2010-04-29 Taxes & Special Assessments on 19 LotsMemo
Attorney Client Co =unig&n
To: Albertville City Council; Larry Kruse, City Administrator;
From: Mike Couri, City Attorney
Date: April 29, 2010
Re: Prairie Run/Alpine Capital litigation
Gold Key has failed to pay the taxes and special assessments on 19 lots
in the Prairie Run subdivision. The City has made a claim on the $217,500.00
letter of credit issued by Alpine Capital, but Alpine Capital has refused to pay
the claim as its creditors are requiring it to pay back their loans to it and are in
a lengthy process of orderly liquidating the company by selling off the
properties it repossessed from Gold Key and other developers. The City has
sued Alpine for the monies due, and Larry Kruse and myself have met with
Alpine on three occasions in an attempt to work out a solution that avoids the
expense and uncertainty of trial. We have come up with a settlement concept
that Larry and I support. Before proceeding further with it, we would like to
present it to the Council for comment and feedback.
While Alpine is cash poor, it does have assets in the form of a
significant inventory of vacant lots. Of those lots, 8 of them are in Prairie
Run, are owned free and clear by Alpine, and have all of the special
assessments paid. These lots are located on the farthest west cul-de-sac in
Prairie Run, on the street that is owned and supposed to be maintained by the
Homeowner's Association. They are smaller lots, intended for "detached
townhomes." There are currently three such detached townhomes built on
this street.
Alpine's proposal is to sell these lots and give the proceeds directly to
the City in exchange for the City ultimately dismissing the lawsuit and
returning the letter of credit when all of the lots are sold. Alpine estimates that
the lots will probably net about $20,000.00 each, but may take some years to
sell. We estimate that the City will net around $150,000 to $160,000 from the
sale of the lots. That would represent approximately a 75% recovery on the
amount of the letter of credit.
The City would use the proceeds to pay some of the delinquent special
assessments on the 19 lots that have not paid their special assessments. That
would pay down the specials by $7,000 to $8,000 per lot. The majority of
these lots had original assessment amounts of $21,394, which have since
grown to $34,000+ with penalties, interest and delinquent real estate taxes. As
noted above, these lots are also thought to be worth about $20,000 each. Even
if the City paid down the specials by $7,000 per lot, the back taxes and
specials would still exceed the value of the lots and the lots would likely
proceed to a tax sale. Once the properties come back into private hands
through the tax sale process, the City can reimpose the special assessments on
the properties. However, given the low market value of these lots, City Staff
expects that the City will likely have to forgive most if not all of the special
assessment interest and penalties that have accrued on these lots in order to
bring the special assessments in line with the actual market value of the lots.
In short, if we realized $150,000 from the sale of the Alpine lots, we would
probably end up breaking even on the principal amount of the special
assessment, but would not recover much, if any, interest on our money.
The advantage of the settlement is that the letter of credit would be
secured by real assets, the eight lots in question. While we do not know the
exact value of the lots, we know that they at some point they will be saleable.
If we proceed to court, we may end up with a judgment, but the question
would then be whether we could collect on it. Since Alpine is essentially
being liquidated by their creditors now, collecting on a judgment would likely
be dicey at best.
This entire settlement concept is contingent upon Alpine's banks
agreeing to the proposal. We told Alpine that we would discuss this with the
Council first, and if the Council approves the concept, Alpine will then take it
to its banks for approval. A final settlement agreement would follow later.
One additional benefit of the proposed settlement is that we would
require Alpine to reinstate the homeowners' association on the lots on this
private cul-de-sac. Of the thirteen lots, Alpine will own ten of them, and
Alpine believes that the owners of two of the other three will join the
association. No one has had contact with the owner of the last lot as that lot
has been going through the foreclosure process. Reestablishment of the
homeowners' association will provide a funding mechanism for the
maintenance of the private street. As you may recall, Dean Johnson
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terminated the prior homeowners' association, leaving no funding mechanism
to pay for maintaining the private street. Neither the City nor Alpine can
figure out why Dean Johnson terminated the homeowners' association. Both
are in agreement that it needs to be reinstated.
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