Thursday, March 6, 2014

Davidson's Board Escapes Uncomfortable Vote on Affordable Housing

At the February 19th town board meeting, Commissioners voted unanimously to acknowledge that affordable housing restrictions no longer applied to a single unit in the South Main Square Condos.  This was due to a foreclosure that happened on the property in 2011.  The Board did not vote to remove the restrictions.  They simply voted to acknowledge that the restrictions were already removed as a result of the 2011 foreclosure.  However, if it was not for some last minute legal eagling by Davidson's Town Attorney, Rick Kline, our Board would have been facing a vote on something that would have looked, really, really bad.

An error in the story by the Lake Norman Citizen encouraged a deeper look at the details of what the Board did that night.  It also brings to light another real flaw in Davidson's affordable housing program.  See previous story here on a different but similar issue where the affordable housing program did not work as planned.

The Board action was initiated by a request from Kathleen Rose of Davidson.  Ms. Rose is a principle of Urban Organics LLC, the owner of the South Main Square Condos purchased out of foreclosure from People's Bank (Mayor Woods's employer) in 2011.  People's Bank was apparently the construction loan lender.  She also has served as a consultant to the town - putting together the town's economic development strategy.

Initially, Ms. Rose was requesting that the Board actually "acknowledge and eliminate" the deed restrictions on her condo at 726 Cotton Gin Alley.  Her letter sent to the town the day before the meeting makes it very clear it was believed the deed restriction enforced by the town's affordable housing program were still in place, and she was requesting the town remove the restrictions on her unit.  (The Citizen reported the request impacted all three affordable units in the complex.  It only impacted unit 726.)

Moreover, town staff also believed the restrictions were in place up until just before this meeting.  It was not until Town Attorney Rick Kline got involved was it determined that the deed restrictions did in fact fall away when the property went through foreclosure in 2011. The town's affordable housing coordinator, Cindy Reid, confirmed this in an email.

Ultimately, it's a good thing Mr. Kline was able to figure this one out because otherwise the Davidson Town Board would have been facing a real sticky wicket of a decision.  Because this was resolved, the Board effectively didn't have to eliminate anything.  They simply acknowledged what had apparently already happened years ago.  However, if the Board had actually voted to release the restrictions they would have in effect been showing a bit of favoritism to someone who can best be described as an insider in town affairs; someone who bought a property from Mayor Woods's employer; someone who thought the property was in the affordable housing program, had treated it that way for years, and was now trying to get out of it to make a little money.

We should all be glad the Board didn't vote to actually to that.  That would have looked really, really bad. 

It's still unclear why it was thought that asking for special treatment might actually work, or why Ms. Rose was even asking the question.  It's clear she thought asking it might look bad by saying in her note that this somehow would not be "setting a precedent" as if this situation was totally unique.  But of course, it would set a precedent.  Remember, it's clear that everyone thought the deed restrictions were in place after the foreclosure up until a couple of weeks ago.  People may have thought they should have gone away, but they were operating as if they were still there.  The precedent here is that the onerous affordable housing restrictions are keeping people from being able to sell their homes.  If you can get the restrictions lifted, then you can.  That's why the question was being asked.  The mere fact that the foreclosure caused the deed restrictions to fall away according to Mr. Kline was just good fortune. 

There's an old saying, "sometimes it's better to be lucky than good."

In this case both Ms. Rose and the Town Board were on the receiving end of that sentiment.

However, there's one more very important thing that should not be lost in all this.  Town Staff actually recommended that the Board release the restrictions that the Board ultimately did not have to vote on here.  Here's what the Staff had to say on the original question before the Board according to the agenda item commentary. (Emphasis added)

"The South Main Square development was foreclosed by People's Bank on 2/25/2011. It was purchased on 5/12/2011 by Urban Organics. One of the three affordable condominiums was included in the foreclosure.  Usually, a foreclosure will act to eliminate restrictions that were recorded after the original deed of trust; however, in this case the deed restrictions survived the foreclosure. Kathleen Rose, principal of Urban Organics, LLC, has requested the town to officially release the restrictions on the affordable unit to clear title to the property. Staff recommends release for the following reasons:1.The three affordable condominiums (822, 726 and 734 Cotton Gin Alley) were built in 2008. Staff and the Davidson Housing Coalition tried to find buyers for these units but there was not a market for a 550 square foot efficiency unit. One of the units sold in January 2009 to a qualified purchaser and the other was sold in October 2009 to an unqualified buyer. Attempts to sell the third unit were unsuccessful even at a reduced price. Kathleen has periodically rented the unit. 2.The Davidson Housing Coalition maintains a waiting list for affordable properties. No one has been interested in purchasing this particular unit in the past four years. Recently, the owner of 822 Cotton Gin indicated that she wants to sell. Nobody on the waiting list is interested, even at the $65,000 price. 3. The size and location of these units is off-putting to affordable buyers. Most of our buyers want two or three bedrooms because they have children. Since these units were built, the ordinance has been amended to require larger minimum sizes."

Staff was recommending release not for any reason due to the foreclosure but simply because there is no market within the affordable housing program for this type of unit.  Also, from Ms. Rose's note she states that "any buyer interest has come only subject to the release of this restriction."

So, what happens to the owners of condos 822 and 734 - the other affordable units in the complex just like Ms. Rose's unit that did not go through the foreclosure?  They still have the restrictions in place, but Town Staff is admitting that there is no market for them.  Staff even points out that one of them wants to sell, but can't.  Just because Ms. Rose got lucky on this one should not leave those other owners out to dry.  If the Town wants to do the right thing here, they should figure out a way to release these other two units as well.  The current owners shouldn't get a windfall by being able to sell at a market rate because they did knowingly enter into an affordable housing contract.  However, they also shouldn't necessarily be "trapped" in the property solely because of a Town policy.  With a little effort on the legal side, the Town should be able to figure out how to structure a deal where these could be sold at market price without deed restrictions and any windfall that occurs goes to the Davidson Housing Coalition (or something like that).

An affordable housing program should be designed to give people a leg up, not trap them in serfdom.

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