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Attorney for Westwind project says DEED financing doesn't require approval from Willmar City Council

WILLMAR -- An attorney for the Westwind low-income housing project says Willmar City Council approval is not required for the project to receive a $350,000 state grant as part of its financing package.

The grant was to be passed through from the city to project developer Southwest Minnesota Housing Partnership of Slayton under a cooperative agreement the council approved with the Minnesota Department of Em-ployment and Economic Development in 2008.

The grant was to go to Southwest in the form of a loan that was to be secured by a mortgage between Southwest and the city. The city was to be named along with other lenders on a document called a subordination agreement. The city would have been in fourth place on the agreement.

Last week, a Southwest official asked the council to vote in favor of signing the subordination agreement, but the council voted against signing the agreement.

However, city officials learned Monday that council approval of the subordination agreement is not required because neither the cooperative agreement with DEED nor DEED rules and regulations require the loan to be secured by a mortgage, said City Attorney Rich Ronning.

Accordingly, Ronning said, there will be no mortgage and the city does not have to sign the subordination agreement.

Ronning was informed in a letter Monday by Westwind attorney Angela Christy of Minneapolis who said the mortgage was eliminated because DEED rules do not require the grant to be secured by a mortgage.

Southwest Executive Director Rick Goodemann said Monday his agency will enter into a promissory note instead to secure the funds.

"It would mean we can move forward without suing the city,'' Goodemann said. He said his agency preferred not to sue the city, "and I think the city would prefer as well to move ahead without litigation. We think this is a saner way of going.''

Goodemann said the generally accepted way of obtaining the grant is to do a mortgage. He said his agency would not have even examined other options until the council refused to sign the subordination agreement.

"Then we looked and said, OK, we can do this without a mortgage, which would mean we can forego the subordination agreement,'' he said.

Goodemann said the council has already taken three actions on the DEED funding: approved the grant application, authorized the mayor to sign and authorize the submission of the application, and signed the cooperative agreement to act as the funding pass-through.

Heitke said Monday afternoon the information is good news because it seems to remove the tension of the discussion about how Westwind would be funded.

"It also significantly reduces and eliminates the concern about a possible lawsuit against the city for not passing this money through from the DEED office to the developer,'' Heitke said.

"This has been an ongoing concern among council members and the public, and this information that the DEED office no longer requires the subordination agreement seems to eliminate this tension and eliminate the possible larger problem of a major lawsuit against the city,'' he said.

The 14-unit rental twin-homes -- two homes to a unit -- will be built in an area that is zoned for twin-home development. Four units will be reserved for homeless families who meet federal homeless guidelines.

The project received the go-ahead in May 2008 after Heitke broke a 4-4 council tie in favor of allowing construction of homes, streets and utilities.

The project is opposed by neighboring single-family homeowners who say the project will negatively affect property values.

Streets and utilities have been constructed, and building permits for the $5.4 million project were obtained at the end of 2009.

David Little
David Little covers the Willmar City Council, Willmar Municipal Utilities and other city news.
(320) 235-1150