Home Loan to Exiting City Manager a Headache for Del Mar

A loan made in 1981 by the City of Del Mar to its city manager so he could buy a home in this pricey seaside community has become an embarrassing civic debit now that he is leaving that post.

City Manager Bob Nelson, whose resignation takes effect March 1 after seven years in his $48,400-a-year position, has to pay off the city’s original $69,307 loan--which totals about $101,000 with accumulated interest--within 4 months of his departure or face loss of his Del Mar home. Nelson resigned Nov. 4 after a disagreement with the City Council over his issuance of a controversial permit to construct a seawall.

The loan was made in 1981 and was originally unsecured. It was not recorded as a second trust deed on the 30-year-old home--for which Nelson paid $229,000--until late last year.

Last week, Nelson asked the Del Mar City Council to lower the 13.8% interest rate and to extend the payoff period for the loan from the present 120-day deadline to five years.

Under the loan agreement, Nelson was not required to make any payments on interest or principal to the city until it became due in 30 years or until 120 days after Nelson left his city post.

The council is expected to discuss the loan agreement after hearing recommendations from two council members and the city attorney.

Nelson received the unusual loan from a City Council that in 1981 included Councilwomen Nancy Hoover and Rosalind Feierabend Lorwin, Mayor Louis Terrell, Councilmen Richard Roe and Harvey Shapiro. All are no longer in office.

At the time of the loan, present Del Mar Mayor Arlene Carsten appeared before the council to oppose the action as “improper use of public funds” and presented a petition to that effect signed by 125 Del Mar residents.

Carsten said Tuesday that the “fiscal irresponsibility of the former council” was a major factor in her decision to run for a council seat in April, 1982.

Nelson was voted a loan of up to $75,000 for the home, located less than a block from Del Mar City Hall. Councilman Roe said at the time of the loan that it was offered in “the old tradition that if the preacher couldn’t afford a house, the parishioners bought one for him. We think that it’s important for our manager to live in town, for us to know he’s right there when we need him, to know that he walks our streets.”

Councilwoman Ronnie Delaney said Tuesday that she could not comment on the loan. However, she confirmed that she and Councilman James Tetrault will meet later this week with City Atty. Roger Krauel on Nelson’s request for a payment extension and a lower interest rate.

Nelson wants the council to lower the rate to 10%--still higher than the 9.5% the city receives on other investments--and to pay him the $20,460 he is due in unused sick pay and vacation pay.

The council conceivably could withhold those funds as partial payment on the loan.

Both Delaney and Carsten acknowledged that it was unlikely that the city would foreclose on Nelson’s loan because “it is not in the best interests of the city.”

Carsten said that until last October, when the council requested Nelson to record the city loan as a second mortgage on his property, there was no legal security backing the $69,307 loan the city made to Nelson 3 1/2 years earlier. It is uncertain why it took so long for the city to discover that its loan was not secured.

Had the loan been recorded, refinancing by Nelson may have been jeopardized because the house would then have been over-encumbered, according to real estate industry sources.

Nelson said Tuesday that he had been unaware that the city lien against his home had not been recorded “until last October when they told me about it. That was a matter that was to be handled by the city attorney and city treasurer.”

Then-city attorney Dwight Worden and former city treasurer Gloria Curry have since left their posts. Neither could be reached for comment Tuesday.

Nelson said the house loan and the city’s request last October that he record the city’s loan as a second mortgage did not figure in his decision to resign.

He said that he is seeking to refinance his loan from the city because “we would like to hang on to the house. It’s a nice little house that, up until lately, has been a wonderful place to live. We would keep it as income property if we can, and perhaps, later, retire back here.”

Nelson said that because of his problems in coming to an agreement with the city for repayment of the loan, “I would repeat what I’ve said a number of times to other city managers: ‘Even if it seems like the best deal in the world--which this did at the time--don’t ever take a loan from your city.’ ”

Nelson’s wife, Suzanne Foucault, is Oceanside’s city manager. She has been pressured in the past to move to Oceanside, and, Nelson said, “our plans are to rent a home in Oceanside . . .”

He said that he has not yet found other employment and has been confining his job search “to within commuting distance of Oceanside.”

Since the couple purchased their Del Mar home, they have obtained a new first mortgage to pay off previous first, second and third mortgages that they assumed when they bought the property.

The home currently includes a $150,000 first mortgage and the city’s $69,307 lien as a second mortgage. However, on North County real estate agent estimated that the current market value of the home is about $205,000, meaning the encumbrances may exceed the market value of the house by as much as $46,000.

Typically, financial institutions will not refinance a home for more than 80% of its appraised value.

The city could lose the difference between the loan value and the fair market value if it attempts foreclosure, the real estate agent said. City officials said they likely would not foreclose on the property.

In addition, the city would have to assume payments on the $150,000 first mortgage under a foreclosure scenario.

The drop in the house’s value from its $229,000 purchase price in 1981 to its current $205,000 market value reflects the downward trend on some older properties in the Del Mar area that have not been remodeled.

Market activity in Del Mar in the past five years has not at all mirrored the double-digit annual growth of properties in the late 1970s, according to real estate industry experts.

“We’ve had a hardening in real estate values,” said one North County real estate agent. “Lots of properties were bought then, and those who try to resell them find that if they haven’t updated or remodeled it, they can’t sell it for what they bought it for.”

Echoed industry analyst Sanford Goodkin, “There are lots of houses that went up (in value) and then adjusted downwards as the market went down the tube.”