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Ill. Housing Dev. Auth. v. Arbor Trails Dev.

OPINION FILED MAY 12, 1980.

ILLINOIS HOUSING DEVELOPMENT AUTHORITY, PLAINTIFF-APPELLANT,

v.

ARBOR TRAILS DEVELOPMENT ET AL., DEFENDANTS-APPELLEES.



APPEAL from the Circuit Court of Will County; the Hon. THOMAS W. VINSON, Judge, presiding.

MR. PRESIDING JUSTICE ALLOY DELIVERED THE OPINION OF THE COURT:

Illinois Housing Development Authority (hereinafter Authority), a body politic and corporate of the State of Illinois (Ill. Rev. Stat. 1979, ch. 67 1/2, par. 301 et seq.), appeals from the order of the Circuit Court of Will County denying its request for preliminary injunctive relief against defendants Arbor Trails Development (hereinafter Arbor), an Illinois limited partnership, John Telander, Robert Telander, Mrs. John Telander, also known as Gloria Miller, and Telander Bros. Contractors, Inc., an Illinois corporation.

The Authority was created by statute in 1967 to provide low and moderate income housing for Illinois citizens. It stimulates and encourages such housing development by providing low-interest, lowdownpayment mortgage loans to developers and by using Federal subsidies granted to or passed through the Authority. After the completion of a development, the relationship between the Authority and the developer is governed by three documents. In addition to the mortgage agreement and the mortgage note, there is a regulatory agreement, a contract unique to subsidized housing. That agreement is designed to insure that a development is used for low or median income housing and that the funds generated by a development are allocated in a specified manner. It provides for Authority oversight over an owner's conduct in operating a development.

In the instant case, the Authority had authorized a mortgage loan of $8,145,000 at an interest rate of 1%, achieved largely through Federal interest subsidies, to Arbor. Arbor's cash outlay, to receive the mortgage loan, was $114,000, or 1.4% of the replacement value of the development. The necessary documents were executed, and the focus in the instant case is on the regulatory agreement between the Authority and Arbor. In pertinent part, under the agreement:

(1) Arbor assumed liability for funds or property of the Development coming into its hands which it was not entitled to retain, and for any of its own acts in violation of the agreement.

(2) Arbor agreed to establish a reserve fund for replacements in a separate account, with specified monthly allocations.

(3) Arbor agreed not to assign, transfer, dispose of or encumber any personal property of the Development, including rents, or pay out any funds, other than from surplus cash, except for reasonable operating expenses and necessary repairs, without the prior written approval of the Authority.

(4) Arbor agreed not to make, receive, or retain any distribution of assets or income of the Development, except from surplus cash and except under certain specified exceptions, without the prior approval of the Authority.

(5) Arbor agreed to maintain a separate trust account for any security deposits collected, which account would have at all times an amount in it equal to or exceeding the aggregate outstanding obligations under the account.

(6) Arbor agreed not to incur any liability, except for current operating expenses, without the prior written approval of the Authority.

Arbor also agreed to deposit rents and receipts of the Development as specified in the agreement, with limitations on the use and withdrawal of such funds by Arbor. Paragraph 16 of the agreement specified the Authority's power to declare a default under the agreement when a violation persists for over 30 days after notice from the Authority. Under such default, paragraph 16 provided that the Authority may:

"(d) Apply to any court, State or Federal, for specific performance of this Agreement, for an injunction against any violation of the Agreement, for the appointment of a receiver to take over and operate the Development in accordance with the terms of the Agreement, or for such other relief as may be appropriate, since the injury to the Authority arising from a default under any of the terms of this Agreement would be irreparable and the amount of damage would be difficult to ascertain."

The mortgage contained a provision which specified that the mortgagor would make specified monthly deposits, as determined by the Authority, in an account designated by and controlled, directed and supervised by the Authority.

In 1977, the Authority became seriously concerned with the financial status and management of the development and about alleged violations of the agreement pertaining to provisions above set forth. In October 1977, it ordered an audit. In February 1978, the Authority authorized that the loan to Arbor be declared in default, and it authorized the appointment of a new managing partner ...


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