CHICAGO — A developer’s default on $14.1 million of special assessment bonds in Wood County, Ohio, has sparked a dispute between the bond trustee and the county treasurer over the tax-lien sale of the property.
The treasurer said Friday that she had negotiated a payment plan with developer Larry Dillin to make incremental payments on all his unpaid taxes, which include special assessments backing the bonds.
But the payments fall far short of covering semi-annual debt service on the debt, and the bond trustee, the Bank of New York Mellon, has directed the county — as is its right under bond covenants — to pursue a tax-lien sale of the property to pay bondholders.
The county treasurer, however, has said the county can’t and won’t pursue an accelerated foreclosure of the property.
In 2006 and 2007, the Toledo-Lucas County Port Authority and the Cleveland-Cuyahoga County Port Authority issued two series of special assessment bonds totaling roughly $11 million to finance infrastructure at a new residential, retail, and hotel development in the town of Perrysburg outside Toledo.
The project includes a Hilton hotel with Perrysburg’s main convention center.
In 2007, the Toledo-Lucas County Port Authority issued another $14.1 million of special assessment debt to finance more infrastructure work at the project. Robert W. Baird & Co. was the underwriter and Bricker and Eckler LLP was bond counsel.
Fitch Ratings originally assigned an A rating to the bonds but has since downgraded them to BBB-plus.
By 2008, Dillin, like many developers, began to run into trouble as part of his project remained vacant amid the collapse of the housing market followed by the national recession.
Dillin began falling behind on all real estate tax payments in 2009, including the special assessment payments that backed the roughly $25 million of debt,
In response, the bond trustee called the two smaller bond issues in late 2009.
The two port authorities paid the bonds off with a combination of reserve funds, unspent proceeds, and a pair of construction letters of credit from Fifth Third Bank NA.
But Dillin still owes on the remaining $14.1 million of bonds issued by the Toledo-Lucas County Port Authority.
As of last Friday, the county treasurer had received $363,000 covering part of a payment and said she had entered into a payment plan with Dillin to cover the remainder of the unpaid taxes. Under the so-called one-ten plan, Dillin is required to make regular payments of one-tenth the total amount due, said Treasurer Jill Engle.
“The trustee is demanding that we do a tax-lien sale, but we don’t do that in Wood County,” Engle said. “That parcel is going to go on the one-ten plan, and how the trustee will like getting one-tenth of the payment instead of it all, I don’t know.”
Engle said that only the six largest counties in the state are allowed to pursue accelerated foreclosure sales, and Wood County is not one of them.
The trustee at Bank of New York Mellon had no comment.
Debt-service payments on the bonds are not secured by any deed of trust, mortgage, or lien on the development, bond documents show.
The special assessments, however, do constitute a lien against the property. According to bond documents, “If an event of default occurs and is continuing with respect to a required semi-annual payment of special assessments, at the request of the trustee, the treasurer will pursue an accelerated foreclosure of the lien of the special assessments on the assessed property, as provided in the tax lien agreement.”
Engle said she signed the official statement without reading it and therefore didn’t notice that provision, and she has asked the county prosecutor to take up the matter with the bond trustee. “If I had looked at it myself, which I did not do, I would have realized we’re not qualified to do a tax-lien sale.”
“I’m not doing any tax-lien sale,” Engle said. “In Wood County, when a parcel goes delinquent for two years, then foreclosure process begins, and then in the third year it’s sold in a sheriff’s sale. That’s how we foreclose in Wood County.”
The city of Perrysburg, meanwhile, remains unaffected by the dispute, said its finance director. “The trustee has sent me a letter telling me I have to assess 'X’ dollars, and I will assess those dollars,” said David Creps. “We have no liability in this. We made very, very certain of that before we allowed any of this to proceed years ago.”
The bonds due in 2036 with a 5.40% coupon recently have traded in the high 80s.