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City Decides Against Ochoa Loan Modificaton...For Now

The City Council could not agree Tuesday on what to do with former City Manager Scott Ochoa's home loan, with some members wary that any modification would be perceived as favoritism.

The City Council took no action Tuesday on a home loan modification request from former City Manager Scott Ochoa after two council members expressed reservations about any loan assistance being perceived by the public as "special treatment."

Ochoa in 2004 to purchase a home on Madeline Drive when he was hired as city manager under the condition that the loan be repaid within 12 months of when his employment ends.

Ochoa left Monrovia for the , so he has until December of 2012 to pay back the loan. But since he's upside down on this mortgage--he bought it for $775,000 and has secured a sales price for $739,000, according to a letter he sent the city--Ochoa asked the city to modify the terms of the loan. The house is currently in escrow.

Under the terms he proposed Tuesday, the city would release its lien on the home so he could sell it, paying $200,000 immediately to the city before paying off the additional $75,000 balance within 90 days. The loan would be secured by a separate property his family owns in Crestline under the scenario.

Ochoa appeared before the council Tuesday and asked the city to restructure the deal so he can sell the home and move forward with buying a property in Glendale.

"The housing market is extraordinarily tight right now, especially in Glendale, and that’s not your problem, that’s mine," Ochoa told the council Tuesday. "But at this point what we’re asking to do is allow this to be expedited so that we can conclude our business much more quickly than we can under the original terms of the deal."

Monrovia Mayor Mary Ann Lutz suggested that the city assent to the modification because it would result in Ochoa paying back the loan well before the December deadline.

"To me that makes sense for this city to have this money as soon and as quickly as possible," Lutz said. "We’re not being asked to cut a deal, we’re being asked if they can pay a big chunk of it up front."

Lutz suggested Ochoa pay a 6.25 percent market interest rate on a $75,000 loan instead of the 5 percent included in the original deal. But council members Tom Adams and Joe Garcia objected and said they were uncomfortable with any appearance of "special treatment" the modification might cause.

"I’m not sure that Monrovia is ready for us to alter the terms of that," Adams said. "I just think that there’s an awful lot of feeling, that has nothing to do with the economy of it and has everything to do with the politics of it, that would indicate that this may not be the best thing to do—to alter the terms of the loan—and just move forward under the terms that were agreed to."

"I think in this environment this is perceived to be some sort of special treatment, whether it is or not," Adams added.

Garcia agreed.

"My concern becomes: are we setting precedent, in essence, for other members of the community who are in the same situation, who are hurting on their mortgage and are upside down, wanting to come to the city for a similar type of a solution?," Garcia said. "Economically it seems like a very easy fix. I just don’t know that I feel very comfortable at this point moving forward."

Since the council could not come to a consensus, City Manager Laurie Lile said she would talk to Ochoa to see if there are any other options he and the city can explore. She will report back on the matter at the next scheduled city council meeting.

If the city takes no action, Ochoa will have to procure a $75,000 loan from a private lender in order to sell his house and pay back the $275,000 to the city. That was a step he was reluctant to take because it could affect the interest rate on the home he is buying in Glendale, he said.

Bill Beebe July 05, 2012 at 06:45 PM
Amen to that, everyone needs tio take the high road. And difficult as it is, we need to curb the emotional (and personal) side of the argument as well. Being passionate as you speak and respond is great; just don't cross the line.
Bill Beebe July 05, 2012 at 07:02 PM
Scott is a smart businessman in this regard - if you want something, ask for it and do that in as strong a way possible. That is how he got to be City Manager, an executive, and moved up the ranks to do so. He is not shy but very confident. Those are the strong traits any city looks at to fill that important position. Those are the traits that allowed him and his predecessors to do great things for Monrovia. So his appearance at the council meeting and his demeanor should come as no surprise and have nothing at all to do with argument. Neither does his former position have any thing to do with the argument. Is what he is asking right or wrong for Monrovia? Should he have worked out the terms prior to his exit? By agreeing to defer the $75,000 and tie it with another property, does that put Monrovia in a secondary (subordinate) position should the final payment not come? There are too many risks for Monrovia so the decision should be to pass and advise Scott to handle the problem himself. I recently left a firm for better pastures and under good conditions. Could I, would I go back to that former firm and ask for some special favor? Most assuredly not.
Joe Black July 05, 2012 at 07:35 PM
I find it interesting that the Real Property Mr Ochoa wants to use as security for the loan actually belongs to his Parents. That being said, why can't his parents take out a loan on that same property and give it to Scott?
kevin July 05, 2012 at 10:40 PM
While there seems to be much drama and unspoken subplots involved in the Ochoa loan modification request, for me there really is only one relevant issue, which is what steps should the counsel take, if any, to reduce the risk of loss from an eight-year-old real estate loan that is inadequately secured? Mr. Ochoa’s proposal offered, I believe, the best chance to receive full repayment on the loan, but was declined…because…it would look bad. While the existing security is inadequate to cover the city loan, Mr. Ochoa is offering new security that would fully security the city’s note. While some council members indicated that the only downside in declining the modification was that the city would have to wait a few additional months to get the full $275,000, the risk that come December the loan can not, or will not be paid is a very real one and should have been part of the analysis. Many unforeseeable events can happen, and Mr. Ochoa may not be able or could even chose not to pay the loan. Should there be a foreclosure, the city will be lucky to ultimately receive $200,000 after sales costs are deducted and the holder of the first gets paid. Mr. Ochoa was not seeking any debt relief, and his proposal vastly reduced the risk of loss to the city. In declining the proposal, it was disappointing the counsel could not have articulated a better rationale then “it just looks bad.” Kevin O’Brien
R8dermon July 05, 2012 at 10:52 PM
The way I see it. There seems to be a little personal attach here against Ochoa. The deal proposed from the Mayor seemed to be fair to me. Scott did a lot of good work for the town. I do not think we should suddenly turn our back on him. From what I know. The City wanted him to move to town and helped him do that but know they do not want to help him get out. I was told he moved his wife out of her dream home to move to Monrovia. So that he could be closer to the Monrovia community. All the modification does is move the $75,000 back a few months. This is a commom sense deal. All of the back lash from the council is just a bunch of politics. I do not see Ochoa asking for a hand out. I am wondering how Tom voted for the original loan.
Ron Hadfield July 05, 2012 at 10:54 PM
This is a good analysis. Many people seem to be hung up on the fact that this loan to Ochoa shouldn't have been done in the first place. That's dwelling on something that can't be changed. The City should take the $200K now to insure that it gets at least that much. If better security for the $75K can be found, great. If not, the $75K secured as Ochoa proposed is probably better secured than it is right now.
Gayle M. Montgomery July 05, 2012 at 11:23 PM
The logic excluded from this argument is the collateral now offered is not Mr. Ochoa's to cede. It belongs to his parents. We do not know if there are encumbrances upon this property and, while I believe Mr. Ochoa is credible, we do not have testimony from his parents to ensure they would be willing to have this property wrapped up in his name. We have no assessments as to the true market value of said property. We do not know if we are simply placing a lien on third-party real estate in the event of default, which is harder to secure. We do not know the condition of the offered in-kind property. Is this a piece of property they have not been able to sell, are no longer interested in, or unmaintained? There are too many variables.
Gayle M. Montgomery July 05, 2012 at 11:29 PM
Also omitted from discussion is commentary made at time of loan vs. 2012. In 2004, when Ochoa took office, the City requested him to move to Monrovia. As part of that negotation, as part of his total compensation and not out of line with some business practices at the time, the City offered him this loan package. Since that time, business practices, housing prices, and interest rates have changed dramatically, ergo the TARP. When the current City Manager was hired, we asked her to move to the City, she is complying but is only being given a moving allowance, which is in keeping with many professional positions.
Gayle M. Montgomery July 05, 2012 at 11:31 PM
While Zillow is not 100% reliable, it is a good place to start. Here are the statistics on the property in question. It was purchased for $785K, relisted in April for $739, and in May, for whatever reason, the listing was rescinded by Podley (an offer, maybe?). But, Zillow projects the fair market value of that property to be $648K and increased in value nearly $20K in the last 30 days. http://www.zillow.com/homedetails/214-Madeline-Dr-Monrovia-CA-91016/82869088_zpid/
Gayle M. Montgomery July 05, 2012 at 11:46 PM
I'm not questioning that Ochoa is a good man or did good things for the City. In fact, I'm not taking a position either way in that direction except to say that, in large measure, he seemed credible at the meeting. But the fact of the matter is not whether he's a good person or did good things, he got paid for what he did. The loan, as structured, was part of his employment contract. He is no longer an employee of the City but simply a resident. What we are talking about his legal precedent to avoid future litigation by other employes claiming they are being discriminated against for whatever reason. You did it for Scott, but you didn't do it to me. Further, what is the cost of money to the City for implementing this business revision? How many staffers and outside service providers will be required to revamp this deal. This isn't about emotions, it's about sound business practices. As for Mrs. Ochoa, I lived on Madeline back 20 years ago. It's a lovely street, and the home they bought appeared to have been 4 years old. I can't tell, but other than the person who built it, they MAY have been first owners. Given its description, I could make a whole lot of beautiful dreams there. I do not see it as a sacrifice over Mt. Washington (and I had relatives who lived there--this was a step up).
Carmen Martinez July 06, 2012 at 01:07 AM
Date of pending was May 19th.
kevin July 06, 2012 at 01:34 AM
Just a quick follow-up on my above comment. I contacted three firms that repurchase secondary financial instruments on the open market to try and get some ballpark idea of the current market value of the Ochoa note. In very general terms so as to not disclose any identities, I described the note and security instrument as they stand today. Two of the firms had no interest in purchasing the note due to the inadequate security, and one said no more then $40,000. If the open market says the note is only worth $40,000, what is the logic in declining a modification that repays $200,000 of the loan immediately, and fully secures the $75,000 balance owed to the city? How is modifying an insecure loan to shorten the repayment period and securing full repayment a sign of favoritism?
Richard Christy July 06, 2012 at 02:15 AM
I admit that I don't fully understand the details here. It sounds like you did a lot of research. But, the main question from me is why change anything? There was an agreed to exit strategy in the documents that Ochoa signed. Just follow through on the original agreement. It's not the lenders problem here, it's the borrowers. I don't think that Ochoa is going to file for bankruptcy here. I don't see the problem of just saying "no" to his request and moving on. Does anyone think, or is he claiming that if the lender (city) doesn't do as he asks, that he will just walk away from the commitment?
Richard Christy July 06, 2012 at 02:21 AM
But, why not just honor the original deal and quit wasting the city government's time with this? Regardless of whether it's asking for a hand out, one thing it's definitely doing is to bring this issue to the forefront for tax payers. Next time the city tries to help another employee by loaning him money, there will be a larger outcry. I did not realize that the city was in the low interest personal loan business with our tax dollars. It doesn't really sit well with me and I hope they never do it again.
kevin July 06, 2012 at 04:34 AM
The reason for the change is to amend the agreement to put the city in the best position to fully recover its bad loan at 100% repayment. In a sane world, this is a good thing. By working together, all parties benefit. By not modifying the note, the council chose political correctness and perception over good financial analysis. It would be great if everyone would live up to their obligations, but in the real world, which Mr. Ochoa is part of, things happen, and obligations sometimes go unmet. The "risk" factor to the city in rejecting a modification here is significant. I think this is evidenced by the fact that two of the secondary note buyers who looked similar fictious notes were not interested in purchising due to the high risk involved. Not a reflection on Mr. Ochoa, but an acknowledgement that life and unforeseen events happen.
Barb ZIegler July 06, 2012 at 05:20 AM
There are significant cost involved in either employee time or by hiring experts in researching any potential modification to this loan (collateral review and verification, rates research, credit reviews, etc). I feel the risk of Ochoa defaulting on even a portion of this note is very low. Not only would it be a huge PR mistake for someone who is in the public eye, but it would significantly harm his credit. Similarly, if the council renegotiates and it goes badly in ANY way, there is a big risk for their political lives too. If the new city manager asked for a bridge loan so that she could close escrow on her new Monrovia home before her previous house was sold, what would the council have said to that? They would have denied her for sure, and she's a current employee! If Scott need helps, and The Bank of Mom and Dad is not currently lending, and he can't finance the bridge with his Visa card or from his friends, then the city of Glendale should help. Not us.
Gayle M. Montgomery July 06, 2012 at 05:27 AM
Kevin, while I respect your opinion, I do not agree. I don't think that the decisions of the 2 Councilpersons in opposition had anything to do with would it help or hurt them to be elected in the future. What I believe is at stake here is legal precedent. Align the facts. We gave a loan to a Latino male; we did not give one to his female White successor. Suppose Ms. Lile (and I don't think she would, but just hypothetically) decides to demand legal funding for her move. We not only funded the male once, but the call is on the table to modify the terms of that loan. There was "free money" to be had in 2004 in the housing boom when prices were skyrocketing and profits were to be had. My folks are/have been (she is still active, he is retired) brokers. It's a much tougher market out there and prudence is called for.
kevin July 06, 2012 at 06:57 AM
If his existing deal unravels, he's back to square one. I don't believe he would intentionally stiff the city. My fear is that when the note comes due in December, for what ever reason, he won't be able to satisfy the note. Like they say, a bird in the hand...
Robert Parry July 06, 2012 at 03:17 PM
Exactly!
Steve Buckner July 06, 2012 at 03:17 PM
$182,000 , a year x 8 years = $1.456 Million. $600.00 month, for his long drive to work and gas, which he was caught turning in gas recipts for = $7200.00 year X 8 years = $57,600. Total for 8 years = 1,513,600.00. Yet, you need someone to help you out.
Curt July 06, 2012 at 04:09 PM
He left for a better paying job and to buy a new home. Seems like there are natural consequences in play here. Get the new better paying job and pay the bills here as you leave. The City should treat him as a former employee and not a friend.
Barb ZIegler July 06, 2012 at 08:26 PM
At the next meeting, rather than speaking for or against this issue, maybe citizens should go and ask for loans from the city, at 6.5% (wow, that's better than the current rate they are thinking of lending at), backed by property in another county and which they don't own. Obviously I'm being facetious....there is collateral here and I would continue to argue that the risk of Ochoa not paying up, even if he can't sell the house right away, is very, very low. Even if he sells the house for less than he owes, he will still be responsible for paying the loan back. Unless of course the secondary lender (which is you and me, as decided by our council) agrees to take less (say, $200k for instance). And I for one take exception to Ochoa's tone at the meeting. Check the tape and count how many times he said if the decision is not to make any changes "....then I'm willing to accept that" as if he's doing the council some sort of favor by abiding by the original loan parameters. I wonder if the city and council spent this much time debating funding for Little League; they certainly didn't devote this much time to Parks and Rec month.
kevin July 06, 2012 at 10:33 PM
Barb, the city has already made many loans to low and moderate loans first time home buyers, so the concept of it making real estate loans is not new or reserved just for Mr. Ochoa. No one is arguing that this loan was a good idea. Since it's now ancient history, the sole issue should be whether the modification improve our existing insecure position. I think there are very few objective financial professionals who would argue otherwise. The city's only recourse if the loan goes unpaid is against the security interest it holds on the Madaline property. Everyone agrees this is inadequate to fully repay the full loan. Should he secure his new home in Glendale before December, he will then be in a position of again having to find a new buyer in December, and come up a very large personal check to pay the balance. Or he could do nothing. This is the type of decision millions of American's are faced with, and many simply decide to mail the keys back to the bank. You may think it unlikely he decides to walk from the obligation, but there are no shortage of financial advisors who would advise him to take the hit, and keep the cash. Unfortunately, too many people here would rather put the hurt on Mr. Ochoa, rather then chose the most financially responsible alternative.
Richard Christy July 07, 2012 at 01:07 AM
Kevin, if he does walk away from the commitment, then won't the city then take possession of his parent's place in Crestline? I really don't think he would put his parents in this position, do you? We have a pretty good idea that he will honor his commitment to pay back the city. I think objective financial professionals would agree, in this situation. Relatively small owed amount, quarter million dollar salary, highly visible public servant position. Seems pretty clear to me.
SgtJackWagon July 07, 2012 at 10:32 AM
Whatever happened to the saying "a good days work for a good days pay." Since when does the city need to be handing out home loans, cars, laundry allowance. Maybe a sippy cup, free haircuts, and 31 flavors ice cream cones would lure a perspective employee. If you want the job, then come work, period. If you don't, see ya. I guess nowadays $185,000.00 annually isn't enough. What a bunch of nonsense.
Barb ZIegler July 07, 2012 at 04:15 PM
Hi Kevin, I agree that this is at one level a question of collateral. My point is that the someone has to research the strength of that collateral and that takes time and money and expertise. And I don't think everyone agrees the sales price is inadequate to repay the loans. In fact, I'm pretty sure it is, otherwise he would be working through a short sale process which (I believe) would require all lein holders to approve before the sales price is accepted. This hasn't happened, at least not in the public forum. In fact, he is saying that he needs the modification to close escrow so that he can get a lower interest rate on his purchase and not so he can make sure the city gets paid. Is that so he can avoid a jumbo loan on his new home? How much house is he buying there? Maybe he should buy one worth $75k less? The council should ask him how much he's paid down on his first lien. There could be equity there but we don't even know that because the questions haven't been asked. I don't recall seeing the city issue many loans tomlow income buyers. I would be interested to know how large our city's loan portfolio currently is. On another level this situation is a question of character. I believe Ochoa has enough of it NOT to mail the keys in. No financial advisor would advise someone to have that sort of blemish on their credit report. Scott is looking for a favor, and that should come from friends and family. Not one's ex-employer.
sal July 13, 2012 at 03:32 AM
Scott,man up take the lost, and stay in the green pasture you left monrovia for.Never ever think you will get the special favors as before not going to work out this time.The problem with all of this is the city of monrovia is not in the property business or loan business.
Robert Parry August 09, 2012 at 05:53 AM
The Tribune has a story out tonight saying Ochoa paid off the loan a couple of weeks ago.
Robert Parry August 09, 2012 at 05:53 AM
Imagine that!
johnmartin November 03, 2012 at 10:17 AM
Monrovia Mayor Mary Ann Lutz suggested that the city assent to the modification because it would result in Ochoa paying back the loan well before the December deadline. http://www.paydayin1hour.co.uk

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