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Resolution Authorizing Subordination of a Lien for the Property Located at 1017 North Harlem Avenue (SRP-049)
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Introduction
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The loan recipient is requesting a subordination of their Small Rental Property Rehabilitation Program (SRP) loan mortgage to a new first mortgage. The Village remains secure in a junior position on the title.
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Recommended Action
Approve the resolution.
Prior Board Action
The Board has taken the following prior action(s):
• RES 24-245: A Resolution Awarding a Small Rental Property Rehabilitation Loan and Authorizing the execution of a Loan Commitment and Agreement for the Property Located at 1017 North Harlem Avenue (SRP-049)
Background
On July 16, 2024, the Village of Oak Park Board of Trustees approved a $10,000 loan to the owner of 1017 North Harlem Avenue. The loan is supported by a mortgage, which was recorded against the property. The mortgage was recorded as a junior mortgage on the property, with the purchase loan mortgage being in first position.
Loans made under the Small Rental Property Rehabilitation Program have a two (2) term agreement, whereby if the homeowner successfully complies with the program, the Village discharges any indebtedness. The program guidelines provide that in cases where former loan recipients wish to refinance mortgages other than the Village's and request that the Village maintain its subordinate position, the Village will agree to maintain its junior position if:
1. The terms of the new first mortgage are more advantageous to the homeowner and are reasonable under current market conditions; and
2. There is adequate equity in the property to support the total proposed encumbrance, with at least 10% equity. (If necessary, the homeowner(s) will submit an appraisal as proof of equity); and
3. Any equity taken out of the property will be reinvested in the property.
The homeowner is seeking to refinance the primary mortgage. The current mortgage, which carries a 7.25% interest rate, will be replaced with a new mortgage at a 6.25% interest rate. This new loan will provide a Fixed Rate, 30-year mortgage. The amount of the new loan will be $515,580.00. The new loan is more advantageous than the existing loan, as the new loan is at a lower rate. There is no cash out on this refinance.
The lender is requesting that the Village subordinate its mortgage to their new mortgage. The Village’s mortgage was created as a junior mortgage. By agreeing to subordinate, the Village is agreeing to remain in a junior position.
According to bank appraisal, the property has an estimated value of $600,000. The balance on the primary mortgage is $515,580, and the Village’s $10,000 mortgage equals a total debt of $525,580, leaving 14.1% equity. Staff believes that there is sufficient equity to protect the Village’s investment and is recommending the subordination.
The request complies with the Village guidelines and requirements.
Timing Considerations
The homeowner needs to close the loan refinance on May 9, 2025, to provide a three-day right of rescission before May 15, 2025, when the rate-lock on the new loan expires.
Budget Impact
There is no budget impact associated with this item. The subordination is not a direct cost to the General Fund. Staff time in document preparation, which is a regular part of loan portfolio management, is the only cost.
Staffing Impact
There is no staffing impact associated with this item.
DEI Impact
There is no DEI impact associated with this item.
Community Input
There has been no community input in relation to this item.
Staff Recommendation
Approve the request from the homeowner to subordinate the loan from the Small Rental Property Rehabilitation Program to a refinance of his primary mortgage.
Advantages:
• The homeowner can obtain a better rate for his primary mortgage.
• The subordination request aligns with the original terms of the program.
Disadvantages:
• There are no disadvantages to this recommendation.
Alternatives
Alternative 1:
The alternative would be to deny the subordination request.
Advantages:
• There are no advantages to this alternative.
Disadvantages:
• The homeowner’s rate to refinance his primary mortgage could increase.
Anticipated Future Actions
There are no anticipated future actions in relation to this item.
Prepared By: Jeff Prior, Neighborhood Services Program Manager
Reviewed By: Jonathan Burch, Assistant Village Manager/Neighborhood Services Director
Approved By: Kevin J. Jackson, Village Manager
Attachment(s):
1. Resolution Subordination of Lien SRP-049
2. Subordination of Lien SRP-049
3. Endorsed Note SRP-049