The city council of the city of Duluth hereby authorizes a partial forgiveness by NHS of the repayment of the Neighborhood Housing Services (NHS) CDBG loans in the amount of $34,775, which is equal to 90 percent of the total NHS loans.

CD KS:jle 2/13/2008

STATEMENT OF PURPOSE:  The purpose of this resolution is to authorize forgiveness by NHS of the remaining balance due on the community development block grant rehabilitation loans provided in 2003 for the rehabilitation of an owner-occupied duplex located in the Lincoln Park neighborhood. The loans were secured by liens on the property.

In 2003 the city of Duluth entered into City Contract # 19434 with Neighborhood Housing Services of Duluth, Minnesota, pursuant to which NHS agreed to administer and operate a housing rehabilitation program. In accordance with the rehabilitation program guidelines, NHS entered into an agreement dated December 17, 2003, (the NHS agreement) with Marilyn Reynolds (owner) pursuant to which NHS advanced two community development block grant (CDBG) rehabilitation deferred loans in the amount of $15,477 and one CDBG amortized loan in the amount of $23,300 for a total loan amount of $38,777.

The owner agreed to make payments on the amortized loan and to repay NHS the full amount of the deferred loans in the event owner sold, transferred or otherwise conveyed the rehabilitated property. The owner lived in the property for seven years prior to foreclosure.

Ms. Reynolds, an elderly owner, on a fixed income, was unable to hold onto the property due to problem tenants who damaged the rental unit and did not pay the rent. Ms. Reynolds tried to sell the property. She moved out of the duplex and started eviction proceedings on the tenants. The structure has remained vacant for several months. These issues, along with unpaid utility costs, created a hardship for Ms. Reynolds and resulted in foreclosure.

US BANK Mortgage, the company holding the first mortgage on the property, pursued foreclosure in 2007. The duplex was first listed at $114,000 and then reduced to $89,500. The redemption period ended January 24, 2008 with no interested buyers.

NHS considered purchase, rehabilitation and resale of the property as a means of securing the loans, but determined that it would not be feasible to redeem the property at an estimated cost of $71,000 (mortgage and redemption fees) with an additional estimated amount of $8,000 to $10,000 in repairs.

Estimated market value       $ 124,200  (St. Louis County records - 2/12/2008)

*88% of $124,200 = $109,296

Estimated cost to redeem     $ 71,000

NHS liens due                 34,775

MHFA HARP loan                5,000

Estimated repair costs        10,000

     Total costs            $ 120,775

The 2007 Duluth Area Association of REALTORS sales data for duplexes in the Lincoln Park neighborhood indicates the average duplex selling price was at $88,805 and the average number of days on the market was at 99 days. *The duplex sales averaged 88% of the current estimated market values. Eighty-eight percent of the estimated market value of this duplex is $109,296.

NHS is requesting the authority from the city to forgive the remaining amount due on the rehabilitation loans ($34,775). NHS considers this necessary given circumstances. The community development manager concurs.