LOS ANGELES - Foster City, Calif., took possession Wednesday of delinquent property that helps secure an assessment district fi- nancing, and the city plans to keep debt service payments current, a city official said.
The foreclosed property represents about 47.8% of the total annual assessment levied in the Vintage Park Assessment District, which was formed by Foster City in 1984. The city is located between San Francisco and Palo Alto.
The assessments secure two limited obligation improvement bond issues: An $8.2 million refunding, Series No. 1988-1 dated April 29, 1988, and a $10.6 million Series C issue dated July 31, 1989.
Office Park Investors, a limited partnership, owned the delinquent property, encompassing three parcels totaling 34.5 acres. Foster City officials were told the partnership had an internal disagreement over whether to proceed with a residential project on the property, said James Hardy, assistant city manager.
After a delay, "the project was never built and approvals have now lapsed," Hardy noted. The Office Park partnership also failed to pay its assessments in a timely manner.
In response, Foster City exhausted bond reserve funds to meet debt service and also has advanced about $1.6 million to pay principal and interest on the bonds when due. Foster City was not obligated to support the bonds, but "we obviously have an interest in preserving our good name," Hardy said.
He stressed that bondholders benefited from both the city's decision to advance funds for debt payments and from its efforts to aequire the delinquent property.
Foster City initiated foreclosure action against the delinquent property in early 1990, but a subsequent bankruptcy filing by the partnership thwarted that effort. The city actively participated in the bankruptcy proceeding and eventually convinced the presiding judge to lift a stay that had blocked the foreclosure effort, Hardy noted.
On Wednesday, Foster City held a sheriff's foreclosure sale of the delinquent property. Despite expressions of interest from prospective buyers, no one submitted a bid, Hardy said.
Although it was not obligated to do so, Foster City entered a socalled credit bid, Hardy explained. Such a bid allows the foreclosing party - in this case the city - to assume all the rights and obligations as property owner, including the payment of all future assessment installments with respect to the bonds.
The city said in a press release that it intends to remarket the property in the near future.
Hardy said the property itself is attractive because it offers "prime real estate" near the San Francisco Bay. In today's market, however, Hardy said it would probably be difficult to arrange financing for the partnership's original plans, which called for a 1,425-unit residential development.
Accordingly, a scaled-down plan may be more realistic, he said. The city is now "clearing up a few of the loose ends that remain on the prop- erty," primarily relating to back taxes, Hardy said. The foreclosure simplified some problems by wiping out existing liens tied to past bank loans, he added.
Proceeds from the bond sales financed various public improvements, primarily involving streets, Hardy said. Some of the adjacent parcels include completed projects, such as two office buildings, he added. Foster City plans to make assessment payments that come due before any sale of the foreclosed property, Hardy said.