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HomeMy WebLinkAbout1979-05-24 - Minutes - 74,4; • • MINUTES OF A RESIDENTIAL HOUSING' FACILITIES BOARD MEETING A meeting of the City of Fayetteville, Arkansas, Residential Housing Facilities Board was held on Thursday, May 24, 1979, at 4:00 P.M. in the Board of Directors Room, City Administration Building, Fayetteville, Arkansas'. • MEMBERS PRESENT: Chairman F. H. Martin, Ron Pennington, Dale Christy and John Dominick. • MEMBERS ABSENT: George Faucette, Jr. • OTHERS PRESENT: Jim McCord, David McWethy, and members of the press. • MINUTES: • • The minutes of the previous meeting of May 9, 1979, were approved. BUSINESS: • • Ron Pennington explained the first item of LETTER OF COMMITMENT/ business. He stated that he had been informed ' EFFECTIVE DATE/ of a house on which construction had begun be- REFINANCING fore this bond issue was initiated. Permanent - • . Ai financing was arranged at that .point. The • length of construction was 'such that the financ- ing was dropped and then reinstituted at higher • • interest rates two. times. Consequently, when. • . :the owner found that his 9.75% loan might qualify for an 8. 1% loan, he requested • bond issue financing. Such financing was then denied by the Administrators as they felt the money had been made available only for people who could not other- wise obtain. financing. 'Mr. Pennington concluded, stating that the person's permanent financing had never been completed and he felt that it had not been the intent of this Board to deny such a person financing through this bond issue. Jim McCord stated that other •such instances had been brought to his atten- tion and that he had discussed' themwith Mr. Buttry and 'with Gary Kell of Lomas E Nettleton. He stated that they had also taken the position stated by Mr. Pen- nington that the money had been made 'available only for people who could not ob- tain other financing. Mr. McCord added that Mr. Kell had ,suggested ,that if . this Board wanted this type of situation to be eligible it could authorize amend- ments to the documents to allow therefor, if bond counsel did not object. Mr. McCord added that Mr. Buttry had not yet reached an opinion as to whether he felt such situations would conform to the necessary "public purpose" aspect. He added that Mr. Buttry wanted to discuss the matter with other members of his law firm before making a firm decision. Mr. McCord stated that the question the Board should answer was whether or not it wanted that type of loan to qualify as long as legal counsel had no ob- jections. Mr. McCord added that if the Board should decide that it wanted to authorize such laons that he and Mr. Buttry would work out the necessary amend- ments to the official documents. • Public Facilities Board Meeting May 24, 1979 (771 Page 2 ``rte John Dominick questioned whether an applicant in such a situation would have to go somewhere and be turned down for a loan because of the scarcity of money before being eligible to apply for money from this issue. Mr. McCord replied that this type of situation would arise only where the borrower had received a letter of commitment prior to the time this bond issue money become available and where construction with interim financing had already begun. "This comes as a problem for a person who had obtained financing before the bond issue money became available, but hadn' t closed his permanent financ- ing before the money became available," he added. Mr. Dominick stated that he felt it had been the intent of this Board to make the money available to as many people as possible. Dale Christy stated that he was bothered by the potential abuses of this type of situation. "There is the problem of somebody having a commitment for a conventional loan from one institution at 91/2% or 9 3/4% and then deciding that since this other is available that they are going to go finance at another insti- tution for the 81/4% and then you've got a problem with the participating lenders or maybe a non-participating lender, I don' t know. It 's the same thing as refi- nancing. That's one way to look at it." Mr. McCord stated that Gary Kell had also pointed out possible abuses and had stated that Lomas would probably insist on some type of limitation in order to help protect against such abuses. He stated that they would probably limit houses on which construction had begun more than two .or three years ago. Mr. Christy stated that he'wouldn't have any problems with this type of situation qualifying as long as, the owner wasn't switching lenders in the process. "I have some uncomfortable feelings that switching from a nonparticipating lender to a participating lender might cause us some problems--problems about fair competition." Ron Pennington replied that every lender in the area had been given the opportunity to participate and so he did not see any problems regard- ing competition. Chairman Martin stated that he had understood that, in this particular case, the lender didn't have any objections, he only was afraid it couldn't be done. He added: "But then that's just one case, apparently, since Jim said we've got some other people falling into the same situation. In those cases I don't know whether they were switching lenders, or what." Mr. Christy commented that there were probably "all kinds of little deals going on in this thing--sales and resales, all kinds of things. There's always somebody looking for a way to get around the rules." He added that he felt the bond counsel should resolve any limitation date problem. He questioned what date might be used as a cut-off date. Discussion ensued. Chairman Martin stated that the Board might better pursue the question of "if they have a letter of commitment are we going to consider that a refinancing" rather than trying to "shoot for some date. " Further discussion ensued. Mr. Christy stated that he "had a real problem with going back since there's just really no place to stop." John Dominick stated that he was afraid of making some arbitrary decision which might do a lot of damage. Ron Pennington stated that it had been his opinion that the Board had initially wanted to make the bond money available to as many persons as possible "as long as they weren't refinancing. permanent financing." • Public Facilities Board Meeting May. 24, 1979 Page 3 After considerable discussion, John Dominick stated that he would like to make the money widely available "as long as there's not a lot of flack from the lenders and if it doesn't destroy a lot of the work they've already done." He added that he would go along with not allowing refinancing, "but at the same time it would probably be to the lenders' advantage to be liquid." Chairman Martin stated that it seemed to be the concensus of the Board that 1) McCord should check with the lenders and get their opinions regarding an effective date, and 2) McCord should get 'a legal opinion from bound counsel. • Buttry regarding "public purpose" as well as on the effective date. • The Chairman stated that he would call another meeting in order to review the opinions and information gathered by Mr. McCord. Chairman Martin introduced the second item COMMITMENTS TO BUILDERS of business, stating that a lender had asked the Board to consider allowing commitments to builders. Mr. Martin stated that the lender's view was that the money was not being used as rapidly as some people might have thought and that to allow commit- ments to builders would get some new houses built. "Of course, he was concerned that toward the end of the program he might lose that commitment fee--the money he _paid us--if the money was not all loaned out," til Martin added. Jim McCord stated that if the Board wanted to allow commitments to builders that it would require a change in the documents, such change being subject to the approval of the Trustee and the Administrator. Mr. McCord stated that he had visited with Mr. Buttry about this possibility and Mr. Buttry had stated that the Administrator would probably want to put some restrictions on such a proposal. He stated that Mr. Buttry could find no reason for the Trustee to object, and really no reason for the Administrator to object, providing reasonable restric- tions were placed thereon. The Chairman stated that it had been suggested to him that the lenders might have money left at the end of the program and perhaps the Board should wait awhile before looking at this question. On the other hand, Mr. Martin noted, within 4 months the money might be all gone. Dale Christy asked if the Board couldn't be given a.monthly report on the status of such things. Mr. McCord stated that he had contacted Lomas that they had promised to furnish the Board with a statement within one to two weeks after the end of each month. Dale Christy said he would like to wait and see what the first report looked like and see where the money was going, or if it was going, before changing the rules at this early date. "If we're having trouble placing the money, that's one thing, but I'm not sure that' s true. I'd be willing to consider it, but I think we ought to look at those first figures. There are some other alternatives--we may have misallocated the money." Mr. Christy added that he had received phone calls, several of them in fact, from the same lender and he therefore did not know whether there was a big problem with the make-up of this rule or if the _.•�; a : problem was "just in one area." After further discussion, the Chairman stated that if no one wanted to take any action on the matter today that he would move on to the third item of business. No motions or further comments on the matter came to the floor. . . JP . . • �:ti _ Public Facilities Board Meeting K May 24, 1979 ti Page 4 ' Chairman Martin stated that the third item THE McWETHY SITUATION of business was "the McWethy situation." He recalled that at the last meeting of the Board Jim McCord had presented the situation and the Board- had acted on it, recommending that it would ';_ -. not qualify. Mr. Martin added, "I think David •t ' wants to explain to the Board exactly, what his situation is and have us take another look at it." David McWethy: - "The situation -is -that I have an existing woodworking shop which I want to convert into an owner-occupied, single-family dwelling. I have had Hailey-Powers, architects, draw up some drawings showing how that might be done. (Submitted drawings to' Board.) The center part. is the 'shell that is existing now. I want to pour a new slab and build on in this direction, build a deck on in this direction, build a wall over this area which contains the bedroom/bathroom up- stairs'. Now, the problem is that there is an existing loan on the property for the existing woodworking shop on a 10-year payout note. After the last meeting of the Public Facilities' Board, I took the drawings to N.W. Savings $ Loan to get a conventional loan. They :-.:.Vlooked at it and said 'because of the scope of the work involved, C considering that you are taking an empty shell and making a house out of it, it would require heating, air conditioning, plumbing, wiring, putting up partitions, etc. The scope of the work was that of new construction. For that reason they could not loan me the money because they did not have any money for new construction. • "If this had already been done they could have arranged re- financing, but they don' t have any money for new construction. It' s like a Catch 22 situation because they are saying that if it's new construction they can't loan me the money. It seems to be a question of whether or not its refinancing. Now I understand and probably agree with the prohibition of someone taking an exist- ing residential mortgage and wanting to enclose a.carport, etc. or do a minimum amount of work in order to qualify for a low- interest loan, but I would distinguish this from that for two rea- sons. First of all, it's not a residential structure. It never has been. As you can see, it's not thinkable of being used for a residential structure. Secondly, the scope of work is really the kind of thing that would be required if you wanted to build a house from scratch. The existing footings, stud walls, floor and roof would be used, but everything else would be just like building a new house." - In answer to several questions put to him, Mr. McWethy explained that his '_f 5-acre property is zoned A-1, lies within the City Limits but outside Clear Creek Subdivision, and that it presently has a 10-year payout commercial loan C from First National Bank. do' • iI Public Facilities Board Meeting May 24, 1979 Page 5 Mr. McWethy explained that he had looked for over 5 years for this par- ticular piece of property and had planted several fruit trees, nut trees, etc. thereon. "This is where I want to live, but I can't get a conventional loan," he stated. The Chairman questioned whether Mr. McWethy.would consider building a separate structure and keeping this one as a woolip shop rather than using it as part of the basis for a new house. Mr. McWethy replied: "I've thought about that and decided against it for two reasons: I built the woodworking shop about a year ago, thinking that per- haps in the foreseeable future I could get out of City Hall. Since that time I've realized that is no longer feasible. So, I don't have a need for a 12,000 square ft. woodworking shop, but I thought I did this. Secondly, quite frankly, I can't afford to have both that shop and a house." Jim McCord stated that he had talked with Gary Kell about the situation. "Gary's initial reaction was that he questioned whether it would qualify or not because our program is not designed as some programs are for remodelling•, rennovation and restorations. . . . After seeing these pictures here today, I just don't know. If it is, it will require a change in the documents. You could, if you wanted to, allow conversion from commercial structures to resi- dential structures. If you wanted to, you could go ahead and authorize remodel- ling." John Dominick said that he felt the situation "went beyond remodelling." "It appears to me that what you are trying to do is to build a house," he added. Jim McCord added that he had only had a very short conversation with Mr. Kell and that if Mr. Kelly had seen McWethy's plans and heard that he had been denied a conventional loan since the bank's opinion was that it was the same thing as new construction, Mr. Kell might have said that it would qualify. After further discussion, Chairman Martin stated that he did not have any • objections to allowing this. "I think, just being frank about it, that since David works at the City that's something that is perhaps more subject to criti- cism than if he didn't. But, as Dr. Leflar says, 'you take your case as you • find it. '" Mr. McWethy replied: "At the same time and with the same reasoning, I suppose it would be possible, in theory at least, for me to just sell the prop- erty to a friend and have them do the work and then have me turn around and buy it back from them. But I think that's circumventing . . . I don't want to do it and don't think it should be done." Dale Christy stated: "I think the cleanest thing here is to try to get an interpretation from counsel on the refinancing angle. If we can get an accept- ance by counsel or Administrator that it is not a refinancing of a residential mortgage, which it appears not to be, then I think we've got a. different set of circumstances." John Dominick stated that he would like to say, for the record, "that if we have any sway with them (counsel or administrator) , this is not a refinancing." After further discussion, Dale Christy moved to approve Mr. McWethy's situation as eligible "using the judgment of this Board that ifthe application can be determined to not be a refinancing under the terms of the official docu- ments." He added: "What I am saying is that if you can get by our existing rules on refinancing, I think it qualifies." He also added that he felt it was Public Facilities Board Meeting May 24, 1979 C Page 6 the concensus of the Board that they did not feel it was a refinancing. John Dominick seconded the mdtion, which passed unanimously (4-0) . Mr. McCord stated that he would call the Administrator and Mr. Buttry in order to obtain their opinions. • - There being no further business to come before the meeting, said meeting adjourned at approximately 5:00 o'clock p.m. • Ron Pennington, Secretary ATTEST: • F. H. Martin, Chairman • •