Submitted By
Tammie Grossman, Director of Development Customer Services Department
Reviewed By
LKS
Agenda Item Title
Title
A Resolution Authorizing The Execution of A Subordination of Lien For The Property Located At 309 Madison Street (SRP-026).
End
Overview
Overview
The loan recipient is requesting a subordination of a Small Rental Rehabilitation Loan to a new first mortgage. The Village remains secure in a junior position on the title.
Body
Staff Recommendation
Approve the Resolution.
Fiscal Impact
There is no impact on the General Fund. Staff time to prepare the subordination and assignment are the only cost to the Village.
Background
On March 18, 2015, pursuant to the Small Rental Rehabilitation Loan Program, the Board of Trustees approved a $5,000 loan to the owner of 309 Madison St. 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.
The Village of Oak Park’s Small Rental Rehab Program authorizes the Village to make forgivable loans to owners of multi-family apartment buildings with less than eight (8) units for the purposes of rehabilitating the property. In return, loan recipients are required to enter into a Loan Commitment and Agreement which requires that the 51% of the units be rented to households earning below 80% of the Area Median Income (AMI) for Cook County and to be affirmatively marketed through the Oak Park Regional Housing Center to encourage racial diversity among residents
SRP-026
The building owner is seeking to replace their current primary mortgage, which is about to balloon from a 3% interest rate to a higher interest rate, with a new primary mortgage at 5% interest rate. This new loan will provide a 5% interest rate on a five year term with a 25 year amortization schedule. The amount of the new loan will be $130,000. The homeowner is only taking equity out for closing costs.
The issuing lender will not make the loan unless that mortgage is the first mortgage lien against the property. The lender is requesting that the Village subordinate its mortgage to their new first mortgage. The Village’s mortgage was created as a junior mortgage. By agreeing to subordinate, the Village is agreeing to remain in junior position to the first mortgage.
The request complies with the Village guidelines requirements; more favorable mortgage terms and no equity being taken out of the property. This refinancing also avoids a balloon interest rate. Staff believes that there is sufficient equity to protect the Village’s investment and is recommending the subordination.
Alternatives
The alternative would be to deny the subordination request which would result in the building owner being unable to obtain a new first mortgage, or would require them to repay the Village loan, which would decrease the equity in their home and increase their monthly mortgage payments.
Previous Board Action
NA.
Citizen Advisory Commission Action
NA.
Anticipated Future Actions/Commitments
NA.
Intergovernmental Cooperation Opportunities
NA.
Performance Management (MAP) Alignment
A Governance Priority established for the Development Customer Services Department Division of Neighborhood Services is Multi-family and Single Family Grant and Loan Programs.