August 27, 2014

Development

Foreclosures with a Twist in Jacksonville

Cynthia Barnett | 10/1/2008

Walkstation
Roads, streetlights, a clubhouse (background) and other infrastructure await homes at Tison’s Landing. [Photo: Will Dickey/Times Union]
In an unusual legal move that could become more common if Florida’s housing market continues to falter, a Jacksonville community development district is trying to foreclose on its own developer.

Under Florida law, local governments, on behalf of developers, can create community development districts that issue bonds to fund roads and other infrastructure in new communities. The developer pays the debt on the bonds until residents move in and take over assessments, which can stretch out as long as 30 years.

In 2005, the Jacksonville City Council created Tison’s Landing Community Development District at the request of Yellow Bluff Development. In 2006, the district issued $37 million in bonds to develop the property, which was to have 680 homes. Today, the wooded area off Yellow Bluff Road in northeast Jacksonville has roads, water and a recreation center. But the developer has yet to build a single home.

When Yellow Bluff missed its annual assessment earlier this year, the development district filed a foreclosure lawsuit. The situation is a bit odd, says the district’s lawyer, Jonathan Johnson of Hopping Green & Sams in Tallahassee, because most of the district’s board members are affiliated with the developer in some way. “It can be an awkward conversation when you tell someone that they have to foreclose on their employer or their acquaintance,” says Johnson. “But in this case it’s been very positive. It’s simply the duty of the board.”

The idea is to foreclose on the land and find a buyer to repay bondholders. (CDD bonds are generally held by institutional investors.) “I expect that what will happen is that someone will make a deal here, perhaps that the developer will sell the property,” says Johnson.

If not, the CDD could end up holding the land, with the bondholders going unpaid until it sells.

That outcome can be tough for local districts. In 1991, Sun ’n Lake of Sebring Improvement District foreclosed on several thousand lots when its developer declared bankruptcy. The district had to pay taxes even though no market existed for the property in the economic downturn. In 2003, Sun ’n Lake was able to attract another developer, bring bonds current and pay off outstanding taxes. But now, that developer has stopped paying — again due to the economy.

Sun ’n Lake “still struggles with unsold lots and unpaid fees,” says the district’s lawyer, John K. McClure, “although it is solvent and surviving.”

Tags: Northeast, Housing/Construction

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