LOS ANGELES - Nevada County, Calif., said this week that it is pursuing a lawsuit to foreclose on property in a troubled Mello-Roos district after a new owner failed to pay special property taxes.
Sacramento-based First Commercial Bank acquired title to the property, commonly known as Wildwood Estates Subdivision, in a foreclosure sale under a deed of trust on Dec. 8, the county said in a press release on Monday.
"However, the bank has not paid the outstanding delinquencies on the special property taxes" that secure a $9.07 million Mello-Roos bond issue, Community Facilities District No. 1990-91, the release says. A $473,292 installment, due Dec. 10, "is now delinquent," the release says.
The 85,000-population county, located 60 miles northeast of Sacramento, "will be pursuing its lawsuit" filed in Nevada County Superior Court in May 1993 for the judicial foreclosure of the property to obtain payment of unpaid special taxes, the release says.
The release says Nevada County "has had limited discussions" with the bank, which has "expressed interest" in amending earlier property development agreements. The county cannot predict whether amendments would have an impact "on the ability of the property to generate special taxes to repay the bonds."
Tom Lynn, a real estate loan administrator for First Commercial Bank, said yesterday he could not discuss the situation until he conferred with legal counsel.
The Nevada County issuance has been closely watched by market participants in part because only a handful of the $4.14 billion in Mello-Roos special tax bonds issued by local governments in California since 1983 have encountered serious problems, such as missed payments prompting draws on reserve funds.
Only about $70,000 is left in the Nevada County Mello-Roos district reserve fund following a Sept. 1 debt service payment. "There will not be sufficient funds to make the next scheduled payments to the bondholders on March 1, 1994," unless special tax delinquencies are cured or the next installment is paid, the release says. The bonds represent limited obligations secured by special taxes on property in the proposed subdivision.
Bond proceeds obtained from the December 1990 nonrated issue financed drainage and sewer infrastructure for the first phase of a planned three-phase residential development located northeast of Nevada City, the county seat.
None of the 103 single-family residential lots in the first phase has been sold. A county source who asked not to be identified said the county does not believe development of the second and third phases "is viable."
Wildwood Estates Inc., the original owner of the property, failed to Pay special taxes due on Dec. 10, 1992, and April 10, 1993. In September, the firm filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. On Nov. 16, a bankruptcy court granted First Commercial Bank's motion to proceed with a foreclosure sale planned in September that had been canceled by the bankcruptcy filing.
The county has released about $4 million of the original bond proceeds to pay various costs connected with the first phase of the project, and it continues to hold about $ 5 million of unspent bond proceeds in a project account.
Nevada county supervisors on Dec. 14 terminated additional Mello-Roos funding for the property, the release says. The county will next halt arbitrage payments from the bond funds to the Internal Revenue Service.
Jim Curtis, the county counsel, said the IRS procedure will cost the county about $500,000 in arbitrage penalties, decreasing the remaining bond proceeds to about $4.5 million.
Curtis said the county is working with special counsel Orrick, Herrington & Sutcliffe to determine if the $4.5 million can be returned to the approximately 160 bondholders. "We're considering options" for bondholders, Curtis said, but he declined to elaborate.