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Monrovia Council Will Not Rework Loan to Former City Manager
Monrovia Weekly Jul 13, 2012
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By Susan Motander
At its July 3rd meeting, the Monrovia City Council decided not to rework the loan it had made in 2004 to former City Manager Scott Ochoa. Ochoa had written a letter to the Council requesting a modification of the agreement. By taking no action the original agreement stands.
In 2004 Ochoa was appointed City Manger. At the time he and his wife had just purchased a home in the Mt. Washington area. The council felt that it was important for the City Manager to be a Monrovia resident. To that end, the council approved a loan of $275,000 as a second on the residence Ochoa bought at 214 Madeline Drive in Monrovia.
Ochoa had been paying 2% interest on that loan since 2004 until the conclusion of his employment with the city with his payment being applied to the interest only. When he left the city employ his payments increased. Ochoa was then paying the full 5% interest with part of the payment being applied to the principal.
Mark Alvarado told the Council that Ochoa has to date paid approximately $100,000, mainly in interest with a bit toward the principal. When Ochoa left the City last December, the entire loan became due in December of this year, in accord with the original terms of the agreement with the city. The agreement called for the loan to be repaid by one year after leaving his employment with the city or at the close of escrow upon the sale of the house.
Ochoa is now in escrow to sell the Monrovia home and move to Glendale. According to Ochoa the house is being sold for $36,000 less than he paid for it. In order to conclude the escrow, the second deed of trust that secures the city loan, must be cleared, i.e. the city must be repaid.
To that end, Ochoa wrote to the City Council requesting that the terms to be modified to allow him to pay off $200,000 at the close of escrow with the balance of the loan ($75,000) being converted into a personal loan, not secured by the Madeline property. The original letter also provided for a sliding scale of interest starting at 2% and increasing the longer the debt is outstanding.
According to Monrovia’s current City Manager Laurie Lile, the letter from Ochoa was received on Thursday, June 28 and while there was time to add item to the agenda there was no time to prepare a written report on Ochoa’s request.
Her report indicated that a second mortgage loan was made to Ochoa in 2004. To that end, a modification to his employment agreement was made, and a second deed of trust and a promissory note were made.
She reported that Ochoa was up to date on his payments and that he was not asking for forgiveness for any part of that loan, but rather for a change in the repayment. She reported that he was requested that $200,000 be repaid to the city at the time escrow closed rather than the full $275,000, and that the city accept a note for the balance of the money due, approximately $75,000.
Her reported also noted that Ochoa offered to pay interest on a sliding scale starting at 2% and increasing the longer it took to repay the loan. To secure that loan Ochoa offered personal property including a home his parents own in Crestline, the title to which is without encumbrances.
There were two speakers who addressed the council in opposition to the modification of the loan. Ochoa himself also appeared at the Council meeting to explain his request. He said that he agreed with the other speakers in that he felt the city wanted its money sooner rather than later. “That is really what this comes down to at the end of the day.”
Council Member Joe Garcia, who was one of two council members who voiced opposition to approving the readjustment of the loan to Ochoa, said that he was one of those who unanimously approved the original loan.
“I fully supported Scott’s original loan,” Garcia said, “since we had asked him to move to Monrovia. This was just a bridge loan when we were in a whole different economy.”
In explaining why he felt differently now Garcia added, “A lot has changed in the economy. We are in a community that was desimated by the change in the economy. Quite a few members of the community have lost their homes; some have seen their property values turned upside down so they can’t refinance their homes. Some are even worse off: they have lost their jobs and have had to ‘short sell’ their properties.
“In good conscience, I could not approve the loan modification,” Garcia continued. “It might have economically been a good transaction, but the appearance of the transaction, giving another loan to an exiting city manager, didn’t sit well with me. It left a sour taste in my mouth.”
Council Member Tom Adams expressed these same sentiments as well. “In 2004 the purpose was to get him to move to Monrovia. It would have created economic problems for him to move,” Adams said. “Then it was a good deal for the city. We got out city manager to live in the town.”
Later in the week, Adams said his problem with the change in the loan agreement was that as proposed by Ochoa, there were no definitive dates for the conclusion of the loan. “I looked at the proposal,” he said. “The letter said that it was his (Ochoa’s) intention to repay the city within 90 days of escrow, but it did not make that date mandatory. Also the original request was for only a 2% loan.
“I looked at the proposal; it did not mean that Monrovia would get its money early,” Adams went on. “It said at the close of escrow. It did not give that date,” he said.
He also explained how he saw the entire situation: “It is not a Monrovia issue. It is an Ochoa issue. Public sentiment was against this.”
Adams also said that he felt that by not approving the loan, the city would be paid more quickly as Ochoa would need to pay off the entire loan in order to close escrow on the property.
He pointed out that Ochoa had pledged personal assets in guarantee the personal loan. “Scott Ochoa is still free and willing to pledge those assets to some other lender and get the $75 thousand he is after,’ Adams said. “It will just cost him more to do so. I do not see this costing the Ochoa family more was a City of Monrovia issue and no one could show me how it was. Since it wasn’t a City of Monrovia issue, I saw no reason to discuss it further.
Two Council Members were in favor of modifying the loan to Ochoa. They were Council Members Larry Spicer and Mayor Mary Ann Lutz. Council Member Becky Shevlin recused herself and thanked Cyrus Kemp who brought this issue of a possible conflict of interest on the part of Shevlin to the attention of the council.
Shevlin has a real estate license and has affiliated that license with Podley Properties since April of this year. Donna Baker of Podley Properties has the listing for the Ochoa property. She said that she was not actively working at this time, it had not occurred to her that a conflict of interest. She left the council chamber and did not take part in the discussion of the issue.
“I have no listings and represent no buyers at this time,” Shevlin said, “but on the advice of the City Attorney, I recused myself in order to avoid the appearance of impropriety.”
After the meeting, Lutz said that she saw the opportunity to receive payment on the majority of the money quickly and the balance at a higher rate of interest and that was the reason for her support of the modification.
At the meeting Spicer said that he had no questions on the matter, but that “I am listening and learning.”
Later in the week after the meeting, Council Member Spicer said that he believed getting the money back early was a good idea. “If he can pay the $200,000 back early, and the balance at a higher rate of interest, what is the difference,” Spicer asked. “It seamed like a good deal to me.”
At the meeting Lutz said she was hearing questions from the community such as “”Why doesn’t Mr. Ochoa just go out and get a separate loan for $275,000. And pay off this loan to the city?”
Ochoa responded “Ultimately, maam, that is what we will do to take out the remaining $75,000. Going back to a previous discussion I had with council, the idea of substituting collateral was not objectionable at that time in December. And so with that in mind, although it was not the official position of the city, it was something that was stated in a separate meeting, we moved forward with pursuing a home in Glendale with that understanding.”
[Please see related article “Monrovia Council accused of Brown Act Violation” p.1__]
He went on to say that he saw that was no longer the situation. Asked why he did not just get the separate now, Ochoa explained that since they were already in escrow on the Monrovia property and the one in Glendale. He also said he could not now seek an additional loan, explaining that the reason for the short term of the proposed new loan was to enable him and his family to secure a new loan for the $75,000 to repay Monrovia.
He also explained that without the modification, the current escrows would not be able to close as currently scheduled. “That is not the end of the world, as I said at the outset, I would abide (by) the council’s decision.”
He said that he saw this as an opportunity for the city to be repaid more quickly. He said, “Monrovia has been very, very good to me and I think I have been very good to Monrovia. And so it is important to me that the council as representatives of the community is satisfied with the deal, and if you are not, that’s OK. I am willing to live with that.”
At the meeting Lutz questioned the current City Manager regarding what the lack of action by the council would mean asking “Should the council decide tonight not to accept Mr. Ochoa’s offer and make some sort of arrangement…we will go back to what is status quo which is his monthly payments and this note will not be due and most likely we will not be made until December. Correct?”
Lile confirmed this, prompting Lutz to ask the current rate was on second deeds. Ochoa said that currently the going rate for personal loans is 6.25%.
Lutz said that she preferred to have the loan paid off as soon as possible. As she preferred to have the $200,000 paid off by the end of the month with the balance being paid by October.
Ultimately, with Shevlin not participating in the discussion it became apparent that with Spicer and Lutz favoring the modification, and Adams and Garcia not favoring it, the matter was allowed to die.
Ochoa said earlier this week, that while he was disappointed that the council had not approved his proposal, he understood that there were members of the council did not feel comfortable. “I am grateful to Monrovia for everything the city did for me, and I understand the concerns of some people.”
Ochoa said that while this escrow may not be able to close on time, he will pursue other funding and he was sure that he would be able to secure a loan, but did not yet have a timeline for that.
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