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9.c) Consider Reducing Special Assessments to Lots 3 and 6, Block 1, The Sanctuary Meeting Date: 4/20/2010 Agenda Item: � c� . City Council Agenda Report City of Scandia 14727 209th St. North Scandia, MN 55073 (651) 433-2274 Action Requested: Consider approving a reduction in the special assessments against Lots 3 and 6, Block 1, The Sanctuary. Deadline/ Timeline: N/A BaCkground: • The Sanctuary is a 58.18-acre, 6-lot subdivision located on Oxboro Circle, east of Oxboro Avenue. The developer defaulted on his agreement with the city prior to completion of the last lift of asphalt on the street serving the development. • In 2008, the city entered into an agreement with the developer to allow the city to complete the street improvement and assess the costs (less the funds available from a financial guarantee) to the three lots he still owned in the project. • The City incurred a total cost of$36,841.06 to complete the project. The City collected $12,375.00 from a letter of credit. This left$24,466.06 to be assessed, $8,155.35 to each of the three lots. • When the assessments were levied, it was discovered that one of the lots the developer had agreed would be assessed was not, in fact, owned by the Developer. Thus, in compliance with the intent of the agreement, the assessments were levied against the remaining two lots which were owned by the developer, in the amount of$12,233.03 to each lot to be paid over 5 years at 6.5% interest. • Following a foreclosure, the two lots are now owned by the First State Bank of Wyoming. The bank is now disputing the assessment. They alleged that the City made the assessment in error, and that lot assessment should be reduced to $8,155.35 per lot. (See attached correspondence.) Staff and the City Attorney responded that the assessments were proper based on the agreement with the developer. • The Bank disagrees and has threatened legal action. Litigation expenses for matters relating to special assessments are excluded from the city's insurance coverage. Because defense costs could Page 1 of 2 04/14/10 be significant, staff has recommended that a settlement be considered. • The proposed settlement, which the Bank is willing to accept, would reduce the assessments on each lot by$2,000 and give the bank credit for the principal and interest paid on the assessment in 2009 as follows: Original assessment: $24,466.06 Reduction of$2,000 per lot: -4,000.00 Principal and interest paid in 2009: -6,668.22 Payment in satisfaction of assessments: _$13,797.74 Recommendation: I recommend that the Council consider whether or not to approve the settlement and accept $13,797.74 as payrnent in full for the remaining balance of the special assessments on Lots 3 and 6, Block 1, The Sanctuary. Attachments/ � Petition for Improvement, The Sanctuary(September 2,2008) Materials provided: � Agreement of Assessment and Waiver of Irregularity and Appeal (September 2,2008) • Letter from Thomas Miller,representing First State Bank of Wyoming (January 20, 2010) • Letter to Thomas Miller from Administrator Hurlburt(January 28, 2010) • Letter from Thomas Miller to City Attorney Hebert(February 19,2010) • Letter to Thomas Miller from City Attorney Hebert(March 23,2010) • Letter from Thomas Miller to City Attorney Hebert(April 12 2010) Contact(s): David Hebert, City Attorney (651 464-3397) Prepared by: Anne Hurlburt, Administrator (sanctuary special assessments) Page 2 of 2 04/14/10 CITY OF SCANDIA PETITION FOR LOCAL IMPROVEMENT Scandia, Minnesota September 2,2008 To the City Council of Scandia Minnesota.: I, the owner of real property abutting on Oxboro Circle in the City of Scandia, described as follows,to-wit: Lots 3, 5 and 6, Block 1, The Sanctuary hereby petition that such street be improved by the installation of the wear course of bituminous surfacing and the repair of the base course of bituminous surfacing with associated work pursuant to Minnesota Statutes §429 and that the City assess the entire cost of the improvement against my described property and I hereby agree to pay the entire cost as apportioned by the City less the amounts drawn upon from a certain letter of credit dated � 'oZ� G-� that is pursuant to the developers agreement dated � �% -0� - � ..��.a ,�,r �r �� �- . verson AGREEMENT OF ASSESSMENT AND WAIVER OF IRREGULARITY AND APPEAL TffiS AGREEMENT, is made this 2nd day of September, 2008, between the City of Scandia, State of Minnesota, hereinafter refened to as (the "City") and Brian N. Iverson, 19655 Oxboro Circle, Marine on St. Croix, Minnesota 55047,hereinafter referred to as (the"Owner"). The Owner, being in default of the terms and conditions of that certain Development Agreement between the parties for the development of The Sanctuary, in consideration of the action of the City Council, at the Owner's request, to cause the installation of the wear course of bituminous surfacing on Oxboro Circle and to repair the base course of bituminous surfacing with associated work and to assess 100%of the cost thereof against Lots 3, 5 and 6, Block 1, The Sanctuary, Owner agrees to pay the estimated cost thereof, including, but not limited to, all design, construction, consultant's and attorney's fees and costs in the sum of$42,163.00 with interest thereon at the rate of 6.5% per annum over a period of five years. Owner further agrees that the estirnated assessment may be exceeded if the increases are a result of requests made by the Owner or otherwise approved by the Owner in a subsequent separate written document. The City agrees that the assessment will be reduced by the amounts received from the fmancial institution where security has been issued in connection with the Development Agreement to insure completion of the work. The City does not waive its requirement of the Owner that a11 work be cornpleted on or before September 20, 2008 and this Agreement shall only become effective if the work is not completed by Owner by said date. Owner expressly waives objection to any irregularity with regard to the said improvement assessments and any claim that the amount thereof levied against Owner's property is excessive,together with all rights to appeal in the courts. IN TESTIMONY WHEREOF, the parties have hereunto set their hands the day and year first above written. 'an N. Iverson, Owner CITY�S�ANDIA , � � , �—J : BY: " BY: C=��� D 's D. Seefeldt, Its May r Anne Hurlburt, Clerk/Administrator MILLER LAW OFFICE, P.A. . Oak Point Business Center,Suite 6 26357 Forest Boulevard Thomas F. Miller' P.O. Box 807 J.Vincent Stevens Tom�MillerLawOffice.com Wyoming, MN 55092 Vince�MillerLawOffice.com (651)462-0206 Erin E.Wilkerson,Office Manager Fax (651)462-3309 Erin C�MillerLawOffice.com January 20, 2010 �-- ���=��k�z��;����-----� ;��;� �, � °;s���� Anne Hurlburt, Clerk/Administrator City of Scandia CITY CF SCAhJDIA 14727 209�' St. N. _�_____-_-__� _ Scandia, MN 55073 RE: First State Bank of Wyoming/Lots 3 and 6, Block l, The Sanctuary Our File No. 08-188-TFM Dear Ms. Hurlburt: I represent the First State Bank of Wyoming (the "Bank"). 'The Bank has foreclosed its mortgage against the above two lots located within the City of Scandia (the "City"). Accordingly, the Bank is now the owner of these lots (hereinafter the "Bank Lots"). In reviewing the status of the taxes and assessments against the Bank Lots, I discovered that each of the two lots has a City assessment against it with an annual payment of$3,334.16. In reviewing this issue further, I believe this assessment relates to an assessment adopted by the City on November 18, 2008 (the "2008 Assessment"). My review of certain documents underlying the 2008 Assessrnent establishes that the City approved an assessment in the amount of$24,466.06 against three (3) lots consisting of the two Bank Lots and additionally, Lot 5, Block 1, The Sanctuary. Assuming this to be correct, $8,155.35 was to be assessed against each of the Bank Lots which, with interest at the rate of 6.5% and payable over 5 years (starting in 2009) would result in an annual assessment amount of$1,962.46, significantly less than the$3,334.16 actually assessed against each of the Bank Lots. Additionally, my investigation shows that no portion of the 2008 Assessment was assessed against Lot 5. What appears to have happened is that the 2008 Assessment was levied solely against the two Bank Lots which does not comply with the underlying Petition, Waiver and Assessment approvals and which further imposes a significant financial burden on the Bank as the owner of the two Bank Lots. Also, based on my calculations, the actual 2008 Assessment appears to have been much higher than the $24,466.06 approved assessment. On behalf of the Bank, at this time, I request that the City review the 2008 Assessment as to both of the foregoing issues and if in fact the 2008 Assessment was improperly levied against or only against the Bank Lots and/or was not limited to the $24,466.06 approved amount, that the City take immediate action to correct the 2008 Assessment as to its original amount and its outstanding balance reflecting the significant overpayrnent in 2009. As you know, a reassessment to correct such mistakes is allowed under Minnesota Statutes Chapter 429. *also licensed to practice law in the State of Wisconsin Anne Hurlburt January 20, 2010 Page 2 If my analysis of the 2008 Assessment and its underlying documents is inaccurate or incomplete, please provide me with documentation that the 2008 Assessment was properly assessed solely against the Bank Lots and that the amount of the assessment was duly approved by the City. If you have any questions or comments please don't hesitate to contact the undersigned. Very truly yours, MI�;LER LAW OFFICE, P.A. ` � -a ,s,�"g E. . F , � Thomas F. Miller TFM:sg cc. Nate Wilner, First State Bank of Wyoming(via e-mail) fy- �� / .��:-:� � , . . . �� � _ C January 28, 2010 Thomas F. Miller Miller Law Office, P.A. Oak Point Business Center, Suite 6 26357 Forest Boulevard, PO Box 807 Wyoming, Minnesota 55092 RE: Assessments to Lots in The Sanctuai-y Your File No. 08-188-TFM Dear Mr. Miller: As requested in your letter dated January 20, 2010, we have reviewed the 2008 assessments to Lots 3 and 6, Block ]. The Sanctuary. The levied assessments were based on an agreement with the Developer to assess the remainder of the Developer required improvements to the remaining three lots owned by the Developer in exchange for the City undertaking to complete the work and advance the necessary funds. It was later discovered that one of the lots on which the Developer a�reed that the assessments should be levied was not, in fact, owned by the Developer. Thus, in compliance with the intent of the agreement, the assessments were levied against the remaining lots which were owned by the Developer. Please contact me at 651 433-2274 or by e-mail at a.hurlburt(�a,ci.scandia.mn.us if you have any questions. Sincerely, � L'�%�' �. L��:��� Anne Hurlburt City Administrator cc: David Hebert, City Attorney 14727 2U9'�' St. N , Scandia, Mii3nesota »073 Phonc ((ii 1) �13�-227d Fa� (6�1) -�i;->1 l2 Ilil]J:II1\'�V\1.C1.SC811CI1i1.]1111.LiS MILLER LAW OFFICE, P.A. Oak Point Business Center, Suite 6 26357 Forest Boulevard Thomas F. Miller" P.O. Box 807 J.Vincent Stevens Tom@Mi1lerLawO�ce.com Wyoming, MN 55092 Vince@MillerLawO�ce.com (651)462-0206 Erin E.Wilkerson, Office Manager Fax (651)462-3309 Erin@MillerLawO�ce.com February 19, 2010 VIA E-MAIL David Hebert, City Attorney City of Scandia Hebert & Welch, PA 20 North Lake Street Forest Lake, MN 55025 RE: Lots 3 and 6, Block 1, The Sanctuary Special Assessments/City of Scandia Our File No. 08-188-TFM Dear Dave: Since you were copied on the January 28, 2010 letter to me from Scandia City Administrator Anne Hurlburt regarding the above-refere�ced matter, I am providing this response, on behalf of my client, directly to you. I further presume that you are in receipt of my January 20, 20101etter to Ms. Hurlburt relating to this matter however, in case you were not provided with a copy of that letter, I am attaching it for your review. As I read Ms. Hurlburt response, it became apparent to me that the City of Scandia ("City") admits that the agreements and approvals with respect to the assessment which was ultimately levied against my client's two lots was in fact to have been levied against three lots. However, the City believes that assessing only the two lots was lawful because it was "in compliance with the intent of the agreement". Because the City's position does not appear to be supported by the procedural requirements for special assessments as provided in Minnesota Statutes Chapter 429, because there is no other legal support for ignoring the City's approvals and because assessing only two rather than three lots will ultimately cost my client a significant amount of money, I have been authorized to pursue all legal remedies available to my client to seek a reduction in the assessment or reimbursement of the over-assessment from the City. Prior to initiating any formal proceeding and incurring the significant cost to do so, which cost we will certainly seek to assess against the City, I have been authorized to make a final request that the City reduce the assessment against the Bank lots so that my client will not pay any more than was identified in the approvals for these assessments. My calculations establish that roughly $4,000.00 to $5,000.00 should be reduced from the assessment against each of the two Bank Lots although this can be calculated to the penny once the City agrees to such reduction. *also licensed to practice law in the State of Wisconsin David Hebert February 19, 2010 Page 2 It is my sincere hope that this matter can be resolved amicably and without the significant cost and risk to either of our clients. Accordingly, could you please let me know the City's position on this final request and any support for that position as quickly as possible since my client has accepted an offer to sell one of the two lots and therefore, will be required to pay the assessment in full at the closing of such sale. Therefore, in order to avoid any claim of waiver, latches or estoppel, my client will need to commence litigation prior to such closing date. I thank you in advance for your attention to the matter set forth in this letter. Very truly yours, MILLER LAW OFFICE, P.A. /s/Thomas F. Miller Thomas F. Miller TFM:sg Enclosure cc. Nathan Wilner, Vice President, First State Bank of Wyoming HEBERT AND WELCH, P.A. ATTORNEYS AT LAW TOWN SQUARE 20 NORTH LAKE STREET, SUITE 301 FOREST LAKE,MN 55025 Phone: (651)464-3397 Faac: (651)464-8664 DAVID K.HEBERT MICHAEL A.WELCH March 23, 2010 Mr. T'homas F. Miller Attorney at Law P. O. Box 807 Wyoming, MN 55092 Re: The Sanctuary—Special Assessments/City of Scandia Dear Mr. Miller: It is our opinion that the assessments in question were properly assessed and are obligations of your client as a successor in interest to the Developer of The Sanctuary pursuant to the ternls of the Development Agreement. Your client is responsible for the cost of the improvements irrespective of whether the costs were assessed against the lots in question. Additionally, it is our position that the Developer could enter into an assessment agreement with the City without regard to whether the particular lots were benefited in the amount of the assessments. The City Administrator has, nevertheless, agreed to recommend to the City Council the sum of $20,466.06 in satisfaction of the amounts owing on the lots. The amount represents a reduction of$2,000.00 in the base assessment for each lot and a waiver of interest owing since the date of the assessment. We would expect the amount to be paid upon acceptance of the offer. Please furnish me with your response at your convenience. Sincerely yours, HEBERT AND WELCH, P. A. David K. Hebert DKH:Ip Enclosures cc: Anne Hurlburt MILLER LAW OFFICE, P.A. • Oak Point Business Center, Suite 6 26357 Forest Boulevard Thomas F. Miller" P.O. Box 807 J.Vincent Stevens Tom@Mi1lerLawOffice.com Wyoming, MN 55092 Vince@MillerLawOffice.com (651)462-0206 Erin E.Wilkerson,Office Manager Fax (651)462-3309 Erin@MillerLa wOffice,com April 12, 2010 Via Email David Hebert Hebert &Welch, PA 20 North Lake Street, Suite 301 Forest Lake, MN 55025 RE: The Sanctuary/Special Assessments/City of Scandia Our Client: First State Bank of Wyoming Our File No. 08-188-TFM Dear Dave: I have reviewed and discussed your March 23, 20101etter with my client the, First State Bank of Wyoming. While neither I nor the Bank agrees with the arguments made in your letter,my client is willing to accept the offer to pay$20,466.06 in full satisfaction of the amounts owing on the lots currently owned by the Bank. Your letter indicates that this proposal needs to be approved by the Scandia City Council and therefore,the Bank's acceptance is of course, conditioned on approval by the council. Could you please let me know as soon as the City Council has taken action on the proposal and also inform me as to how the payment of the amounts owed and release of any further assessments can best be accomplished? For example, do you envision some form of settlement ageement to be entered into by our respective client's or simply a payment of the assessment amount in exchange for a receipt for such payment and a satisfaction/release of all assessments against the lots? I look forward to your response at your earliest convenience. Very truly yours, MILLER LAW OFFICE, P.A. /s/Thomas F. Miller Thomas F. Miller TFM:eew cc: Mark Zaruba, Executive Vice-President, First State Bank of Wyoming Nathan Wilner, Vice President, First State Bank of Wyoming *also licensed to practice law in the State of Wisconsin