Legal action avoided in Waterfront East
by Bob Grawey
Pending litigation involving Otsego has been avoided.
The city got caught in the middle of a disagreement between GCI Capitol Inc., a Waterfront East developer and two banks holding the letter of credit on the property.
Normally the letter of credit transfers with a new owner of a development property.
That did not happen, however, when GCI purchased the undeveloped land in Waterfront East at a foreclosure sale last November.
Two banks, Glenwood Bank and The Bank of Iowa ended up holding the letter of credit rather than it being transferred to GCI at the time of the sale.
It left GCI with no responsibility for funding special assessments on the properties or to the back pay taxes owed.
An argument ensued between GCI and the banks over who was to pay the special assessments and back taxes.
Otsego wanted to draw on the letter of credit to pay the bonds that would have paid for those assessments. The banks asked the city not to do that even though it had the legal right to do so.
Bank officials maintained it was the responsibility of the new owners of the property, GCI, since the letter of credit had not transferred at the time of the foreclosure sale.
GCI officials wanted Otsego to make that draw, taking the position that the back taxes and special assessments fees were not their responsibility and should come from the letter of credit.
All four parties entered into mediation to avoid potential litigation over the matter, which was settled in closed door meetings June 21–22.
In the settlement:
•Both banks will release the letter of credit.
•GCI will pay back taxes and special assessment fees as well as secure its own letter of credit.
•Otsego will drop all penalties and waive any accumulated interest since the time GCI assumed ownership of the Waterfront East undeveloped properties.
Clearing the development property of the tangled legal mess should make development in Waterfront East more attractive, according to city planner Dan Licht.