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I1. Haig Debt Restructure memoCity of Kalispell Charles A. Harball Office of City Attorney City Attorney 201 First Avenue East P.O. Box 1997 Kalispell, MT 59903-1997 TO: FROM: SUBJECT: MEETING DATE: MEMORANDUM Doug Russell, City Manager Charles Harball, City Attorney Tel 406.758.7709 Fax 406.758.7758 charball@kalispell.com Haig House Investments LLC — Restructuring of Debt on Lot 6 Old School Station June 7, 2021 — Regular Council Meeting BACKGROUND: Haig House Investments, LLC, [Haig] through its principal Haig Ermoian, entered into a Contract for Deed with the City to purchase Lot 6 of Old School Station on April 1, 2019. The amount of $75,000 was paid down with the balance of $91,212 held on a contract calling for interest only monthly payments at 5.0% for 36 months at which time the balance will be due. Haig has now secured a construction loan from Three Rivers Bank to construct the improvements upon the property. Due to the current rules regulating the bank, it will not be able to buy out the City's portion of the debt as they would otherwise like to do. Further the bank cannot extend the loan unless it is in first position and that cannot happen unless the City relinquishes its fee simple interest in the property and subordinates to the construction loan. Upon discussing this matter with Haig and the bank, a resolution to this conundrum is recommended as follows: Haig pays to the City the sum of $20,000 now and provides the City with a new Promissory Note and Deed of Trust for the balance, $71,212, with monthly payments of principal and interest at the rate of 5% per annum over the period of 5 years. By restructuring the transaction in this way, the City will receive the immediate consideration of the $20,000 paid now along with a Note that pays principal and interest at a favorable rate secured by a Deed of Trust on the property. The City has already received approximately $9,500 in interest from Haig and will receive an additional $9,500 in interest over the next 5 years of the term of the new note. Further the taxable value of the property will be substantially increased with the construction of the new improvements to the benefit of the tax base of the City which addresses one of the goals of the tax increment district. RECOMMENDATION: It is recommended that the Council approve the restructure of the Haig debt as described above. ALTERNATIVES: The Council may discuss other alternatives with city staff regarding the financing of this project.