HomeMy WebLinkAboutBackgroundStaff Background Report
On September 18, 2006, The Community Development Commission of the City of
National City (CDC) entered into a Facade Improvement Agreement with Mike N. Dallo
and Mona Dallo, referred to as the "Borrowers" for the property located at 303 Highland
Avenue, National City, CA 91950. Per the Agreement, the CDC made a loan in the
amount of $347,320 to the Borrowers for the purpose of rehabilitating the Facade at 303
Highland Avenue. Mike N. Dallo and Mona Dailo, Trustor, signed a Deed of Trust on
September 18, 2006, for the benefit of the CDC. The purpose of the Deed of Trust is for
securing payment of the indebtedness evidenced by the promissory note dated
September 18, 2006 in the principal sum of $347,320, recorded under Document no.
2006-0792087, in the San Diego County Official records.
On September 4, 2007, the CDC Board approved an increase in the project budget
to $542,349 from $347,320. The purpose of the increase was to cover additional
construction expenses of the project. The CDC Deed of Trust was revised to reflect the
new loan amount of $542,349. At that time, The CDC Deed of Trust was recorded in a
junior position behind the senior lien holder, Sterling Bank.
On November 29, 2010, Sterling Bank sold the note to the Borrowers for $2,800,000
discounting the note from the original principal amount of $3,500,000. In order to take
advantage of the opportunity, the Borrowers utilized their own cash to purchase the
note. When the note was purchased, the CDC second trust deed (junior lien) that is
securing the Facade improvement loan became the first or senior lien.
Now, the Borrowers are requesting the CDC subordinate our senior lien to a new
Deed of Trust so they may pull their money back out with a new loan ($2,470,000) from
Zions Bank. The Bank requires a first position. As a result, a request for subordination is
before the CDC for consideration.
The Foodland property is currently valued at $3,800,000 pursuant to an appraisal
dated December 8, 2010, prepared by Zions Bank. Should the CDC approve the
request for subordination, the loan -to -value ratio on the property will be 79%. Loans on
commercial property by pension funds, banks, and insurance companies are typically
limited to a maximum of 80% of value.
Currently, the property has an outstanding permit condition existing on the property.
According to Development Services Department, the owner applied for permits to install
signs (Western Union) in 2009. Those permits have since expired. Staff recommends
that the Board approve the proposed resolution authorizing the execution of the
subordination agreement subject to resolving all outstanding permit issues.