RACINE — The City of Racine will not collect on an $800,000 loan from the 1990s because the group the city loaned the money to has dissolved.
The loan, made between 1993 and 1995 through funds from the federal Department of Housing and Urban Development’s Home Investment Partnership Program (HOME) program, was given to Main-Lake, LLC to develop 419-425 Main St. into housing. Today, that property houses the offices of the Downtown Racine Corp. and the Arcade Apartments.
According to a release sent Wednesday afternoon, Elaine Ekes, the city’s consulting attorney, determined that the city will be unable to recoup the loan since Main-Lake, LLC. has dissolved. There is also no parent agreement in place that would allow the city to recoup the money from Main-Lake, LLC.’s parent company, The Alexander Company Inc., a Madison-based real estate developer.
“Documentation and lending practices in place in the 1990s were less stringent than those now employed in the Department of City Development,” Director of City Development Amy Connolly said in the release.
Specifically, the city’s current standard practice is to take at least a second mortgage on any property that receives HOME funds, according to the release. No mortgage was taken for the Main-Lake loan.
“The City and any of our lending partners (Racine County Economic Development Corporation) require mortgages to back up our revolving loans, we use strict underwriting standards, we use specialized legal counsel for these types of agreements and we track repayment of loans on a monthly basis,” Connolly said.
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Due date was not clear
Contradictory language in various agreement documents also make it difficult for the city to determine when the loan was due for collection. One document suggested 18 years, another suggested 16 years and a third said 2009, which would be roughly 14 years. Ownership of the property has also changed multiple times since the loan was issued.
The release stated that city staff acknowledges that writing off a loan for such a substantial amount of money is “concerning.” However, the practices displayed in making the loan do not reflect the current state of the Department of City Development, Connolly said.
“The City’s Department of City Development passed the last HUD audit and use all applicable best practices in securing and underwriting loans from our various lending programs,” she said.
The city’s Loan Board of Review will discuss the write off at a special meeting this morning at City Hall to prepare the item for the June 21 City Council meeting.