Rebecca A. Kraft (Borchard) qualified for and received a Housing Rehabilitation Deferred Loan for $20,000 in September 2009 and modified to $22,362 by an Agreement of Modification in March 2010.  The loan does not have to be repaid as long as Ms. Kraft (Borchard) remains the owner/occupant of the property.  The loan is to be 100% repaid when the property is sold or when the owner no longer occupies the property.  Ms. Kraft (Borchard) requested the City subordinate its lien (2nd mortgage) to a new first mortgage with a lower interest rate.  She and the new lender will follow the City's subordination policy, which requires a 0% payback of the Rehabilitation Loan.  Ms. Kraft (Borchard) will not acquire additional debt in the first mortgage and the City's position will not be affected by this action.

Council may:

• Approve the request to subordinate $23,362 in a second position to a new first mortgage;
• Not approve the subordination request, which could result in the homeowner not being able to refinance in order to benefit from the current low interest rates.

The total assessed value of the property is $119,100.  The new first mortgage from First Interstate Bank will not exceed $100,000 that will refinance existing debt on the property at a lower interest rate.  The City will retain its $23,362 interest in the property in second position, and the City is still protected by the current value of the home.

Staff recommends that the City Council subordinate the City's lien securing a $23,362 CDBG Housing Rehabilitation Deferred Loan to a new first mortgage from First Interstate Bank not to exceed $100,000 to Rebecca A. Kraft (Borchard), 4242 Phillip Street.