In May 2001 the City Council issued Community Facilities District (CFD) No. 1 Special Tax Bonds, Series 2001 in the amount of $36,000,000 under the Mello-Roos Community Facilities Act of 1982 (Government Code § 53311 et seq.) The Council acted to form the CFD encompassing the Sunnyvale TownCenter property to authorize the levy of special taxes upon the land within the CFD, that is, TownCenter Mall. The bonds are secured by special taxes on the Mall property, the proceeds of which were to be used to finance certain public improvements, primarily two new parking garages.

Although one garage has been built, construction of the second garage has been postponed and the owners of the TownCenter have put the property up for sale. More importantly, payment of taxes due June 30, 2002 has not occurred. The failure to pay taxes has compromised the ability to pay the interest due to bondholders in February and August, 2003.

The bond documents for the Special Tax Bonds contain specific covenants to foreclose which require the City to commence foreclosure proceedings within 120 days after determining that the special tax is delinquent. Since the payments were due on June 30, 2002, the City has already notified the property owner of the delinquency and now needs to prepare to begin foreclosure.

Although there is no direct fiscal impact on the City, since the debt service on the bonds is only payable from the special taxes imposed on the owners of property within the Community Facilities District, given the potential change of ownership and various issues which have arisen in relation to the project as a whole, it appears prudent to commence foreclosure proceedings sooner rather than later. It is possible the receiver now in charge of TownCenter will bring the taxes current, in which event there would not be a need to proceed with any foreclosure action.

Although normally a decision to proceed with litigation and engage outside counsel is made by the City Attorney in accord with Charter Section 908, one of the elements of a foreclosure action under Government Code § 53356.4 is that the legislative body has ordered the foreclosure. As a result, Council approval of the accompanying resolution is sought.

There should be no fiscal impact to the City in pursuing the foreclosure, as the Oakland firm of Sherman and Feller has agreed to defer all fees and advanced costs and collect them from the redeeming party. This is a standard practice with this specialized type of litigation conducted by this firm. In the event there are minor fees outstanding, the City Attorney budget for outside legal services will be used to cover such costs.

Standard Council Agenda posting and publication, including availability in the Library and on the City's website.

1. Adopt the resolution authorizing foreclosure and retention of outside counsel.

2. Do not adopt the resolution authorizing foreclosure and retention of outside counsel.

3. Suggest another course of action.

Alternative 1, adopt the proposed resolution.

Attachment:

1. Resolution