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C)ORSEY Second, the City must continue making the Fannie Mae payments to avoid a foreclosure on the Phase 1 B Property. Apache has had some success in marketing the Property, but has persistently failed to make the payments owed to Fannie Mae, so that obligation has fallen to the City. These payments continue until the maturity date of December 31, 2010. Presumably, the cash will be recoverable from Apache once the Property begins to generate income. Option Two: Put Developer in Default Immediately; City Pays Fannie Mae in Full; and Replaces Developer. In light of the above disadvantages, and in order to best protect the asset, another option is to pay off Fannie Mae at the earliest possible time and obtain a termination of the assignment of the Mortgage from Fannie Mae. Doing so would restore the rights of a mortgagee in the City, which gives the City considerably more control over the Property. I also recommend serving the Developer with an updated notice of default. Pursuant to the Redevelopment Agreement and in light of the current economic conditions, the Developer has up to 180 days to cure a default. Serving such a notice not only starts the clock ticking for the City to exercise other remedies under the Mortgage, but demonstrates to Developer that the City is serious about exercising such remedies.' Another advantage of paying off the Fannie Mae loan at the earliest possible time is that the City will have additional default options under the Mortgage. The Mortgage provides that the City may pursue all available remedies immediately upon an event of default under the Mortgage. This includes commencing foreclosure proceedings against the Property. Unlike the Redevelopment Agreement, there is not a time period for the Developer to cure the default. So, once the Fannie Mae assignment of Mortgage is released, the City again has rights under the Mortgage. Taking this option to its logical conclusion, and assuming the HRA pays off the loan to Fannie Mae and that Apache does not cure its defaults under the Redevelopment Agreement and the Mortgage, the HRA could commence a foreclosure beginning on the date the Fannie Mae loan is paid in full by the City. A foreclosure by advertisement takes approximately eight months to complete. In addition, the City could terminate the Developer's rights under the Redevelopment Agreement 180`h day after the new notice of default is served. Thus, the HRA would own fee title to the Property approximately 8 months after Fannie Mae is paid in full. By this time, the cure period under the Redevelopment Agreement would have also run and the City could proceed with another developer for the Property. Of course, the City will need to find the funds to pay -off Fannie Mae. The remaining balance on the Fannie Mae Loan is approximately $1,882,000 (inclusive of interest payments). As noted in the chart below, the City currently has identified funds of approximately $1.328 million to go towards repayment. Staff and Ehlers will review options for the remaining $560,000 needed to retire the debt. ' On October 2, 2008, the City provided a Notice of Default to Apache for failure to commence construction of the Phase 1 B element. The City may have a reasonable basis to claim that this notice satisfies the requirements of the Redevelopment Agreement and that, therefore, the period for cure rights has expired. However, since the Fannie Mae loan is not due until December 31, 2010, we recommend issuing a new default notice identifying all on -going defaults. DORSEY & WHITNEY LLP