CC 2018-04-10_09c Subordination Agreement_Courtland-Arroyo Grande LP
MEMORANDUM
TO: CITY COUNCIL
FROM: DEBBIE MALICOAT, DIRECTOR OF ADMINISTRATIVE SERVICES
HEATHER WHITHAM, CITY ATTORNEY
SUBJECT: CONSIDERATION OF SUBORDINATION AGREEMENT BETWEEN
THE CITY AND COURTLAND-ARROYO GRANDE, L.P.
DATE: APRIL 10, 2018
SUMMARY OF ACTION:
Agreeing to allow the City’s financial interests to be a lower priority than the lender’s
deed of trust will allow the project owners to refinance their loan at lower interest costs.
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
No financial impact is projected. The City’s ultimate interest position in the property is
unchanged; the City has previously entered into a subordination agreement with the
original lender. Minimal future staff time is projected to accomplish this action.
RECOMMENDATION:
It is recommended the Board: Approve and authorize the City Manager to execute a
Subordination Agreement between the City and Courtland-Arroyo Grande, L.P. to
facilitate refinancing of the project by the owners.
BACKGROUND:
Courtland-Arroyo Grande, L.P. developed and owns the property near Courtland and
Grand where the Cortina D’Arroyo senior affordable housing project was built. The
development was constructed through the use of affordable housing loans and credits,
in addition to conventional financing. In 2004, the City agreed to subordinate a loan that
was made to the developer as well as other regulatory or affordability covenants. This
means that the City agreed to allow the conventional financing, which was through
Wells Fargo Bank at the time, to have a higher priority for repayment than the City’s
loan. The City’s loan was subsequently sold to Meta Housing, and no longer exists,
however the affordability covenants on the project are still enforceable and recorded on
the property title.
Item 9.c. - Page 1
CONSIDERATION OF SUBORDINATION AGREEMENT BETWEEN THE CITY AND
COURTLAND-ARROYO GRANDE, L.P.
APRIL 10, 2018
PAGE 2
The City received notification from the Courtland-Arroyo Grande, L.P. (“Partnership”)
that they wanted to refinance their loan and requested the City’s participation in
continuing to subordinate the affordability covenants under the new loan.
On October 24, 2017 the Board of Directors to the Successor Agency to the Dissolved
Redevelopment Agency considered a very similar item and approved a Subordination
Agreement in connection with the Affordable Housing Agreement and Regulatory
Agreement. Since that time, Courtland-Arroyo Grande, L.P. has been working with the
Federal Housing and Urban Development (HUD) Department on the refunding of their
loan. HUD has indicated that an additional Subordination Agreement is necessary in
relation to the Deed of Trust. Although it does not fundamentally change the City’s
position and maintains the covenants that the housing project is dedicated to senior
housing, various clauses were added and/or removed from the previous Subordination
Agreement and it is staff’s opinion that these changes were more than just cursory or
typographical changes to the previous agreement, therefore Board approval is required.
ANALYSIS OF ISSUES:
The Partnership is looking to refinance the subject property with a new permanent loan
using a HUD insured mortgage. The lender will be RED Capital. HUD has a
requirement that all other financing and regulatory agreements be subordinate to their
First Trust Deed. The document (Attachment 1) provides for the same subordinate
position with the new loan. The City’s overall position and priority remains unchanged
from where it is today.
The current loan is due in a few years, at which time the Partnership would be obligated
to refinance and work with the City on a subordination agreement at that time.
However, given the current low interest rate environment, the Partnership has elected to
accelerate the refinancing, which accounts for the current request. The refinancing will
not affect any tax credits or operations in any way.
The Community Development and Administrative Services Departments are supportive
of this request as it provides for the continuation of affordable housing in the community
and ensures that the City’s interests are maintained as they are today.
ALTERNATIVES:
The following alternatives are provided for the Council’s consideration:
1. Approve the attached Subordination Agreement and authorize the City Manager
to execute the document;
2. Do not approve the Subordination Agreement; or
3. Provide further direction to staff
Item 9.c. - Page 2
CONSIDERATION OF SUBORDINATION AGREEMENT BETWEEN THE CITY AND
COURTLAND-ARROYO GRANDE, L.P.
APRIL 10, 2018
PAGE 3
ADVANTAGES:
The attached subordination agreement will allow the project owners to refinance their
project at a lower interest cost, while maintaining the City’s interests in the property as
they currently exist.
DISADVANTAGES:
No disadvantages are identified.
ENVIRONMENTAL REVIEW:
This item is exempt from CEQA per CEQA Guidelines Section 15061(b)(3).
PUBLIC NOTIFICATION AND COMMENTS:
The Agenda was posted at City Hall and on the City’s website in accordance with
Government Code Section 54954.2.
Item 9.c. - Page 3
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Subordination Agreement HUD-92420M (06/14)
Subordination Agreement
U.S. Department of Housing
and Urban Development
Office of Housing
OMB Approval No. 2502-0598
(Exp. 06/30/2017)
Public Reporting Burden for this collection of information is estimated to average 0.5 hours per response, including the time for
reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing
the collection of information. Response to this request for information is required in order to receive the benefits to be derived. This
agency may not collect this information, and you are not required to complete this form unless it displays a currently valid OMB
control number. While no assurance of confidentiality is pledged to respondents, HUD generally discloses this data only in
response to a Freedom of Information Act request.
Project Name: Arroyo Grande Apartments
HUD Project No: 122-11405
THIS SUBORDINATION AGREEMENT ("Agreement") is entered into as of the
1st day of April, 2018 by and among (i) RED MORTGAGE CAPITAL, LLC, a Delaware
limited liability company ("Senior Lender"), (ii) CITY OF ARROYO GRANDE, a
municipal corporation ("City"), and (iii) COURTLAND-ARROYO GRANDE, L.P., a
California limited partnership ("Borrower").
Recitals
WHEREAS, Borrower is the owner of that certain 108 unit residential rental
development known as " Arroyo Grande Apartments " ("Project"), located at 241 North
Courtland Street, Arroyo Grande, CA 93420. Senior Lender has made or is making the
senior mortgage loan as described on Schedule A hereto ("Senior Indebtedness") to
Borrower in the original principal amount(s) as shown on Schedule A, evidenced by the
Note described in Schedule A ("Senior Note"), and secured by, among other things,
the Security Instrument as described in Schedule A (collectively, "Senior Security
Instrument"), covering the property described in Exhibit A attached hereto together
with all improvements thereon and personal property used relative thereof, all as more
particularly described in the Senior Security Instrument ("Mortgaged Property").
WHEREAS, City is the beneficiary of a Deed of Trust with Assignment of Rents
(Short Form) from the Borrower dated as of September 4, 2014 and recorded October 14,
2014 as Instrument No. 2014-042401 in the Official Records of San Luis Obispo County,
California (the “Land Records”) ("Subordinate Deed of Trust"), securing the Borrower’s
performance under that certain Regulatory Agreement by and between City and Borrower
recorded on November 9, 2004, as Instrument No. 2004-098502 in the Land Records
(“City Regulatory Agreement”), pursuant to the Second and Amended Restated
Affordable Housing Agreement dated as of September 14, 2004 between Borrower and
City’s successor-in-interest (“AHA”) (the City Regulatory Agreement and the AHA are
collectively referred to herein as the “Restrictive Covenants”).
WHEREAS, the Restrictive Covenants, except for the Senior Covenants (defined
below), have been subordinated to the lien of the Senior Security Instrument pursuant to
the terms and conditions of that certain Subordination Agreement by and among the City,
the Successor Agency to the dissolved Arroyo Grande Redevelopment Agency
(“Agency”) and the Borrower dated as of March 1, 2018 and recorded in the Land
Records contemporaneously herewith and prior hereto (the “RCSA”).
Item 9.c. - Page 4
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Subordination Agreement HUD-92420M (06/14)
WHEREAS, Senior Lender, with the approval of the U.S. Department of Housing
and Urban Development (“HUD”), has agreed to permit City to keep the Subordinate
Deed of Trust outstanding and maintain a subordinate mortgage lien against the
Mortgaged Property subject to all of the conditions contained in this Agreement and in
accordance with Program Obligations. “Program Obligations” means (1) all applicable
statutes and any regulations issued by the Secretary pursuant thereto that apply to the
Project, including all amendments to such statutes and regulations, as they become
effective, except that changes subject to notice and comment rulemaking shall become
effective only upon completion of the rulemaking process, and (2) all current
requirements in HUD handbooks and guides, notices, and mortgagee letters that apply
to the Project, and all future updates, changes and amendments thereto, as they
become effective, except that changes subject to notice and comment rulemaking shall
become effective only upon completion of the rulemaking process, and provided that
such future updates, changes and amendments shall be applicable to the Project only
to the extent that they interpret, clarify and implement terms in this Agreement rather
than add or delete provisions from such document. Handbooks, guides, notices, and
mortgagee letters are available on HUD's official website:
(http://www.hud.gov/offices/adm/hudclips/index.cfm, or a successor location to that
site).
NOW, THEREFORE, in order to induce Senior Lender to permit City to keep
outstanding the Subordinate Deed of Trust to Borrower and continue to have a
subordinate mortgage lien against the Mortgaged Property, and in consideration thereof,
Senior Lender, City and Borrower agree as follows:
1. Definitions.
In addition to the terms defined in the Recitals to this Agreement, for purposes of
this Agreement the following terms have the respective meanings set forth below:
(a) "Affiliate" is defined in 24 C.F.R. 200.215, or any successor regulation.
(b) "Bankruptcy Proceeding" means any bankruptcy, reorganization,
insolvency, composition, restructuring, dissolution, liquidation, receivership,
assignment for the benefit of creditors, or custodianship action or proceeding
under any federal or state law with respect to Borrower, any guarantor of any of
the Senior Indebtedness, any of their respective properties, or any of their
respective partners, members, officers, directors, or shareholders.
(c) "Borrower" means all entities identified as "Borrower" in the first
paragraph of this Agreement, together with any successors, heirs, and assigns
(jointly and severally). Borrower shall include any entity taking title to the
Mortgaged Property, whether or not such entity assumes the Senior Note,
provided that the term "Borrower" shall not include Senior Lender in the event
that Senior Lender may acquire title to the Mortgaged Property. Whenever the
term “Borrower” is used herein, the same shall be deemed to include the obligor
of the debt secured by the Senior Security Instrument.
(d) "Business Day" means any day other than Saturday, Sunday or any
other day on which Senior Lender or HUD is not open for business.
Item 9.c. - Page 5
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Subordination Agreement HUD-92420M (06/14)
(e) "City" means the Entity named as such in the first paragraph on page
1 of this Agreement.
(f) "Covenant Event of Default" is defined in the Senior Security
Instrument.
(g) "Entity" means an estate, trust, partnership, corporation, limited liability
company, limited liability partnership, governmental department or agency or any
other entity which has the legal capacity to own property.
(h) "Monetary Event of Default" is defined in the Senior Security
Instrument.
(i) "Non-Project Sources" means any funds that are not derived from
Project Sources.
(j) "Project Sources" means the Mortgaged Property (as defined in the
Senior Security Instrument), any proceeds of the Senior loan, and any reserve or
deposit made with Senior Lender or any other party as required by HUD in
connection with the Senior loan.
(k) “Senior Covenants” means those covenants set forth in Section 5.27
of the AHA and Article II, Section 2 of the City Regulatory Agreement and
acknowledged as senior to the Senior Indebtedness in the RCSA.
(l) "Senior Indebtedness" means all present and future indebtedness,
obligations, and liabilities of Borrower to Senior Lender under or in connection
with the Senior loan or Senior Loan Documents.
(m) "Senior Lender" means the Entity named as such in the first
paragraph on page 1 of this Agreement, its successors and assigns.
(n) "Senior Loan Documents" means the Senior Note, the Senior
Security Instrument, and the Regulatory Agreement between Borrower and HUD,
as such documents may be amended from time to time and all other documents
at any time evidencing, securing, guaranteeing, or otherwise delivered in
connection with the Senior Indebtedness.
(o) "Senior Security Instrument Default" means a "Monetary Event of
Default" or a "Covenant Event of Default" as defined in the Senior Security
Instrument.
(p) "Subordinate Deed of Trust " means the Subordinate Deed of Trust
securing performance of the Subordinate Obligations.
(q) "Subordinate Deed of Trust Default" means any act, failure to act,
event, conditions, or occurrence which allows (but for any contrary provision of
this Agreement), or which with the giving of notice or the passage of time, or
both, would allow (but for any contrary provision of this Agreement), City to take
a Subordinate Deed of Trust Enforcement Action.
(r) "Subordinate Deed of Trust Enforcement Action" means the
advertising of or commencement of any foreclosure or trustee’s sale
proceedings, the exercise of any power of sale, the acceptance of a deed or
assignment in lieu of foreclosure or sale, the collecting of rents, the obtaining of
Item 9.c. - Page 6
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Subordination Agreement HUD-92420M (06/14)
or seeking of the appointment of a receiver, the seeking of default interest, the
taking of possession or control of any of the Mortgaged Property, the
commencement of any suit or other legal, administrative, or arbitration
proceeding based upon the Restrictive Covenants or the Subordinate Deed of
Trust, the exercising of any banker's lien or rights of set-off or recoupment, or the
taking of any other enforcement action against Borrower, any other party liable
for any of the Subordinate Obligations or obligated under the Subordinate Deed
of Trust, or the Mortgaged Property.
(s) "Subordinate Obligations" means all present and future obligations
and liabilities of Borrower to City under or in connection with the Subordinate
Deed of Trust or the Restrictive Covenants.
(t) "Surplus Cash" is defined herein to mean the same as that term is
defined in the Regulatory Agreement between Borrower and HUD.
2. Permission to Allow Mortgage Lien Against Mortgaged Property.
Senior Lender agrees, subject to the provisions of this Agreement, to the
Subordinate Deed of Trust against the Mortgaged Property (which is subordinate in all
respects to the lien of the Senior Security Instrument) to secure Borrower's performance
obligations to City and Agency under and in connection with the Restrictive Covenants.
Such permission is subject to the condition that each of the representations and warranties
made by Borrower and City in Section 3 are true and correct on the date of this
Agreement. If any of the representations and warranties made by Borrower and City in
Section 3 are not true and correct on the date of this Agreement, the provisions of the
Senior Loan Documents applicable to unpermitted liens on the Mortgaged Property shall
apply.
3. Borrower's and City's Representations and Warranties.
Borrower and, with respect to subsections (a) through (d) below, City each make
the following representations and warranties to Senior Lender:
(a) Relationship of Borrower to City. City is not an Affiliate of
Borrower.
(b) Senior Loan Documents. The executed Senior Loan Documents
are the same forms as approved by HUD prior to the date of this Agreement. Upon
execution and delivery of the Senior Loan Documents, Borrower shall deliver to City
an executed copy of each of the Senior Loan Documents, certified to be true,
correct and complete.
4. Deliveries.
Borrower shall submit the following items to Senior Lender and HUD.
(a) Title Evidence. Evidence of title (title policy or title policy
endorsement, as appropriate) insuring the lien of the Senior Security Instrument
which insures that (i) the lien of the Subordinate Deed of Trust is subordinate to
Item 9.c. - Page 7
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Subordination Agreement HUD-92420M (06/14)
the lien of the Senior Mortgage, and (ii) this Agreement has been recorded
among the applicable land records.
5. Terms of Subordination.
(a) Agreement to Subordinate. Senior Lender and City agree that the
Subordinate Deed of Trust is and shall be subject and subordinate in all respects to
the liens, terms, covenants and conditions of the Senior Security Instrument and
the other Senior Loan Documents and to all advances heretofore made or which
may hereafter be made pursuant to the Senior Security Instrument and the other
Senior Loan Documents (including but not limited to, all sums advanced for the
purposes of (1) protecting or further securing the lien of the Senior Security
Instrument, curing defaults by Borrower under the Senior Loan Documents or for
any other purpose expressly permitted by the Senior Security Instrument, or (2)
constructing, renovating, repairing, furnishing, fixturing or equipping the Mortgaged
Property). City agrees to extinguish and release its lien on any and all Mortgaged
Property in the event Senior Lender, HUD, or a designee of either acquires title to
the Mortgaged Property pursuant to a deed in lieu of foreclosure Notwithstanding
anything to the contrary in this Agreement, this Agreement does not affect the City
or the Agency’s rights under the Restrictive Covenants, subject to the terms and
conditions of the RCSA, to enforce the Senior Covenants.
(b) Subordination of Subrogation Rights. City agrees that if, by
reason of its payment of real estate taxes or other monetary obligations of
Borrower, or by reason of its exercise of any other right or remedy under the
Subordinate Deed of Trust, it acquires by right of subrogation or otherwise a lien on
the Mortgaged Property which (but for this subsection) would be senior to the lien of
the Senior Security Instrument, then, in that event, such lien shall be subject and
subordinate to the lien of the Senior Security Instrument.
(c) Payments After Senior Security Instrument Default. Borrower
agrees that, after it receives notice (or otherwise acquires knowledge) of a Senior
Security Instrument Default, it will not make any payments under or pursuant to the
Subordinate Deed of Trust or Restrictive Covenants (including but not limited to
principal, interest, additional interest, late payment charges, default interest,
attorney's fees, or any other sums secured by the Subordinate Deed of Trust)
without Senior Lender's prior written consent. City agrees that, after it receives a
default notice from Senior Lender with written instructions directing City not to
accept payments from Project Sources, it will not accept any payments under or
pursuant to the Subordinate Deed of Trust or the Restrictive Covenants (including
but not limited to principal, interest, additional interest, late payment charges,
default interest, attorney's fees, or any other sums secured by the Subordinate
Deed of Trust) unless either (i) such payment is being made solely from Non-
Project Sources or (ii) such payment is made with Senior Lender's prior written
consent. If City receives written notice from Senior Lender that the Senior Security
Instrument Default which gave rise to City's obligation not to accept payments has
Item 9.c. - Page 8
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Subordination Agreement HUD-92420M (06/14)
been cured, waived, or otherwise suspended by Senior Lender, the restrictions on
payment to City in this Section 5 shall terminate, and Senior Lender shall have no
right to any subsequent payments made to City by Borrower prior to City's receipt of
a new default notice from Senior Lender in accordance with the provisions of this
Section 5(c).
(d) Remitting Payments to Senior Lender. If, after City receives a
default notice from Senior Lender in accordance with subsection (d) above, City
receives any payments under the Subordinate Deed of Trust or Restrictive
Covenants (other than payments permitted under subsection (c) above), City
agrees that such payment or other distribution will be received and held in trust for
Senior Lender and unless Senior Lender otherwise notifies City in writing, will be
promptly remitted, in kind to Senior Lender, properly endorsed to Senior Lender, to
be applied to the principal of, interest on and other amounts due under the Senior
Loan Documents in accordance with the provisions of the Senior Loan Documents.
By executing this Agreement, Borrower specifically authorizes City to endorse and
remit any such payments to Senior Lender, and specifically waives any and all
rights to have such payments returned to Borrower or credited. Borrower and
Senior Lender acknowledge and agree that payments received by City, and
remitted to Senior Lender under this Section 5, shall not be applied or otherwise
credited, nor shall the tender of such payment to Senior Lender waive any
Subordinate Deed of Trust Default which may arise from the inability of City to
retain such payment or apply such payment.
(e) Agreement Not to Commence Bankruptcy Proceeding. City
agrees that during the term of this Agreement it will not commence, or join with any
other creditor in commencing any Bankruptcy Proceeding with respect to Borrower,
without Senior Lender's prior written consent.
6. Default Under Subordinate Deed of Trust and Restrictive Covenants.
(a) Notice of Default and Cure Rights. City shall deliver to Senior
Lender a default notice within five Business Days in each case where City has
given a default notice to Borrower. Failure of City to send a default notice to Senior
Lender shall not prevent the exercise of City's rights and remedies under the
Subordinate Deed of Trust or Restrictive Covenants, subject to the provisions of
this Agreement and the RCSA. Senior Lender shall have the opportunity, but not
the obligation, to cure any Subordinate Deed of Trust Default within 60 days
following the date of such notice; provided, however that City shall be entitled,
during such 60-day period, to continue to pursue its rights and remedies under the
Subordinate Deed of Trust or Restrictive Covenants, subject to the limitations set
forth in Section 6(b) below and the RCSA.
(b) City's Exercise of Remedies After Notice to Senior Lender. If a
Subordinate Deed of Trust Default occurs and is continuing, City agrees that it will
not commence foreclosure proceedings with respect to the Mortgaged Property
under the Subordinate Deed of Trust or exercise any other rights or remedies it
may have under the Subordinate Deed of Trust or Restrictive Covenants with
Item 9.c. - Page 9
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Subordination Agreement HUD-92420M (06/14)
respect to the Mortgaged Property, including, but not limited to foreclosing upon the
Subordinate Deed of Trust, collecting rents, appointing (or seeking the appointment
of) a receiver or exercising any other rights or remedies thereunder without Senior
Lender’s prior written consent. However, the preceding sentence shall not (i) limit
City’s right to bring an action seeking recovery solely from Non-Project Sources or
(ii) preclude City from exercising or enforcing all the rights available to City under
the Subordinate Deed of Trust or Restrictive Covenants and/or under applicable
law to enforce covenants and agreements of Borrower relating to income, rent or
affordability restrictions.
7. Default Under Senior Loan Documents.
(a) Notice of Default and Cure Rights. Senior Lender shall deliver to
City a default notice within five Business Days in each case where Senior Lender
has given a default notice to Borrower (provided that Senior Lender shall have no
liability to Borrower, City or to any other Entity for failure to timely give such notice).
Failure of Senior Lender to send a default notice to City shall not prevent the
exercise of Senior Lender’s right and remedies under the Senior Loan Documents,
subject to the provisions of this Agreement. Borrower agrees that City shall have
the opportunity, but not the obligation, to cure either a Monetary Event of Default or
a Covenant Event of Default within 30 days following the date of such notice, or any
time prior to an assignment of the Senior Security Instrument from Senior Lender to
HUD, whichever date is later. City acknowledges that Senior Lender shall be
entitled during such period described above to continue to pursue its remedies
under the Senior Loan Documents. City shall have the opportunity to cure a
Covenant Event of Default during such period described above so long as there is
no Monetary Event of Default under the Senior Loan Documents. All amounts paid
by City to Senior Lender to cure any default under the Senior Loan Documents
shall be deemed to have been advanced by City pursuant to, and shall be secured
by the lien of, the Subordinate Deed of Trust.
(b) Cross Default. City agrees that, notwithstanding any contrary
provision contained in the Subordinate Deed of Trust Documents, a Senior Security
Instrument Default shall not constitute a default under the Subordinate Deed of
Trust if no other default occurred under the Subordinate Deed of Trust or
Restrictive Covenants.
8. Conflict.
Borrower, Senior Lender and City each agrees that, in the event of any conflict or
inconsistency between the terms of the Senior Loan Documents, the Subordinate Deed of
Trust , Restrictive Covenants and the terms of this Agreement, the terms of this
Agreement shall govern and control solely as to the following: (a) the relative priority of the
security interests of Senior Lender and City in the Mortgaged Property; and (b) solely as
between Senior Lender and City, the notice requirements, cure rights, and the other rights
and obligations which Senior Lender and City have agreed to as expressly provided in this
Agreement. Borrower acknowledges that the terms and provisions of this Agreement shall
not, and shall not be deemed to: extend Borrower's time to cure any Senior Security
Item 9.c. - Page 10
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Subordination Agreement HUD-92420M (06/14)
Instrument Default or Subordinate Deed of Trust Default, as the case may be; give
Borrower the right to notice of any Senior Security Instrument Default or Subordinate Deed
of Trust Default, as the case may be other than that, if any, provided, respectively under
the Senior Loan Documents or the Subordinate Deed of Trust or Restrictive Covenants, as
applicable; or create any other right or benefit for Borrower as against Senior Lender or
City.
9. Rights and Obligations of City under the Subordinate Deed of Trust
and Restrictive Covenants and of Senior Lender under the Senior Loan Documents.
Subject to each of the other terms of this Agreement, all of the following provisions
shall supersede any provisions of the Subordinate Deed of Trust and Restrictive
Covenants, covering the same subject matter:
(a) Protection of Security Interest. City shall not, without the prior
written consent of Senior Lender in each instance, take any action which has the
effect of increasing the obligations under, or secured by, the Subordinate Deed of
Trust or Restrictive Covenants, except that City shall have the right to advance
funds to cure Senior Security Instrument Defaults pursuant to Section 7(a) above
and advance funds pursuant to the Subordinate Deed of Trust for the purpose of
paying real estate taxes and insurance premiums, making necessary repairs to the
Mortgaged Property and curing other defaults by Borrower under the Subordinate
Deed of Trust or Restrictive Covenants.
(b) Condemnation or Casualty. In the event of: a taking or threatened
taking by condemnation or other exercise of eminent domain of all or a portion of
the Mortgaged Property (collectively, a "Taking"); or the occurrence of a fire or other
casualty resulting in damage to all or a portion of the Mortgaged Property (collec-
tively, a "Casualty"), at any time or times when the Senior Security Instrument
remains a lien on the Mortgaged Property the following provisions shall apply:
(1) City hereby agrees that its rights (under the Subordinate Deed
of Trust , Restrictive Covenants or otherwise) to participate in any
proceeding or action relating to a Taking and/or a Casualty, or to participate
or join in any settlement of, or to adjust, any claims resulting from a Taking
or a Casualty shall be and remain subordinate in all respects to Senior
Lender's rights under the Senior Loan Documents with respect thereto, and
City shall be bound by any settlement or adjustment of a claim resulting from
a Taking or a Casualty made by or with the written consent of Senior
Lender; and
(2) all proceeds received or to be received on account of a Taking
or a Casualty, or both, shall be applied (to payment of the costs and
expenses of repair and restoration and/or to payment of the Senior Security
Instrument) in the manner determined by Senior Lender in its sole discretion.
(c) No Modification of Subordinate Deed of Trust or Restrictive
Covenants. Borrower and City each agrees that, until the principal of, interest on
Item 9.c. - Page 11
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Subordination Agreement HUD-92420M (06/14)
and all other amounts payable under the Senior Loan Documents have been paid
in full, it will not, without the prior written consent of Senior Lender in each instance,
increase the required payments, if any, due under the Subordinate Deed of Trust or
Restrictive Covenants, or otherwise amend the Subordinate Deed of Trust’s or
Restrictive Covenants’ terms in a manner that creates an adverse effect upon
Senior Lender under the Senior Loan Documents. Any unauthorized amendment
of the Subordinate Deed of Trust or Restrictive Covenants without Senior Lender's
consent shall be void ab initio and of no effect whatsoever.
10. Modification of Senior Loan Documents; Refinancing of Senior
Indebtedness.
City consents to any agreement or arrangement in which Senior Lender waives,
postpones, extends, reduces or modifies any provisions of the Senior Loan Documents,
including any provision requiring the payment of money, provided however, there shall be
no modification of the Senior Loan Documents without the consent of the City if such
modification would increase the principal amount of the Senior Indebtedness beyond the
original principal amount of the Senior Indebtedness (excluding any amounts having been
advanced by Senior Lender for the protection of its security interest pursuant to the Senior
Loan Documents), increase the interest rate of the Senior Indebtedness, or decrease the
original maturity term of the Senior Indebtedness.
City further agrees that its agreement to subordinate hereunder shall extend to any
new mortgage debt which is for the purpose of refinancing all or any part of the Senior
Indebtedness in accordance with Program Obligations (including reasonable and
necessary costs associated with the closing and/or the refinancing); and that all the terms
and covenants of this Agreement shall inure to the benefit of any holder of any such
refinanced debt; and that all references to the Senior Indebtedness, the Senior Note, the
Senior Security Instrument, the Senior Loan Documents and Senior Lender shall mean,
respectively, the indebtedness related to the refinance loan, the refinance note, the
security instrument securing the refinance note, all documents evidencing, securing or
otherwise pertaining to the refinance note and the holder of the refinance note.
11. Default by City or Senior Lender.
If City or Senior Lender defaults in performing or observing any of the terms,
covenants or conditions to be performed or observed by it under this Agreement, the
other, non-defaulting Lender shall have the right to all available legal and equitable relief.
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Subordination Agreement HUD-92420M (06/14)
12. Notices.
Each notice, request, demand, consent, approval or other communication
(hereinafter in this Section referred to collectively as "notices" and referred to singly as a
"notice") which Senior Lender or City is required or permitted to give to the other party
pursuant to this Agreement shall be in writing and shall be deemed to have been duly and
sufficiently given if: (a) personally delivered with proof of delivery thereof (any notice so
delivered shall be deemed to have been received at the time so delivered); or (b) sent by
Federal Express (or other similar national overnight courier) designating next Business
Day delivery (any notice so delivered shall be deemed to have been received on the next
Business Day following receipt by the courier); or (c) sent by United States registered or
certified mail, return receipt requested, postage prepaid, at a post office regularly
maintained by the United States Postal Service (any notice so sent shall be deemed to
have been received two Business Days after mailing in the United States), addressed to
the respective parties as follows:
SENIOR LENDER:
RED MORTGAGE CAPITAL, LLC
1717 Main Street, Suite 900
Dallas, Texas 75201, Attn:
Attention: FHA Loan Servicing
With a copy to:
U.S. Department of Housing and Urban Development
Director - Office of Multifamily Asset Management
Room 6160
451 Seventh Street, S.W.
Washington, DC 20410
CITY:
City of Arroyo Grande
300 East Branch Street
Arroyo Grande, California 93420
Attention: City Manager
Either party may, by notice given pursuant to this Section, change the person or persons
and/or address or addresses, or designate an additional person or persons or an
additional address or addresses for its notices, but notice of a change of address shall only
be effective upon receipt.
Item 9.c. - Page 13
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Subordination Agreement HUD-92420M (06/14)
13. General.
(a) Assignment/Successors. This Agreement shall be binding upon
Borrower, Senior Lender and City and shall inure to the benefit of the respective
legal successors and assigns of Senior Lender and City.
(b) No Partnership or Joint Venture. Senior Lender's consent to the
Subordinate Deed of Trust and Restrictive Covenants does not constitute Senior
Lender as a joint venturer or partner of City. Neither party hereto shall hold itself
out as a partner, agent or Affiliate of any other party hereto.
(c) Senior Lender's and City's Consent. Wherever Senior Lender's
consent or approval is required by any provision of this Agreement, such consent or
approval may be granted or denied by Senior Lender in its sole and absolute
discretion, unless otherwise expressly provided in this Agreement. Wherever City's
consent or approval is required by any provision of this Agreement, such consent or
approval may be granted or denied by City in its sole and absolute discretion,
unless otherwise expressly provided in this Agreement.
(d) Further Assurances; UCC Financing Statements. City, Senior
Lender and Borrower each agree, at Borrower's expense, to execute and deliver all
additional instruments and/or documents reasonably required by any other party to
this Agreement in order to evidence that the Subordinate Deed of Trust is
subordinate to the lien, covenants and conditions of the Senior Loan Documents, or
to further evidence the intent of this Agreement. Senior Lender is hereby
authorized to file any and all UCC financing statement amendments required to
reflect the priority of the Senior Indebtedness.
(e) Amendment. This Agreement shall not be amended except by
written instrument signed by all parties hereto.
(f) Governing Law. This Agreement shall be governed by the laws of
the State in which the Mortgaged Property is located, except as, so long as the
Senior loan is insured or held by HUD, and solely as to rights and remedies of
HUD, federal jurisdiction may be appropriate pursuant to any federal
requirements. The State courts, and with respect to HUD’s rights and remedies,
federal courts, and governmental authorities in the State in which the Mortgaged
Property is located, shall have exclusive jurisdiction over all controversies which
shall arise under or in relation to the Subordinate Deed of Trust or Restrictive
Covenants. Borrower irrevocably consents to service, jurisdiction, and venue of
such courts for any such litigation and waives any other venue to which it might
be entitled by virtue of domicile, habitual residence or otherwise.
(g) Severable Provisions. If any provision of this Agreement shall be
invalid or unenforceable to any extent, then the other provisions of this Agreement
shall not be affected thereby and shall be enforced to the greatest extent permitted
by law.
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Subordination Agreement HUD-92420M (06/14)
(h) Term. The term of this Agreement shall commence on the date
hereof and shall continue until the earliest to occur of the following events: (i) the
payment of all of the principal of, interest on and other amounts payable under the
Senior Loan Documents; (ii) the acquisition by Senior Lender of title to the
Mortgaged Property pursuant to a foreclosure; or (iii) the acquisition by City of title
to the Mortgaged Property pursuant to a foreclosure or a deed in lieu of foreclosure
of, or the exercise of a power of sale contained in, the Subordinate Mortgage, but
only if such acquisition of title does not violate any of the terms of this Agreement.
Notwithstanding the foregoing, in the event the Senior Indebtedness is refinanced,
the term of this Agreement shall continue and the Subordinate Obligations,
Subordinate Deed of Trust, and Restrictive Covenants (with the exception of the
Senior Covenants) shall be subordinate to any such indebtedness related to the
refinance loan as provided in Section 10 above.
(i) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be considered an original for all purposes;
provided, however, that all such counterparts shall together constitute one and the
same instrument.
Each signatory below hereby certifies that each of their statements and
representations contained in this Agreement and all their supporting documentation
thereto are true, accurate, and complete. This Agreement has been made, presented,
and delivered for the purpose of influencing an official action of HUD in insuring the
Loan, and may be relied upon by HUD as a true statement of the facts contained
therein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
[SIGNATURES FOLLOW ON THE NEXT PAGE]
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Subordination Agreement HUD-92420M (06/14)
SENIOR LENDER:
RED MORTGAGE CAPITAL, LLC
a Delaware limited liability company
By: _____________________________
Jeffrey N. Leeth
Director
ACKNOWLEDGEMENT
STATE OF OHIO )
) SS:
COUNTY OF FRANKLIN )
On the _______ day of April, 2018, before me, the undersigned, personally
appeared Jeffrey N. Leeth, Director of Red Mortgage Capital, LLC, a Delaware limited
liability company, personally known to me or proved to me on the basis of satisfactory
evidence to be the individual whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his capacity, and that by his
signature on the instrument, the individual or the person upon behalf of which the
individual acted, executed the instrument.
___________________________________
Notary Public
[SEAL]
My Commission Expires: ___________________
[SIGNATURES FOLLOW ON THE NEXT PAGE]
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Subordination Agreement HUD-92420M (06/14)
CITY:
CITY OF ARROYO GRANDE,
a municipal corporation
By: __________________________
James A. Bergman
City Manager
A notary public or other officer completing this certificate verifies only the
identity of the individual who signed the document to which this certificate
is attached, and not the truthfulness, accuracy, or validity of that
document.
State of California
County of San Luis Obispo
)
)
)
On ____________________, before me, ____________________, notary public,
personally appeared ______________________, who proved to me on the basis of
satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within
instrument and acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies) and that by his/her/their signature(s) on the instrument the
person(s), or the entity upon behalf of which the person(s) acted, executed the
instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the
foregoing paragraph is true and correct.
WITNESS my hand and official seal.
(Notary Signature) (Seal)
[SIGNATURES FOLLOW ON THE NEXT PAGE]
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Subordination Agreement HUD-92420M (06/14)
BORROWER:
COURTLAND-ARROYO GRANDE, L.P.
a California limited partnership
By: Foundation for Affordable Housing, Inc.
a California corporation
its General Partner
By: __________________________
Thomas E. Willard
President
By: MFPA, Inc.
a California corporation
its General Partner
By: __________________________
Sean Clark
Vice-President
A notary public or other officer completing this certificate verifies only the
identity of the individual who signed the document to which this certificate
is attached, and not the truthfulness, accuracy, or validity of that
document.
State of California
County of San Luis Obispo
)
)
)
On ____________________, before me, ____________________, notary public,
personally appeared ______________________, who proved to me on the basis of
satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within
instrument and acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies) and that by his/her/their signature(s) on the instrument the
person(s), or the entity upon behalf of which the person(s) acted, executed the
instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the
foregoing paragraph is true and correct.
WITNESS my hand and official seal.
(Notary Signature) (Seal)
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Subordination Agreement HUD-92420M (06/14)
Warning:
Any person who knowingly presents a false, fictitious, or fraudulent
statement or claim in a matter within the jurisdiction of the U.S.
Department of Housing and Urban Development is subject to criminal
penalties, civil liability, and administrative sanctions.
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Subordination Agreement HUD-92420M (06/14)
SCHEDULE A
1. Note (Multistate) executed by Borrower to Senior Lender in the original principal amount
of $7,900,200.00 dated as of March 1, 2018.
2. Multifamily Deed of Trust, Assignment of Rents and Security Agreement (“Security
Instrument”) dated as of March 1, 2018, and recorded in the Recorder’s Office of San Luis
Obispo County, California (“Records”) on March 14, 2018 as Document Number
2018010000.
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Subordination Agreement HUD-92420M (06/14)
Exhibit A
Legal Description
Real property in the City of Arroyo Grande, County of San Luis Obispo, State of
California, described as follows:
PARCEL 1:
PARCEL 1 AS SHOWN ON CERTIFICATE OF COMPLIANCE FOR LOT LINE
ADJUSTMENT, AS EVIDENCED BY DOCUMENT RECORDED NOVEMBER 27, 2002
AS INSTRUMENT NO. 2002-104331 OF OFFICIAL RECORDS, BEING MORE
PARTICULARLY DESCRIBED AS FOLLOWS :
ALL OF THAT REAL PROPERTY DESCRIBED IN THE DEED FROM PHILLIPS-
SMITH INVESTMENT COMPANY TO ROBERT H. NEWDOLL AND MERILEE PECK
NEWDOLL RECORDED APRIL 5, 1990 IN VOLUME 3484 OF OFFICIAL RECORDS
AT PAGE 59 IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
EXCEPTING THEREFROM THE SOUTHERLY 231.84 FEET, AS MEASURED ALONG
THE EASTERLY AND WESTERLY SIDELINES OF THE PROPERTY DESCRIBED AS
PARCEL 2 IN SAID DEED.
PARCEL 2:
EASEMENTS FOR SEWER, WATER LINES, STORM DRAINS, UTILITY
MAINTENANCE, RETAINING WALL AND CONSTRUCTION AS SET FORTH IN THAT
CERTAIN DECLARATION OF DEVELOPMENT COVENANTS, CONDITIONS AND
RESTRICTIONS AND GRANT OF EASEMENTS RECORDED DECEMBER 8, 2002 AS
INSTRUMENT NO. 2002-107107, AS AMENDED BY FIRST AMENDMENT THERETO
RECORDED FEBRUARY 2, 2003 AS INSTRUMENT NO. 2003-016695, BOTH OF
OFFICIAL RECORDS.
APN: 077-071-029
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