Rawlinses, city reach agreement

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rawlins-settlement

By CRAIG MURPHY
Of the Keizertimes

A key chapter in an ongoing saga involving property in Keizer Station is reaching an end.

What a chapter it’s been.

At Monday’s Urban Renewal Agency meeting – and again later at the Keizer City Council meeting – a settlement agreement between the city and two Rawlins entities was approved. In both cases, councilors Dennis Koho and Jim Taylor abstained due to conflicts of interest.

A follow-up special public hearing was scheduled for Thursday, March 6.

Councilors had little to say Monday during either meeting. Mayor Lore Christopher and councilor Marlene Quinn both indicated more would be said on Thursday.

The saga between the city and the two Rawlins parcels in Keizer Station Area A dates back to 2005. After local improvement district (LID) fees were assessed in 2008, developer Chuck Sides via his Northwest National LLC company paid monthly rent to the Rawlinses as well as making their LID payments to the city.

Those LID payments stopped in 2010. Three years later, city leaders started the foreclosure process on the properties. The matter was discussed several times in executive sessions, including twice last month. Legislators – particularly Rep. Brian Clem – got involved and a summary judgement in Marion County Circuit Court was expected on March 10.

Assuming the final agreement is signed off on Thursday, city attorney Shannon Johnson said there will be no summary judgment.

While councilors had little to say in regard to the issue Monday, Johnson gave a brief description during the urban renewal meeting.

“This is a resolution with the two Rawlins entities,” he said. “We have been successful and last week we reached a tentative settlement agreement with them and fine tuned the language. I got word this afternoon all the Rawlins parties have signed the agreement.”

The settlement includes six conditions: the Rawlinses stipulate to a judgment of foreclosure for each parcel in the amounts claimed by the city; the two sides grant mutual releases of all other claims; the Rawlinses have the option of purchasing the property back from the city at least 13 months after the expiration of the redemption period (the sheriff’s sale); the city will convey the property by bargain and sale deed; either side will be allowed to pursue Sides for the lease default and finally there are mutual non-disparagement clauses.

“Staff feels that this is an appropriate settlement of the matter and a way to move forward to end the litigation,” Johnson said.

The option for the Rawlinses to buy back the property comes with a price. Between 13 and 16 months after the the sheriff’s sale, they can purchase the properties back for $3 million. After 17 to 25 months, the price increases to $3.5 million. The price increases $500,000 per year the next three years, capping at $5 million after 50 to 60 months.

The only real discussion during the council meeting once again came from Johnson, in regards to questions from citizen Bill Quinn.

“Not being a lawyer, I can’t figure it out,” Quinn said. “I hope you can explain it. The city will foreclose, buy it, then sell it back to the Rawlinses? Are we still stuck with paying the assessment? What is our liability?”

Johnson said there are two separate sets of debt: one that the city owes to the bondholders, which repays the loan used to build all the infrastructure at Keizer Station. The second debt is from the property owners and the LID to the city.

“We have never even been close to defaulting on the city’s obligation,” Johnson said. “Even though the money we’ve gotten in has been substantially less than we planned on, it was set to allow for this type of situation to avoid a default. We have not defaulted. That’s the really good news. The bad news though is we haven’t able to stay on the model of making principal bond calls. Consequently, the interest costs keep accruing.”

In terms of the city’s liability, Johnson noted action taken is reducing that.

“The liability if we don’t do anything is really great,” he said. “If we do the settlement with the Rawlinses we’re going to avoid significant additional attorney fees and significant interest costs. By being able to go ahead and foreclose and then use funds to pay down the bonds, by doing that the Rawlinses have the right – and it ratchets up half a million dollars a year roughly each year, starting at $3 million at the end of year one – to purchase it from the city.

“We feel that we’re not going to be in a position, even if we foreclose and everything went smoothly, that we’d end up with any more money than that,” Johnson added.

After the meeting, Johnson gave the Keizertimes more details about the finances and the process. He said there’s “not a specific period of time” for the sheriff’s sale timeline. The stipulated judgment won’t be entered until after Thursday’s special hearing, which would formally cancel the summary judgment that was due next week.

Johnson said someone else could bid against the city for the property, but the city “is obligated under the settlement agreement to bid the full amount of the amount of its lien,” an amount that is more than $7 million with interest.

Johnson noted the city will be doing a combination credit bid and cash bid.

Susan Gahlsdorf, Finance director for Keizer, gave the Keizertimes further details on Tuesday.

“The city plans to cash bid about $4 million on the Rawlins properties and credit bid the remaining $3 million,” Gahlsdorf said. “The city doesn’t have $7 million in cash to pay for these properties; it only has about $4 million and $4 million is what is needed to bring the city’s debt in line with its pay off schedule.”

The process is somewhat similar to the process from October 2012 in which the city bid $680,000 for Tract C property in Keizer Station. In that case, Gahlsdorf said the city used a cash bid since the amount was much smaller than in the Rawlins case.

Gahlsdorf said city leaders are hoping to call the bonds with foreclosure proceeds totaling $4 million on June 1. If that is pushed back to the optional redemption date in 2018, there would be an additional $800,000 in interest expense.

According to Gahlsdorf, the city’s interest payments are due every six months.

“Future payment amounts won’t change,” she said. “However, due to the foreclosure proceedings being used to call bonds, the portion applied to principal will increase. This will greatly reduce the city’s interest expense over the life of its debt and money won’t be owed at the end of 2031 when the final bond payment is due.”

Gahlsdorf said assessment payments made to the city to date for the Rawlinses properties came from Northwest National LLC or were paid through a title company.

“The amount still owed on the Rawlins properties is approximately $7 million; the amount collected to date is $1,234,523,” she said.

Gahlsdorf noted foreclosure change the LID assessments owed.

“Once the city forecloses on a property, there is no longer any LID assessment owed,” she said. “If the previous owners want the property back, they have to buy it from the city.”

Attempts to reach the Rawlinses’ attorney on Tuesday were unsuccessful.

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