HomeMy WebLinkAboutI - 06 Town Loan Collection PolicyRECEIVddEO MAY 19 1011
TOWN OF CORTLANDVILLE
LOAN COLLECTION POLICY AND PROCEDURES FOR
COMMUNITY DEVELOPMENT LOAN PROGRAMS
May 2022
Tom Williams, Supervisor
Kristin Rocco-Petrella, Town Clerk
Town of Cortlandville
Town of Cortlandville
Loan Collection Policy and Procedures - CDBG
INTRODUCTION:
The Town of Cortlandville (the "Town") administers a number of Community
Development Programs that result in the making of loans to individuals, households, and
for -profit entities. Some of the loans are made as "deferred payment loans" (DPL) where
repayment is not made unless or until a situation triggers the need to repay on the DPL, or
the Town determines that all or a portion of the DPL is to be recaptured in accordance
with the terms and conditions of an agreement. These loans are generally made to
income -eligible individuals or households for homeownership or housing rehabilitation
purposes. Other loans, known as direct loans, result in a periodic (usually monthly)
repayment to the Town. These loans are usually made to not -for -profit or for -profit
entities under an economic development component, or to owners of income producing
properties for purposes of housing rehabilitation. Regardless of the type of loan, or to
whom a loan is made, the purpose of this document is to outline the procedures to be
followed in the event of non-payment of a direct loan and/or DPLs to be recaptured.
The programs that result in the making of loans are (1) the Community
Development Business Loan Program; (2) the Income Property Rehabilitation Program;
(3) the Housing Rehabilitation Program and potentially (4) the Affordable
Homeownership Program. The programs that are currently being administered in are the
CDBG loan program and the owner -occupied housing rehabilitation program. There is a
potential for loans to be generated from other programs such as the Income Property
Rehabilitation Program and the Affordable Homeownership Program.
Community Development Business Loan Proeram
The intent of the Town's Community Development Business Loan Program (the
"ED Program") is to partner with other public and/or private lenders to bring to fruition
projects that will result in the creation and/or retention of jobs, a majority of which are
available to low -to -moderate income persons. The Town's ED Program deals with
projects/loans that would not otherwise occur or are not financially feasible but for the
Town's assistance. As such, the Town must be willing to and is often required to take a
subordinate position in the collateralization and/or financing scheme of these
projects/loans. Many of the projects are start-ups where the risk of failure is greater.
While many of these loans are made as deferred payment loans, loans can result in a
periodic repayment.
Income Property Rehabilitation Proeram
The Town provides loans to owners of income producing housing (the "I/P
Program") that has been deemed substandard and that is tenanted principally by
individuals or households that are low -to -moderate in income pursuant to the U.S.
Department of Housing and Urban Development's (HUD) definition of low -to -moderate.
The funds are used to complete certain repairs and renovations to the structure to bring it
to a standard condition The loans generally require a monthly or some other periodic
Town of Cortlandville
Loan Collection Policy and Procedures - CDBG
repayment although the repayment obligation may be "frozen" for the first year(s) of the
loan if certain assurances are provided the Town with respect to affordability and
availability of the units to low -to -moderate income households.
Owner -Occupied Housing Rehabilitation Program
The Town provides loans to persons and households that both own and occupy
their homes and that are low -to -moderate in pursuant to the U.S. Department of Housing
and Urban Development's (HUD) definition of low -to -moderate. The loan funds are used
to complete certain repairs and renovations to the home for the purpose of bringing the
home to a standard condition. The loans are generally made as a DPL and the DPL is
forgiven at the end of a regulatory period if the owner -occupant maintains the home as
the principal residence. Residency should be monitored by the Town during the
regulatory period.
Affordable Homeownership Program
The Town provides funds to income -eligible homebuyers (usually first-time
buyers) to assist in the purchase (and sometimes subsequent renovation) of a home. The
Town's funds are used to leverage private lenders funds for the majority of the cost of the
project in the form of a mortgage. The loans are generally made as a DPL and the DPL is
forgiven at the end of a regulatory period. At this time the Town has not administered an
affordable Homeownership Program but has the potential to in the future.
Due to the risky nature of the Business Loan Program and the low-income
population served by the Income Property Program, the Housing Rehabilitation Program,
and the Affordable Homeownership Program, the Town must be prepared to deal with
and address both loan delinquencies and loan failures. Following are procedures that will
govern delinquencies and collections under both the above -described Town Programs.
PROCEDURES:
A. Responsible Parties/Responsibilities:
1. Bookkeeper: The Town's Bookkeeper is responsible for the day-to-day
monitoring of all loans that includes reconciling bank statements for loan
repayment accounts, entering repayments in the accounting system; preparing
letters for delinquencies (one, two, and three month delinquent loans);
preparing letters for the Town Board/Town Supervisor's signature for loans
that fall four or more months delinquent; and providing pertinent loan
documents and loan information to the Town Attorney when it is deemed that
legal action may be required.
Under certain circumstances the Town may engage the services of a
consultant to monitor loans. If the monitoring is included in the contract with
the consultant, the consultant will be responsible for the day-to-day
Town of Cortlandville
Loan Collection Policy and Procedures - CDBG
monitoring of all loans per any specific contract between the Town and CDC,
that includes reconciling bank statements for loan repayment accounts,
entering repayments in the accounting system; preparing letters for
delinquencies (one, two, and three month delinquent loans); preparing letters
for the Town Board/Town Supervisor's signature for loans that fall four or
more months delinquent; and providing pertinent loan documents and loan
information to the Town Attorney when it is deemed that legal action may be
required
2. Town Attomev: The Town Attorney is responsible for issuing letters to loan
recipients that are more than three months delinquent on loan repayments;
addressing bankruptcies and foreclosures; assessing the assets of delinquent
loan recipients to determine the likelihood of recovery of funds for
delinquent/bankrupt/foreclosed loans; preparing complaints and lawsuits
leading to judgments; providing legal advice to the Town Supervisor and
Town Clerk with respect to failed loans; and all other responsibilities of a
legal nature that may be associated with failed or delinquent loans.
3. Bookkeeper: If the Town engages the services of a consultant the Town
Bookkeeper is responsible for entering information provided by the consultant
into the Town's accounting system and maintaining the loan repayment
accounts. The Bookkeeper is also responsible for making recommendations
to the Supervisor with respect to the appropriation of resources to recover loan
funds for failed loans.
4. Supervisor: The Supervisor is responsible for making the final determination
of what, if any, Town resources shall be appropriated toward the recovery of
assets/loan funds in the event of a failed loan. The determination will be
based on the legal input of the Town Attorney and the recommendation of the
Bookkeeper.
5. Town Clerk: The Town Clerk is responsible for monitoring residency during
the regulatory period for loans made as a DPL under the Owner -Occupied
Housing Rehabilitation Program. Letters shall be mailed annually to the
homeowners to verify residency with a response required. Certificates of
Homeowner Insurance shall be submitted by the owner annually.
B. Delinquency:
Delinquent letters will be issued to all loan recipients who fall behind in their loan
repayments. Letters will be issued from the Bookkeeper or CDC if such services are
engaged, for loans that are three or fewer month behind in repayments. In the event a
loan falls more than three months behind in repayments, the delinquent letters will be
issued from the Town Attorney's office. Receipt of loan repayments is confirmed in the
bank account statements.
Town of Cortlandville
Loan Collection Policy and Procedures - CDBG
The Bookkeeper, in consultation with the Town Attorney, has the option to work
with delinquent loan recipients to restructure loans or to allow interest only payments in
cases where loans are not brought current after receipt of a four -month notice.
Restructured loans or interest only payments require the approval of the Town Board.
In those cases where loans are not (1) brought current after a four -month notice,
(2) restructured, or (3) granted a period of interest only payments, the pursuit of recovery
or filing of a judgment will be based on an assessment by the Town Attorney to
determine the ability to recover assets and the amount to be recovered. However, final
determination as to whether to commence an action and proceed to judgment will be
made by the Town Board after discussion with the Bookkeeper/CDC, Town Clerk, and
the Supervisor. A written determination of action and rationalization therefore will be
provided thereafter.
C. Bankruptcy:
When the Town Attorney receives a Notice of Bankruptcy, the Town Attorney
will contact the debtor's (loan recipient) attorney by letter to determine the intent of the
debtor. Specifically, and foremost, the Town Attorney will seek to determine if the
debtor is willing to reaffirm the Town's debt. The Town Attorney's action will be
dependant upon the debtor's intention relative to the debt. The Town Attorney will
consult with the bankruptcy trustee as to the manner in which the debtor intends to deal
with their debt to the Town; i.e. the debtor's intention to reaffirm the debt, continue to
reside in the home (if a housing related loan), etc.
The Town Attorney will make an assessment of the ability to recover any money
from the debtor based on the chapter under which the bankruptcy is filed and a review of
the debtor's assets and debts. A written determination of action and rationalization
therefore will be provided thereafter. Where mortgages are in place, it is the Town's
policy not to discharge the mortgage unless paid in full
D. Foreclosure:
Superior Loans: If the Town has a first lien position on real property pledged as
security for any type of loan, the Town will foreclose its interest in those cases where
loan recipients do not bring their loans current after receipt of a four -month notice, or
agree to work cooperatively with the Town to restructure the loan. The Town Attorney
will search the public records to determine if there are any subordinate lenders on the
subject property and will take the necessary legal action as required by law prior to
foreclosing its interests.
Subordinate Loans: If the Town has a subordinate lien position on real property
pledged as security for any type of loan, the Town Attorney will confirm the Town's
mortgage and lien position relative to other lenders upon receipt of a Summons and
Complaint. The Town Attorney will also contact the County Real Property Office to
ascertain the assessed value of the pledged property. Based on this information and the
Town of Cortlandville
Loan Collection Policy and Procedures - CDBG
outstanding principal loan balance due, the Town Attorney will consult with the
Supervisor to determine if a buy-out of the first lender's mortgage is feasible or desirable.
The Town Attorney will make a recommendation to the Supervisor if it is determined that
a buy-out may be desirable and the potential for recovery is significant.
If it is determined that the cost of a buy-out exceeds the potential for recovery, the
Town Attorney will answer the Complaint as he/she deems appropriate.
E. Purchase Money Security Interests:
In those cases where the security pledged for a loan is furniture, machinery,
equipment, or other tangible assets (other than real property) and the Town has a
purchase money interest, the Town will attempt to identify and secure the assets as
quickly as possible (and to the extent possible under the law) once it is determined that
the loan may be uncollectible. These assets will be disposed of in keeping with
municipal law governing the disposal of municipal assets, generally through auction or
other acceptable means. The recovered funds will reduce the loan balance and a
determination of further action will be subject to an assessment of the ability and amount
of assets to be recovered versus the resources required to recover same. A written
determination of action and rationalization therefore will be made and submitted to the
file.
F. Loan Write-offs:
The Town will write-off any loan where payment has not been received for at
least 12 months. Prior to writing off the loan, the Town Attorney will seek Town Board
approval. Subsequent to Town Board approval, the loan shall be removed from the loan
portfolio and written off the books for accounting purposes. The Bookkeeper will keep
all written -off loans on a spreadsheet for future use, if needed.
The writing off of any loan balance due does not imply a release of any
collateralized assets for delinquent accounts/loans until such time as the Bookkeeper and
Town Attorney deem the loan dead. Any legal action either initiated or determined to -
be -initiated will still be pursued and any monies collected therefrom, or otherwise
collected, will be credited against the principal balance due on the loan. In the event any
monies are collected as a result of legal action, or otherwise, the original entry removing
the loan from the accounting books will first be reversed.
G. Judgments/Collection Efforts:
The Town Attorney will provide a recommendation with respect to the extent of
collection efforts for judgments taken. The Supervisor and Town Board will use this
recommendation to determine if collection efforts are financially feasible and worthwhile
for any judgment taken. A written determination of action and rationalization therefore
will be made and submitted to the file.