State lender takes step toward foreclosing on affordable housing complex Fox Run in Fraser
August 25, 2009
Fraser, Colorado – An affordable housing complex in Fraser, Fox Run, is in pending foreclosure.
Although only a second loan in the amount of $218,000 is so far listed in Grand County records, Tom Hemmings, chief financial officer of the project’s lender, the Colorado Housing and Finance Authority, confirmed on Wednesday, Aug. 19, that the Authority plans to foreclose on all principal amounts loaned.
In 2003, Fox Run LLLP borrowed $3.89 million from the Colorado Authority to finance the 64-unit apartment complex, according to Authority documents.
The Fox Run partnership owes the unpaid principal balance of more than $3.75 million, according to the Authority.
“CHFA very rarely forecloses on multi-family apartment projects,” Hemmings said. “We worked with the borrower for quite some time to see if there was a way they could continue ownership interest. It was determined there was not.”
Taking ownership of the apartment complex is not entirely out of the Authority’s realm. Created in 1973, it owns four multi-unit affordable-housing complexes in the Denver area.
The Authority was created out of the Colorado Legislature’s attempt to address the shortage of affordable housing in the state. Since then, The Colorado Housing and Finance Authority has been financing single family mortgages for qualifying homebuyers and supporting developments of apartments for low- and moderate-income residents, according to its Web site.
If the Authority acquires Fox Run out of the foreclosure process, there may not be much change in the use of the property, according to Hemmings.
“At this point, we don’t anticipate any change to the affordable aspect of that property,” he said.
Asked if the Authority has designs to sell Fox Run once it acquires it, Hemmings said it is far too early to consider that option.
The Public Trustee sale of the project is scheduled for Sept. 18.
Mold spoils Fox Run finances
Mold issues in the apartment complex contributed to the Fox Run board’s decision to default on payments.
Prior to the discovery of mold in some unit crawl spaces in spring of 2008 – largely due to drainage problems at the 7-year old property – the project was 100 percent occupied. In 2007, it had a vacancy rate of less than 2 percent, according to Fox Run and Grand County Housing Authority executive director Jim Sheehan.
After mold was verified, 24 tenants terminated their leases and moved out.
Costs associated with remediating the mold problem burdened Fox Run finances. Almost $100,000 was spent on mold remediation following its discovery, Sheehan said.
“Certainly mold contributed to it, there’s no question about it,” he said about Fox Run’s potential foreclosure. “Consequently, because the revenues were down, we used those dollars to take care of the mold and not make the debt-service payments.”
In December, Fox Run officials found additional mold in the attic of six units. Remediation took place, and according to Sheehan, the mold is presently at bay.
“We’re aware of the issues,” Hemmings said. “We would address that as responsible owners.”
Housing hit by recession
The recession made Fox Run’s sustained vacancy rate downturn worse.
“In the future there will be a need for more affordable housing. But right now, there’s more inventory out there. Occupancy rates are down right now. Not just with Fox Run, but with the entire rental inventory,” Sheehan said.
In November 2008, the Authority and the Colorado Division of Housing, which granted $582,000 to the project when it was built, helped to bring Fox Run payments current after a long period of Fox Run board pleas for help. But by February, a recession-hit economy undermined refinancing plans, according to Fox Run officials.
A limited partner, with investor of tax credits being the government’s recession-hit Fannie Mae, tried but could not save the project.
On July 29, Fannie Mae made the decision not to provide additional funds for Fox Run, according to a recent memo to towns signed by Fox Run and Grand County board presidents.
Debt to Fraser
Meanwhile, Fox Run defaulted on a $10,600 payment to the Town of Fraser for water taps deferred back when Fox Run was built. The Fox Run partnership still owes the town $74,200, according to Fraser officials. Last Wednesday, Fraser town board members discussed exploring a game plan on how that money might be recouped.
Besides help from the Finance Authority, the Colorado Division of Housing, in-kind excavation from Grand County, land from Winter Park and Fraser, and $106,000-worth of deferred taps for five years from Fraser, the complex was financed with Low Income Housing tax credits, bringing a limited partner – Housing Outreach Fund VIII (ESIC) – in to provide $2.1 million of cash equity contribution for the project’s development.
Created in 1986, the federal tax credit program was created to encourage private investment into the affordable housing industry. The tax credit program requires tenants to meet income limits while at the same time prohibits rents to exceed a maximum level; in effect, limiting revenues at the project, the Fox Run memo states.
Now, the limited partner is at risk of considerable loss in tax credits due to the foreclosure, according to Fox Run board member Peggy Smith.
Fox Run, completed in 2002, has provided housing for more than 800 workforce tenants.
– Tonya Bina can be reached at 970-887-3334 ext. 19603 or e-mail email@example.com.