St. Paul Tenants Unclear On Who Pays To Clean Up Bed Bug-Infested Apartments

TwinCities.com
Wednesday, March 21, 2012

A pest-control firm went through the Westminster Court apartments last week, spraying for bugs and rodents. Tenants say it's a hopeful sign that conditions at the dilapidated St. Paul buildings will gradually improve.

What remains unclear to them is where the funding for that and other cleanup is coming from. The 60-unit complex is in the midst of foreclosure proceedings initiated by Wells Fargo, leading many tenants and housing advocates to blame the mortgage giant for any delays in property repairs and cleanup.

Bill Endresen, president of Impac Mortgage Holdings Inc. of Irvine, Calif., said this week that that's not the case. His company is the lender and servicer on the mortgage loans, and he's in close contact with the court-appointed receiver now overseeing the properties.

"We are the master servicer," Endresen said. "Wells Fargo is not involved." Some housing advocates remain incredulous, and the complicated relationship between the companies has tenants seeing double.

Tired of bedbugs, rodents, faulty plumbing, broken ovens and leaking ceilings, residents at 1205 and 1225 Westminster St. protested this month outside the downtown St. Paul Wells Fargo branch. They were demanding the mortgage giant release more money for property upkeep.

The buildings are overseen by a court-appointed receiver, who relies on rents and funds from a mortgage lender to pay for repairs. A little more than $26,000 of the $50,000 requested by the receiver had been approved as of February, according to city officials and court filings.

In their March 2 protest, tenants said little effort had been put toward pest control and more money should be released faster.

Sometime on or before March 2, it was.

In an email the next day, receiver Paul Carlson, president and chief executive of Strategic Property Services Inc., informed city officials and housing advocates with the Minnesota Tenants Association that "the lender has advanced approximately $62,000 for improvements and bedbug remediation (which is underway)."

"It was amazing that the next day they authorized the exterminators to come through," said 1225 Westminster St. tenant Nephi Anderson. "It'd be nice to know what prompted that."

City officials have said, from their initial conservations with the receiver, that they've been told that getting repair funds approved by the bank is a six- to eight-week process. Tenants say that's far too slow.

Impac's Endresen said that is incorrect: "Maybe a two-week process to get funds."

Peggy Gunn, a spokeswoman for Wells Fargo, said that despite the protests, "Wells Fargo is not involved in releasing funds related to the properties."

Wells Fargo and the mortgage lender are represented by the same attorney in court, but Wells Fargo itself is not the mortgage lender. The bank's only role is as a corporate trustee.

Endresen said Wells Fargo's role is to make "sure all the funds are flowing through to the investors. You've got different bond holders. They oversee that process. They're really hands-off in any property-specific involvement."

Some housing advocates disagree. "The only reason the receiver has this job is that he was nominated, put forward and so forth by Wells Fargo," said Peter Brown, an attorney with the Minnesota Tenants Union.

In September, Wells Fargo initiated foreclosure proceedings on the 60-unit complex through a court action filed against property owners Randall and Peggy Chun in Ramsey County District Court.

Wells Fargo is described in the court complaint as the mortgage trustee, operating in the case on behalf of Impac, the mortgage servicer.

The Chuns borrowed $2.9 million from Impac on Jan. 5, 2005, to buy the Westminster buildings, according to the court filing, but fell behind on the monthly $18,000 payments. They incurred more than $6,600 in late fees by May 2011.

With interest, their debt had ballooned to $3.4 million by the time the court action was filed in September.

In January, based on the recommendation of Wells Fargo, a Ramsey County judge appointed Strategic Property Services Inc. of Rancho Santa Margarita, Calif., as receiver to oversee the buildings and collect rents. "The connection between the receiver and Wells Fargo is extremely close," Brown said.

Brown points to language in the Jan. 13 judicial order as part of the foreclosure hearings that says "if the property does not generate sufficient funds to cover operating expenses, the plaintiff shall provide funds to the receiver for the reasonable operation of the property." In court documents, the plaintiff is listed as Wells Fargo.

"The buck stops with Wells Fargo," Brown said.

Endresen disagrees and said his company has the biggest stakes in the court case. "Not only are we the master servicer, but - and this is a little unique in the commercial world - we're also what's called the 'residual bond holder,' " he said. "We take the first loss on the commercial bond. We're definitely motivated to get this thing resolved and put behind us."