analysis of applicant's ability to repay a rehabilitation loan. Upon completion of the foregoing, the application of pre - qualified applicants, together with the information provided by applicant, scope of work, work cost estimate and preliminary loan analysis shall be transmitted to Bank. 6. Bank shall timely review each loan application trans- mitted by City and supporting documentation, obtain credit reports verifying employment and determine whether it will make a subsidized interest rehabilitation loan. Bank may require additional relevant information from applicant or City prior to -2- making a loan commitment. If Bank approves the application it shall promptly issue its loan commitment verbally or in writing to applicant, with a copy of same to City, which shall specify the terms which shall remain irrevocable for 90 days, except upon a substantial and material change in applicant's income, employment or credit risk. 7. Upon receipt of loan commitment from Bank, Owner shall with the assistance of City, select by competitive bid or competitive negotiation process acceptable to City, a licensed contractor to perform the rehabilitation work described in the loan application for a sum not to exceed the amount of loan commitment. Thereupon, Bank shall close the loan, at its offices or other place as may be agreeable to City and Bank, in accordance with the terms of its commitment, and authorize the borrower to execute a construction contract with the selected contractor on forms of contract acceptable to City and Bank. No interest shall accrue on the loan until actual disbursement of loan proceeds is made by Bank. 8. Loans made by Bank to qualified and approved applicants shall be secured by mortgage or deed of trust lien and shall meet the requirements applicable for single family property improvement loans guaranteed under Title I of the National Housing Act. Addi- tionally, as of closing date on any rehabilitation loan: (a) the improvements on the real property subject to the loan will be covered by a valid and subsisting hazard insurance policy with loss payee clause in favor of Bank; (b) no delinquent tax or delinquent assessment lien shall exist against the property; (c) there shall be no mechanic's liens for work, labor or material affecting the property; (d) the Bank shall provide all disclosures and comply with the Federal Truth -in- Lending Act and any similar laws. (e) the documents required to be filed to create a valid lien upon the property have been duly executed and recorded; (f) the borrowers have duly executed a promissory note and other instruments acceptable to Bank and City which will create a valid and enforceable obligation to repay the loan. Such note and instruments shall provide for acceleration of the balance of the loan and accrued interest in the event of default or if the borrower leases, rents, grants an option to purchase, conveys or transfers the property at any time within a period of 5 years from and after completion of the rehabilitation work. 9. Bank shall service and administer the rehabilitation loans made hereunder and shall have full power and authority, acting alone, to do any and all things in connection with such -3- servicing and administration which it may deem necessary or desirable. 10. In connection with its activities as administrator and servicer of the rehabilitation loans, Bank agrees to comply with any requirements imposed by any insurers of such loans and with all relevant state and federal laws and to timely and properly present claims against all such insurers and take such reasonable action as shall be necessary to permit recovery under all insur- ance policies. Upon recovery under any such policy, Bank shall compute the unearned portion of the interest subsidy, notify City of same, and, at the direction of City, either credit such amount to the Fund or pay such amount to the City for application in accordance with HUD regulations. 11. The maximum amount of any one rehabilitation loan made by Bank under this Agreement shall be $17,500. All such rehabili- tation loans shall be repaid monthly for a period not to exceed 120 months; except that upon consent of both City and Bank, and where necessary for the loan to be affordable to applicant, par- ticular loans may be repaid monthly over a period of not more than 180 months. The ceiling interest rate chargeable by Bank on such loans shall not exceed 12% APR per annum, and shall be subject to further rate reduction by the amount of interest subsidy which will be determined for each loan and which will reduce the net effective interest rate to the borrower (provided the loan is repaid according to its terms) by an amount equivalent to between 1% and 6% per annum. 12. At closing of each rehabilitation loan made hereunder, City and Bank shall compute the difference between the aggregate of the borrower's monthly payments under the loan at the City approved net effective interest rate (as subsidized) and the aggregate of the amount such payments would be were interest on the loan to accrue at the agreed ceiling rate, and Bank shall discount said difference to present value at loan closing by applying a discount rate of 12% per annum. The present value computed as indicated shall be the amount of interest subsidy to be paid from the Fund to Bank in one lump sum, which shall be payable at loan closing. Monthly payments by Borrowers on the loans shall commence not later than 45 days after final disbursement of loan proceeds. 13. No disbursements from the Fund shall be made until and unless approved in writing by City's designated representative. 14. Bank shall disburse loan proceeds directly to the borrower upon presentation of invoices or payment applications approved by City. Bank and City shall verify that the rehabilita- tion work has been performed prior to disbursement of funds; however, neither Bank nor City shall have any responsibility as to the quality or quantity of work performed nor guarantee in any manner the work performed by the Contractor. -4- 15. Bank shall maintain, in accordance with generally accepted banking practices, records of Fund, all deposits and credits thereto and all disbursements therefrom. Bank shall also maintain all necessary and customary records on loans made pursuant to this Agreement and shall maintain a loan servicing sheet on each loan in form acceptable to City. The City and representatives of HUD shall have the right to inspect and copy all such records during reasonable business hours during the term of this Agreement and for 3 years thereafter; except that as to any loan which has been made, such right of inspection shall continue until 3 years after such loan has been repaid, and that as to records of Fund, such right shall continue until 3 years after the Fund account has been closed. 16. Bank and City agree to use best efforts to close one or more loans hereunder and begin disbursement of interest subsidy payments therefrom within 45 days of the establishment of Fund by drawdown from the letter of credit. Bank acknowledges the right of HUD to require return of all or part of such monies deposited to Fund in the event use of such monies deposited to Fund does not commence within said 45 days. In the event of exercise of such right by HUD, this Agreement shall automatically terminate except with respect to loans which had already been closed. 17. This Agreement shall be and remain in full force and effect for a period of 24 months of the date first above written, unless sooner terminated for cause or convenience. Upon termina- tion, the entire balance remaining in Fund shall be paid by Bank to City or paid out as directed by City. 18. If, through any cause, the Bank shall fail to fulfill in a timely and proper manner its obligations under this Agreement, or if Bank violates any of the covenants, agreements, or stipula- tions of this Agreement, the City shall have the right to terminate this Agreement by giving 20 days written notice to Bank of such termination. Such termination shall not effect loans closed prior to such termination date. 19. Either party may at any time terminate this Agreement by giving 60 days prior written notice to the other party of such termination which shall state the effective date of termination. Such termination shall not affect the rights of the parties or Borrowers with respect to those loans closed prior to such date. 20. This Agreement may be renewed or extended only by mutual agreement of the parties, if so authorized by HUD. 21. This Agreement constitutes the entire understanding of the parties and supersedes all prior discussions, negotiations and agreements as to the subject matter hereof. IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written. -5- COLORADO NATIONAL BANK ATTEST: sy- De'�t�s -b�1� Title: Assistant Vice President CITY OF PUEBLO ATTEST: � / - a A- By i C y C er Pre ident of the City Council mm