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Bill Freehling is a business writer for The Free Lance-Star and Fredericksburg.com. This blog is on Fredericksburg-area business. Send an e-mail to Bill Freehling.
Celebrate Virginia South bondholders file suit
Celebrate Virginia South’s bondholders filed a lawsuit this month against the city, its treasurer and the landowners of the Fredericksburg development.
The lawsuit involves the way the city applied money it received after 14.6 acres were sold to Haven apartment developer Johnson Development Associates in 2011.
The suit was filed in Fredericksburg Circuit Court. Click here to read it.
Before selling the land to Johnson Development, Celebrate Virginia developer the Silver Cos. needed to pay off all the money owed on the parcel in back city taxes and special assessments on the $25 million worth of bonds that were issued in 2006 to pay for roads, sidewalks and other development infrastructure.
Silver officials also used part of the proceeds from the Haven sale to pay overdue city taxes, but not special bond assessments, on the larger parcel from which the Haven land was subdivided. Silver officials said they believed that was required to get the land subdivided.
The city’s treasurer office is responsible for collecting both the taxes and the special assessments. The lawsuit, which was filed by the Ballard Spahr law firm on behalf of bondholder trustee U.S. Bank, argues that Fredericksburg’s treasurer office should have applied the money to both bond assessments and city taxes.
The lawsuit claims that the bondholders have been unable to determine exactly how much money should have been applied to them from the Haven sale, but they estimate it at $425,000. Silver officials say the correct amount is much less.
Fredericksburg Treasurer Jim Haney said he applied money from the sale exactly as Silver officials directed him to. Haney said the law allows taxpayers to determine how the city applies the money, so he believes the city is on solid legal ground.
The special assessments are used to make semi-annual interest and principal payments to the Celebrate Virginia bondholders. Payments total about $1.9 million a year.
All the property owners in the Celebrate Virginia South Community Development Authority that was formed in 2006 pay the special assessments. Because the development has progressed slowly amid a sluggish economy, the owners of the undeveloped land have gotten significantly behind on taxes and assessments. Reserve funds are now almost depleted.
As a result, the Celebrate Virginia South CDA almost certainly will soon partially default for the first time on a semi-annual bond payment. The Sept. 1 debt service payment equals about $760,000, and only about $650,000 is available.
The city’s treasurer office has already begun the process of selling the parcels with tax delinquencies of more than two years at Celebrate Virginia South. It will likely be another year before an auction will actually be held, however, so the developers could stave off a forced tax sale if economic activity picks up in the meantime. Proceeds from a tax sale would be applied to overdue city taxes and paid to the bondholders.