Q and A - GRF Recreation Master Plan Loan and the GRF Trust
Please describe the GRF Loan:
On August 21, 2013, GRF entered into a Real Estate Loan Agreement for a 15-year term
loan of Ten Million Dollars ($10,000,000), for the purpose of funding a portion of the
$18.7 Million Recreation Master Plan project that received approval in May.
What is the collateral?
The $10 Million loan is secured by a Deed of Trust on the Community Center
(administration facility) and some cash collateral.
Was the loan interest rate locked in?
GRF took advantage of a low interest rate market and was able to fix the loan interest
rate at 4.27%. Rates have continued to rise since the lock-in so, as anticipated, the
timing was critical.
What is the prepayment penalty?
GRF may prepay principal in full or in part at any time; however, it is standard in a
commercial loan for the borrower to incur a prepayment penalty that will compensate
the bank for loss of revenue, profit, or yield.The calculation for early termination of this
loan will fluctuate with the market. If interest rates increase over the life of the loan, the
prepayment penalty decreases and in fact, may at some point in the future result in no
prepayment penalty or even a cash payment to GRF depending on timing and interest
rates.
Describe how the loan will be repaid.
Principal payments will be divided equally over the life of the loan, $55,555.55 per
month for 180 months, while interest payments will be calculated on the declining
principal balance.
GRF has determined that loan payments will be covered entirely from the Trust Facilities
Fee, a source of revenue implemented January 2012. Per Resolution 90-13-09, the
purpose of this fee is to “enhance and improve” recreational and other amenities
available to all residents of Laguna Woods Village. To the extent that a facility fee is
collected and placed in reserve funds, it reduces the need for reserves to be funded
entirely from assessments.
Does the Trust terminate on March 2, 2024?
The Trust states that it expires sixty years from the date the Trust was executed, which
would be on March 2, 2024 or upon the expiration of 21 years from the date of the
death of the last to die of several persons named in Article VI of the Trust Agreement.
However, the Trust does not include typical language that states "whichever is sooner"
or "whichever is later." Therefore, it is not known whether a court would interpret this
language to expire the Trust on the later of the two dates or the earlier of the two dates.
A letter from GRF’s counsel dated January 17, 2012, concluded that five of the six
named persons were still alive on that date.
Does the Trust require all debts to be paid off when it terminates?
The Trust states that “following the termination of this Trust, the Trustee shall render an
accounting to each of the Beneficiaries and shall distribute all of the Trust Estate,
subject to any debts of or charges against the Trust Estate (including but not limited to
obligations, if any, of the Trust Estate to the Trustee), to the beneficiaries, in the form of
undivided interests proportional to their respective Trusteed Sums.”
Thus, upon termination of the Trust, GRF would distribute the assets of the Trust to
United, Third and Mutual Fifty. Liabilities of the Trust would or could also be paid off
and charged against each Mutual's distribution. However, if a liability was not paid in full
at the time of termination of the Trust, the Mutuals would be responsible for such
obligations, and all distributed assets would continue to be subject to any outstanding
security interests that may exist, e.g., a deed of trust recorded against the asset.