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2000-07-25 Affidavit Ralph Munsterteiger and Michel Leuer '. ST ATE OF MINNESOTA DISTRICT COURT COUNTY OF WRlGHT TENTH JUDICIAL DISTRICT Leuer-Munsterteiger Properties, Inc., Plaintiff, v. AFFIDAVIT OF RALPH MUNSTERTEIGER AND MICHAEL LEVER City of Albertville, Defendant. STATE OF MINNESOTA) ) SS COUNTY OF WRlGHT ) Ralph Munsterteiger and Michael Leuer, upon being first duly sworn upon oath, depose and state as follows: 1. That Plaintiff is a Minnesota corporation and they are the owners of said corporation. 2. Plaintiff is in the business of acquisition and development of real property for residential housing. 3. Plaintiff has been engaged in the residential housing development business since approximately 1985 and has developed a number of projects in St. Michael, Wright County, Minnesota. 4. Ralph Munsterteiger has been engaged in the development business since approximately 1976 and has developed residential property - including single family, townhouse and condominium developments - in a number of cities throughout Wright County, Minnesota. 5. Michael Leuer has been engaged in the development business since approximately 1980 and has developed residential property - including single family, townhouse and condominium developments - in a number of cities in Hennepin and Wright Counties. 6. In approximately fall, 1999, Plaintiff entered into a Purchase Agreement to acquire farmland located in Albertville, Minnesota, for the development of residential townhouses. The legal description of the property is set forth on Exhibit A attached hereto and made a part hereof (hereafter "Property"). 7. In late 1999, Plaintiff filed an application with Defendant for the approval of a plat for the development of the Property into seventy-three (73) townhouses in the initial phase, with Outlots to be developed in future phases. 8. The first phase of the development of the Property is known as "Kollville Estates". 9. The townhouses to be constructed in Kollville Estates include double garages and will be constructed within a purchase price range of $110,000.00 to $160,000.00 per townhouse unit. The townhouse units are considered to be starter homes for an expected market including young married couples and young single working people. 10. In Affiants' opinion, based on their substantial expenence In the residential development business, residential dwellings in the price range for the Kollville Estates townhouses will require that FHA insured mortgage financing be available for buyers. The Kollville Estates townhome project must meet all requirements imposed by the U.S. Department of Housing and Urban Development ("HUD") to become eligible for FHA financing. Without FHA financing, the Kollville Estates townhome project will not be economically viable. 11. A large majority of all homes - single family or townhomes - constructed within the Albertville - St. Michael area have been acquired by first time buyers utilizing FHA insured financing. 12. It is crucial that the Kollville Estates townhome project be eligible for FHA financing for the following reasons: 2 A. FHA requires a smaller down payment than conventional mortgage financing would require (FHA typically requires less than 3 % down payment whereas conventional mortgage financing typically requires at least a 5% to 10% down payment); B. The qualifying income standards for FHA insured financing is less restrictive than qualifying income standards for conventional mortgage financing; C. Mortgage insurance premiums are lower when utilizing FHA insured mortgage financing than such premiums are for those parties utilizing conventional financing that pay less than 20% down; D. FHA insured financing allows a buyer to utilize "sweat equity" toward the required down payment. Such use of "sweat equity" is typically not allowed a buyer utilizing conventional mortgage financing. E. HUD has issued longstanding rules and requirements which include the following: 1) A property with an FHA insured mortgage must be free of legal restrictions on the conveyance of the property. HUD construes the term, "legal restrictions on conveyance" broadly to include any type of conveyance including a lease. Pursuant to the HUD eligibility rules, an example of the type of restrictions that HUD deems to be a "legal restriction on conveyance" would include a restriction that would cause a lease to be deemed void or voidable by a third party or to be subject to the consent of a third party. 13. In the early stages of the development process Defendant indicated that Defendant was likely to include as a condition of approval of the plat of Kollville Estates a restriction prohibiting the leasing of any of the townhome units. Plaintiff immediately objected to Defendant when Defendant indicated its intent to include such a prohibition against leasing, and Plaintiff explained to Defendant that such a prohibition would cause the Kollville Estates project to become ineligible for FHA financing, which in effect would destroy the economic viability of the project. After a number of discussions on the subject, Defendant then stated that one of the conditions for the approval by Defendant of the plat of Kollville Estates would be a requirement that the Development Agreement to be entered into between Plaintiff and Defendant (a Development 3 Agreement is a standard document required by most cities when approving a development of property) and townhome homeowners association documents must include a provision stating that a license must be obtained from Defendant prior to the leasing of any townhome unit. Although Plaintiff felt that such a restriction was arbitrary and unreasonable, and not lawful, Plaintiff determined that such a restriction would likely not cause Plaintiff to lose FHA financing eligibility and Plaintiff, therefore, reluctantly agreed to such a condition as part of the plat approval process. 14. On April 3, 2000, Defendant granted Preliminary Approval ofthe plat ofKollville Estates. The preliminary plat approval did not prohibit the leasing of any townhome unit. 15. Plaintiffhas complied with all requirements and conditions imposed by Minnesota law and Defendant's ordinances for the approval of the plat ofKollville Estates. Attached to this Affidavit as Exhibit B is a true and correct copy of the Memorandum issued by Plaintiffs Planning Consultant (Northwest Associated Consultants, Inc.) dated May 31, 2000. As stated on page 5 thereof: "Staff feels comfortable recommending approval of the Final Plat...." 16. On June 5, 2000, Defendant moved to approve the Findings of Fact and Decision Granting Final Plat Approval to the "Plat ofKollville Estates" subject to the conditions detailed in the Findings. Attached hereto as Exhibit C and made a part hereof is a true and correct copy of the first two pages of the Minutes of Defendant's City Council meeting dated June 5, 2000. 17. Part of Exhibit B includes a true and correct copy of the Findings of Fact and Decision approving the plat of Kollville Estates. 18. The Findings of Fact and Decision approving the plat ofKollville Estates included a requirement, consistent with the Preliminary Plat approval, that the homeowner association documents include language that a license should be obtained from Defendant prior to the leasing of any unit (See paragraph 9 of the Findings of Fact and Decision, part of Exhibit B.) 4 19. Thereafter, at Defendant's City Council meeting held July 17,2000, Defendant suddenly took the position that despite the fact that the plat approval had already been granted June 5, 2000, nevertheless the Development Agreement to be signed by Plaintiff, and the townhome homeowners association documents for the Kollville Estates project must include a provision that all leasing of any townhome unit is prohibited except for the right of a mortgage lender which has foreclosed on a townhome unit to lease the townhome unit for not more than 60 days following the mortgage foreclosure. 20. At the July 17,2000 meeting Affiants immediately objected to the prohibition against leasing Defendant indicated that it was going to impose. Affiants stated to Defendant's City Council at the July 17,2000 meeting that such a prohibition against leasing would destroy any chance the Kollville Estates project had to be eligible for FHA financing and that without FHA financing, the project would not be economical viable. Affiants explained to Defendant's City Council the difference between FHA financing and conventional mortgage financing, with the differences in income qualification restrictions, mortgage insurance premiums, down payment requirements and the ability to use sweat equity as part of a down payment, all as noted above in paragraph _ of this Affidavit. Defendant's City Council Member John Vetsch stated that Defendant did not want "subsidized housing" for this project. Affiants explained that the use of FHA financing is not "subsidized housing". Defendant's Council Member John Vetsch then stated that it was Defendant's position that Defendant would get "better buyers" if the buyers were required to have a down payment of at least ten (10%) percent to purchase one of the townhomes. Defendant's Council Member John Vetsch also stated that Defendant felt that a prohibition against leasing oftownhomes was necessary to protect the citizens of Albertville and that he was a mailman and could see what 5 happens to properties that can be rented, voicing his observation that renters do not pick up their mail and allow their properties to "deteriorate". 21. Despite Affiants' protests, Defendant nevertheless directed its City Attorney to include the prohibition against leasing language in the Development Agreement and to require that all townhome homeowners association documents include such a restriction prohibiting the leasing of any townhome unit except the leasing of a townhome unit for not more than sixty (60) days following a mortgage foreclosure. Defendant has stated that it will not release a signed plat to Plaintiff unless the Development Agreement and the townhome homeowners association documents are consistent with the prohibition against leasing as described above. 22. Plaintiff was scheduled to close on its purchase of the Property on Tuesday, July 25, 2000. That closing has been continued to July 27,2000 pending a determination herein. It is crucial that Plaintiff obtain and record the final plat for the Kollville Estates project promptly so that Plaintiff can begin construction of the public improvements such as sanitary sewer, water, streets, electrical, gas and phone utilities and sprinkling systems. Plaintiff cannot begin construction of such improvements until it has closed on its acquisition of the Property and has recorded the final plat. Construction crews have been scheduled for Monday, July 31, 2000. If they are not able to start, Plaintiff will likely lose their availability and it will likely be weeks before construction can get started. As stated in paragraph 24 below, there may not be enough time this year to get the improvements completed unless the work gets started promptly. 23. Plaintiff has made a substantial investment into this project including the following: A. A One Hundred Thousand and 00/1 00 Dollar ($100,000.00) down payment to the Seller of the Property; B. Approximately One Hundred Thousand and 00/100 Dollars ($100,000.00) of grading costs and expenses incurred to date; 6 C. Approximately One Hundred Thousand and 00/100 Dollars ($100,000.00) of engineering and related development costs and expenses incurred to date. Plaintiff is paying interest on money it has borrowed to meet the above described expenses and/or is losing interest every day that this project is delayed. Moreover, Plaintiff has a purchaser for the entire Kollville Estates project once the plat is recorded and the public improvements have been substantially constructed. The sale of the project will net Plaintiff a financial profit in excess of $1,000,000.00. Plaintiff believes the purchaser, Heart of the Lakes Construction, LLC, will not purchase the project ifit includes a prohibition against leasing as is being demanded by Defendant. Plaintiff will suffer tremendous financial loss if this project is delayed any further. 24. There are now only approximately three and one-half months left of the typical Minnesota "construction season" (August to approximately mid-November). It is crucial that Plaintiff be allowed to complete the closing on its acquisition of the Property and the recording of the approved final plat so as to promptly get started on the construction of the public improvements described above. Otherwise, it will not be possible for Plaintiff to construct the public improvements anymore during this construction season. That will result in the project sitting stagnant until next year, which will result in substantial financial carrying costs to be incurred by Plaintiff, the likely loss of Plaintiffs purchaser for the project, and the likely inability for Plaintiff to successfully and economically market the project to anyone. 7 25. Further Affiants sayeth not save and except that this Affidavit is made in support of Plaintiffs Motion for a Temporary Restraining Order. IN WITNESS WHEREOF, Affiants have signed this Affidavit effective the date indicated herein. Date: 7-)" - f:J 0 orn to before me ,2000. Date: ? -:J 5" - Q6 /) i / ~ S bscrib~ ~d S')IO before me thisd2 day 0 ,2000. ~ {/~ ~----- 8 STATE OF MINNESOTA DISTRICT COURT COUNTY OF WRIGHT TENTH JUDICIAL DISTRICT Leuer-Munsterteiger Properties, Inc., Plaintiff, v. AFFIDAVIT OF RALPH MVNSTERTEIGER AND MICHAEL LEVER City of Albertville, Defendant. STATE OF MINNESOTA) ) SS COUNTY OF WRIGHT ) Ralph Munsterteiger and Michael Leuer, upon being first duly sworn upon oath, depose and state as follows: 1. That Plaintiff is a Minnesota corporation and they are the owners of said corporation. 2. Plaintiff is in the business of acquisition and development of real property for residential housing. 3. Plaintiff has been engaged in the residential housing development business since approximately 1985 and has developed a number of projects in St. Michael, Wright County, Minnesota. 4. Ralph Munsterteiger has been engaged in the development business smce approximately 1976 and has developed residential property - including single family, townhouse and condominium developments - in a number of cities throughout Wright County, Minnesota. 5. Michael Leuer has been engaged in the development business since approximately 1980 and has developed residential property - including single family, townhouse and condominium developments - in a number of cities in Hennepin and Wright Counties. 6. In approximately fall, 1999, Plaintiff entered into a Purchase Agreement to acquire farmland located in Albertville, Minnesota, for the development of residential townhouses. The legal description of the property is set forth on Exhibit A attached hereto and made a part hereof (hereafter "Property"). 7. In late 1999, Plaintiff filed an application with Defendant for the approval of a plat for the development of the Property into seventy-three (73) townhouses in the initial phase, with Outlots to be developed in future phases. 8. The first phase of the development of the Property is known as "Kollville Estates". 9. The townhouses to be constructed in Kollville Estates include double garages and will be constructed within a purchase price range of $110,000.00 to $160,000.00 per townhouse unit. The townhouse units are considered to be starter homes for an expected market including young married couples and young single working people. 10. In Affiants' opinion, based on their substantial expenence in the residential development business, residential dwellings in the price range for the Kollville Estates townhouses will require that FHA insured mortgage financing be available for buyers. The Kollville Estates townhome project must meet all requirements imposed by the U.S. Department of Housing and Urban Development ("HUD") to become eligible for FHA financing. Without FHA financing, the Kollville Estates townhome project will not be economically viable. 11. A large majority of all homes - single family or townhomes - constructed within the Albertville - St. Michael area have been acquired by first time buyers utilizing FHA insured financing. 12. It is crucial that the Kollville Estates townhome project be eligible for FHA financing for the following reasons: 2 Agreement is a standard document required by most cities when approving a development of property) and townhome homeowners association documents must include a provision stating that a license must be obtained from Defendant prior to the leasing of any townhome unit. Although Plaintiff felt that such a restriction was arbitrary and unreasonable, and not lawful, Plaintiff determined that such a restriction would likely not cause Plaintiff to lose FHA financing eligibility and Plaintiff, therefore, reluctantly agreed to such a condition as part of the plat approval process. 14. On April 3, 2000, Defendant granted Preliminary Approval of the plat ofKollville Estates. The preliminary plat approval did not prohibit the leasing of any townhome unit. 15. Plaintiffhas complied with all requirements and conditions imposed by Minnesota law and Defendant's Ordinances for the approval of the plat ofKollville Estates. Attached to this Affidavit as Exhibit A is a true and correct copy of the Memorandum issued by Plaintiff s Planning Consultant (Northwest Associated Consultants, Inc.) dated May 31, 2000. As stated on page 5 thereof: "Staff feels comfortable recommending approval of the Final PIaL.." 16. On June 5, 2000, Defendant moved to approve the Findings of Fact and Decision Granting Final Plat Approval to the "Plat ofKollville Estates" subject to the conditions detailed in the Findings. Attached hereto as Exhibit B and made a part hereof is a true and correct copy of the first two pages of the Minutes of Defendant's City Council meeting dated June 5, 2000. 17. Attached hereto and made a part hereof as Exhibit C is a true and correct copy ofthe Findings of Fact and Decision Approving the plat ofKollville Estates. 18. The Findings of Fact and Decision approving the plat ofKollville Estates included a requirement, consistent with the Preliminary Plat approval, that the homeowner association documents include language that a license should be obtained from Defendant prior to the leasing of any unit (See paragraph 9 of the Findings of Fact and Decision, attached as Exhibit C.) 4 19. Thereafter, at Defendant's City Council meeting held July 17, 2000, Defendant suddenly took the position that despite the fact that the plat approval had already been granted June 5, 2000, nevertheless the Development Agreement to be signed by Plaintiff, and the.townhome homeowners association documents for the Kollville Estates project must include a provision that all leasing of any townhome unit is prohibited except for the right of a mortgage lender which has foreclosed on a townhome unit to lease the townhome unit for not more than 60 days following the mortgage foreclosure. 20. At the July 17,2000 meeting Mfiants immediately objected to the prohibition against leasing Defendant indicated that it was going to impose. Affiants stated to Defendant's City Council at the July 17,2000 meeting that such a prohibition against leasing would destroy any chance the Kollville Estates project had to be eligible for FHA financing and that without FHA financing, the project would not be economical viable. Affiants explained to Defendant's City Council the difference between FHA financing and conventional mortgage financing, with the differences in income qualification restrictions, mortgage insurance premiums, down payment requirements and the ability to use sweat equity as part of a down payment, all as noted above in paragraph _ of this Affidavit. Defendant's City Council Member John Vetsch stated that Defendant did not want "subsidized housing" for this project. Affiants explained that the use of FHA financing is not "subsidized housing". Defendant's Council Member John Vetsch then stated that it was Defendant's position that Defendant would get "better buyers" if the buyers were required to have a down payment of at least ten (10%) percent to purchase one of the townhomes... Defendant's Council Member John Vetsch also stated that Defendant felt that a prohibition against leasing oftownhomes was necessary to protect the citizens of Albertville and that he was a mailman and could see what 5 happens to properties that can be rented, voicing his observation that renters do not pick up their mail and allow their properties to "deteriorate". 21. Despite Affiants' protests, Defendant nevertheless directed its City Attorney to include the prohibition against leasing language in the Development Agreement and to require that all townhome homeowners association documents include such a restriction prohibiting the leasing of any townhome unit except the leasing of a townhome unit for not more than sixty (60) days following a mortgage foreclosure. Defendant has stated that it will not release a signed plat to townhome homeowners association documents Association Documents are consistent with the prohibition against leasing as described above. 22. Plaintiff was scheduled to close on its purchase of the Property on Tuesday, July 25, 2000. That closing has been continued to July 27, 2000 pending a determination herein. It is crucial that Plaintiff obtain and record the final plat for the Kollville Estates project promptly so that Plaintiff can begin construction of the public improvements such as sanitary sewer, water, streets, electrical, gas and phone utilities and sprinkling systems. Plaintiff cannot begin construction of such improvements until it has closed on its acquisition of the Property and has recorded the final plat. However, Plaintiff is not able to close on its purchase of the Property and record the final plat because Plaintiff cannot agree to include such a prohibition against leasing as is being demanded by Defendant. (As noted above, such a prohibition will destroy the economic viability ofthe project.) 23. Plaintiff has made a substantial investment into this project including the following: A. A One Hundred Thousand and 00/100 Dollar ($100,000.00) down payment to the Seller of the Property; B. Approximately One Hundred Thousand and 00/100 Dollars ($100,000.00) of grading costs and expenses incurred to date; 6 C. Approximately One Hundred Thousand and 00/100 Dollars ($100,000.00) of engineering and related development costs and expenses incurred to date. Plaintiffis paying interest on money it has borrowed to meet the above described expenses and/or is losing interest every day that this project is delayed. Moreover, Plaintiffhas a purchaser for the entire Kollville Estates project once the plat is recorded and the public improvements have been substantially constructed. The sale of the project will net Plaintiff a financial profit in excess of $1,000,000.00. Plaintiff believes the purchaser, Heart of the Lakes Construction, LLC, will not purchase the project if it includes a prohibition against leasing as is being demanded by Defendant. Plaintiffwill suffer tremendous financial loss if this project is delayed any further. 24. There are now only approximately three and one-half months left of the typical Minnesota "construction season" (August to approximately mid-November). It is crucial that Plaintiff be allowed to complete the closing on its acquisition of the Property and the recording of the approved final plat so as to promptly get started on the construction of the public improvements described above. Otherwise, it will not be possible for Plaintiff to construct the public improvements anymore during this construction season. That will result in the project sitting stagnant until next year, which will result in substantial financial carrying costs to be incurred by Plaintiff, the likely loss ofPlaintitrs purchaser for the project, and the likely inability for Plaintiff to successfully and economically market the project to anyone. 7 25. Further Affiants sayeth not save and except that this Affidavit is made in support of Plaintiffs Motion for a Temporary Restraining Order. IN WITNESS WHEREOF, Mfiants have signed this Affidavit effective the date indicated herein. Date: Ralph Munsterteiger Subscribed and sworn to before me this _ day of , 2000. Notary Public Date: Michael Leuer Subscribed and sworn to before me this _ day of , 2000. Notary Public 8