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City settles development claim with development finance company

It's one thing when a housing developer has financial hardships and dissolves the company. It's something entirely different when the finance company that assured that developer falls into financial straits.

That's what the city of Farmington has found out. On Monday, the Farmington City Council agreed Monday to settle a claim with Lakeland Construction Finance, putting an end to a more than two-year struggle with the ailing finance company.

The Parkview Ponds development was proposed at a time when the housing industry was booming in Farmington. But when the market turned and construction came to a halt, the developer, Manley Land Development, filed bankruptcy and dissolved.

The Parkview Ponds project was assured by Lakeland Construction Finance. In 2009, the city declared the developer in default of the development contract and tried to collect on the letter of credit secured by Lakeland. That's when the city learned the finance company was also in receivership, city engineer Kevin Schorzman said.

Initially, the city submitted a claim for $144,755 to cover the loss of work that was supposed to have been done within the development. Last November, the city received a letter asking to reduce the claim to $72,377.50. Realistically, Schorzman expects the city of Farmington will only see $3,600 to $5,000 in reimbursement. That's only 5 to 7 percent of the claim.

It would appear the city received far less than it originally asked for in its claim, but that's not so, Schorzman said. Since the city first tried to draw on the letter of credit, pieces of the Parkview Ponds development were sold off to builders who continued to construct homes on the lots.

When the builders sell the lots, a portion of those sales come back to the city through principal and interest on outstanding assessments. In the past two years, the city has recouped the equivalent of approximately $74,000 of its claim this way. Additionally, the city has received about $55,000 in work for boulevard grading, sodding, seeding and tree plantings. Schorzman estimates the city collected about $15,000 in work done to record plans and pay engineering and legal bills related to the claim, as well.

"Farmington is in a much better state than others that had to work with Lakeland," Schorzman said. "At least we have the infrastructure and sewer and water done. There were probably some other cities that were in that situation that probably weren't as far along as we were."

City attorney Joel Jamnik estimates 30 to 40 other communities are dealing with similar claims.

"But we certainly were not hit as hard as some of the others," he said.

Since the city of Farmington holds letters of credit for several other developments in the community, council member Christy Jo Fogarty asked Monday whether they would have more problems in the future. Jamnik did not think there would be. In most cases, he said, developers use finance companies rather than banks because it costs more to work through the latter. When Farmington entered into the developer's agreement in 2005, Lakeland Construction Finance was not viewed as a high risk. Since that time, just as many banks have failed, Jamnik added.

Farmington City Council members accepted Lakeland's offer at Monday's regular meeting.

"The situation is not good, but it doesn't sound like there's a lot we can do about it," council member Jason Bartholomay said.

Michelle Leonard

Michelle Leonard joined the Woodbury Bulletin staff in November, 2014, after 14 years covering news for the Bulletin's sister publication, the Farmington Rosemount Independent Town Pages.  Michelle earned her Bachelor of Science degree in Mass Communications: News-Editorial from Mankato State University in 1991. She is an active member of the American Legion Auxiliary Clifford Larson Unit 189 of Farmington, and served as the 2014-15 Third District President to the American Legion Auxiliary Department of Minnesota. Michelle is also the volunteer coordinator for the Minnesota Newspaper Museum which is open annually during the Minnesota State Fair. She has earned Minnesota Newspaper Association awards in Investigative Reporting, Local News Coverage, Feature Photography and Column Writing. 

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