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Questions continue to swirl around Westwind mortgage documents

WILLMAR -- Questions continue to swirl around documents that a developer says are needed to receive a state grant for the Westwind Estates affordable housing project.

A majority of Willmar City Council members say they need clarification of the name of the mortgagor on the Westwind mortgage and promissory note before they can approve the documents.

The documents are tied to a $350,000 state grant that Westwind developer Southwest Minnesota Housing Partnership will receive to help build the $6 million project in southwest Willmar. Council approval is needed before the grant from the Minnesota Department of Employment and Economic Development can be passed through from the city to the developer.

In June 2008, the city signed an agreement with DEED to pass the grant through; however, the developer won't receive the money until construction of the houses begins, according to City Administrator Michael Schmit. He said the developer paid cash for initial street and underground utility work that was done last fall.

The council voted 5-3 Tuesday night and defeated a motion to approve the documents. Voting against approval of the documents were Tim Johnson, Ron Christianson, Jim Dokken, Steve Ahmann and Rick Fagerlie. Voting in favor were Denis Anderson, Doug Reese and Bruce DeBlieck.

The documents were first considered by the council on Nov. 17, 2008, but members delayed action after City Attorney Rich Ronning said numerous issues needed to be reviewed.

Discussion resumed Tuesday night after Schmit said Ronning was satisfied with the changes made in the mortgage and promissory note.

A letter from a Westwind attorney with Faegre & Benson of Minneapolis addressed Ronning's concerns. Among those, the letter said the correct name of the mortgagor is Westwind Estates Townhomes Limited Partnership.

Reese offered a motion, seconded by Anderson, to approve the documents.

Johnson said he had some reservations about the completeness of the legal work stated in the attorney's letter, including the mortgagor's name. Although the attorney's letter corrected the name, Johnson said, it was unclear from the letter and looking at a copy of the application for tax credits who was entitled to the tax credits.

The tax credits to which Johnson referred were created by federal law in 1986 and provide incentives to use private money in the development of affordable housing.

"It appears to me (the credits) were granted to Westwind Townhomes Limited Partnership and yet they are not the fee owner of the property and they are not the proposed signer of the promissory note,'' Johnson said. "I think the situation is up in the air. We don't know who we're dealing with. Until that's clarified, I don't think we should take any action.''

The attorney, Angela Christy, said she would follow up as to whether the Minnesota Housing Finance Agency required changes in the grant application.

"If they do what they say they're going to do and transfer the real estate into the name of the mortgagor (the partnership), then it's covered,'' said Ronning. "Faegre & Benson is the largest law firm in the state of Minnesota. I have confidence they're going to do what they say they're going to do. If they don't, we can react accordingly.''

Christianson said the council doesn't know who owns the property or who the council is dealing with "and I am uncomfortable approving it. The whole process is flawed from the beginning.''

Ahmann asked how the council could approve an agreement when "we don't know who we're dealing with. They have two or three different names. How can we clarify that tonight?''

Ronning said the developer set up a variety of entities for tax purposes, but he thought the principals with which the city has been dealing remain the same.

Mayor Les Heitke said the developer, Southwest Minnesota Housing Partnership, has been around for many years and built thousands of homes around the state.

He wondered if some council comments were based more on the antagonism felt in the neighborhood near the project rather than on broad-based legal concerns.

"They met all the city's criteria like other developers,'' Heitke said. "I wonder if this is more of a delaying tactic than a solid argument against this project going ahead. Willmar seems to be aggressive in trying to defeat this project.''

Anderson said the city is merely acting as a pass-through agency. "We're not encumbering anything,'' he said. "It almost seems like a big to-do about nothing. Everything will be taken care in the end. It's been a tough issue for us. But we just need to move on.''

After the vote was taken, Heitke clarified that the council wants the "legal stuff cleared up'' by Ronning and returned to the council.

In an interview Wednesday afternoon, Ronning said the partnership has decided to "get everything all done'' and return to the council before the mortgage is closed.

"Then if the council wants to know something or see something, it will all be in black and white for them,'' Ronning said.