Fort Smith Board puzzled over $150,000 loan problem

Koller Place Addition took center stage at the Fort Smith Board of Directors study session on Tuesday (Oct. 9) at the Main Branch of the Fort Smith Public Library.

City Attorney Jerry Canfield attempted to turn up the heat on Barlee II Properties (Barlee), the partnership between Aaron's, Inc. (Aaron's) and non-profit organization Lend-A-Hand, Inc. (LAH), for failure to pay on a $150,000 loan acquired from the city in 1998 by recommending the board authorize litigation "if necessary" for reconciliation.

But for Fort Smith Director Pam Weber, the city government deserved some of the heat for its failure to notify the board of the loan issue prior to preparation for the Sept. 27 study session, while expecting a decision on whether to authorize litigation by the statute of limitations deadline that Canfield estimated as Nov. 6.

Matt Jennings, director of community development for the city of Fort Smith, acknowledged that the city had record of only one interest payment on the $150,000 loan the city issued to Barlee out of its Community Development Block Grant (CDBG) and HOME Investments Partnership Programs in 1998. Barlee was to pay 1% interest payments annually for a 10-year period with a principle payoff at the end. The loan was to be used on three subsidized housing units at the 23-unit development.

"What pains me the most to ask is, why did we let it go 10 years without a payment? That is unacceptable to me. I have to think that if the board 10 years ago had known about this, it could have been solved 10 years ago. We can’t do things on the back end. It’s poor business, and we need to become more forthright in our business dealings," Weber said.

Jennings explained to directors at the session, and in an email to The City Wire prior to Tuesday, that the city was "always aware the loan existed and was payable" and that "we were consistently confirming the loan as liability when requested by the auditors in Lend-A-Hand’s audits that have been submitted over the years."

Untangling the events that led up to the Sept. 27 study session, Jennings admitted that "files had been destroyed" due to flooding, a discovery which came to his attention in 2007.

“A couple of years ago, the current Lend-A-Hand Executive Director asked if the loan could be forgiven and I indicated that if he chose to ask for forgiveness that Lend-A-Hand would need to make the request to the Community Development Advisory Committee (CDAC) for a recommendation to the City Board.  At that time, he chose not to pursue the matter.”

Jennings continued: "Then last year when LAH and Aaron’s began to dissolve the Barlee Properties II partnership (as well as others), Buddy (Ernest R.) Coleman (signatory for Aaron's on the 1998 agreement) called me and wanted me to forgive the loan. I informed him that we couldn’t find the agreement and that is when Attorney (John) Alford provided it to me in July 2011. At that point, we began to try and collect on the $150,000.00.”

Alford, attorney for Barlee, was in attendance on Tuesday, and stated that Barlee has been cooperating with the provision of financial statements, but that "we have boxes in store rooms just like the city does, and it's going to take us a little while to go through that.”

Alford reiterated from comments on Sept. 27 that the properties in question were used to their original intention — as subsidized housing — and that there were other costs associated beyond construction for managing the properties and orchestrating repairs. Alford also believed the city might consider moving deeper into the process with the Department of Housing and Urban Development (HUD) for the pursuit of loan forgiveness.

Noting that Jennings had been told there was a "low probability" that the loan could be forgiven, Alford said, "I don't know what they've submitted to HUD that this be turned in to a loan. There is a process. If HUD were to approve that this be a forgivable loan or a grant, I don't think that it would have any effect on the allocation of the funds to the city for the HOME Partnership Program."

Still, Fort Smith Director Andre Good favored authorizing litigation.

“Some of the stuff we've seen, and who's signed off on some of these papers, the (missing) deeds, the names that are listed over and over – guys, you can't tell me that we don't need to take this to litigation. I don't want to say that something smells, but with these names appearing over and over, we need to get to the bottom of who's responsible,” Good said.

Good also believed that litigation would give "the innocent" involved with the loan a chance to be vindicated. Rod Coleman and ERC Properties, are among those looking for that opportunity. When Rod Coleman signed for himself and ERC on Jan. 2, 1997, he did so prior to the approval of the loan by the city. On March 1, 1998, Barlee, which still consisted of LAH and Aaron's claimed only 0.1% interest in the development (0.07% to Aaron's and 0.03% to LAH), while 99.9% had transferred to the limited partner, First National Bank.

Such facts are revealed in the 162-page board packet, mostly comprised of documents related to the Barlee loan, for Oct. 9 on the city's website. Even so, Canfield and Jennings are sure they haven't seen everything they need to see to determine where the responsibility for repayment should reside, though Canfield said he was confident that he would be able to gain access to missing documents if the board were to authorize litigation.

Weber said she didn't "see how we have a choice" when it came to authorizing the litigation, before coming back to the city's handling of time sensitive issues.

“I am dismayed. I have been on this board a year and almost 10 months, and during that time, three major problems have come to us at the last minute. Two of them were past-time. One was the Van Buren true-up. We allowed it to expire. We received an insurance proposal that was three weeks past the expiration date, and now here we are today. We've got to do better. We've got to stay on top of things.”

Litigation authorization will be up for vote at the Oct. 16 Fort Smith Board of Directors meeting.