Dorothy’s Woods (City-owned Parcel of Washington-McLaughlin Property)
**March 13, 2018 Update: Fairview Investment Fund has filed a motion in the Washington-McLaughlin School’s bankruptcy proceeding asking that the court lift the automatic stay in bankruptcy so that it may proceed with its foreclosure action against the City’s property and the Washington-McLaughlin property. The foreclosure action has been pending since November 21, 2016.**
In January 2015, the City purchased a 2.68 acre piece of property, now known as Dorothy’s Woods, that had been part of the larger Washington-McLaughlin School property. The purchase was made at a tax auction after the IRS seized the property from the school for non-payment of taxes. The minimum bid set by the IRS was $67,251.86. The City was the successful bidder and acquired the property for a purchase price of $253,000. About $69,400 of the amount paid by the City was donated by residents who had supported and strongly advocated for the purchase of the parcel. It was known at the time that there were large encumbrances on the property. Once we purchased Dorothy’s Woods, we worked to reduce the amount of encumbrances that could affect the City’s property.
In late 2015, the City learned that Bank of America assigned (sold) the debt and lien on the original property, which includes the City-owned parcel, to Fairview Investment Fund. Subsequently, the firm initiated proceedings to foreclose on the property. The City Attorney has been working to protect the City’s interests through these legal proceedings. Takoma Park, along with the U.S. Department of Housing and Urban Development, has filed Motions to Dismiss a suit related to the foreclosure action.
On October 11, 2017, the U.S. District Court conducted a hearing on motions filed by the City and HUD seeking to dismiss a federal complaint filed by Fairview Investment Fund seeking to establish the priority of its lien over the lien held by HUD and clear its way to foreclose upon the City’s property. The court declined to dismiss the case, but accepted the City’s argument that Fairview is precluded from filing the claim if it did not file its claim within six years of the accrual of its claim. The court decided that when the claim accrued is a question of fact that could be decided only after the development of evidence on that question through the discovery process and consideration of a subsequent motion for summary judgment. The judge referred the case to mediation and will require Fairview, HUD, and the owner of the non-City owned portion of the Washington-McLaughlin to attend.
On January 18, 2018, the City learned that the U.S. Department of Housing and Urban Development and Fairview Investment Fund, the two entities that hold liens on both the City-owned Dorothy’s Woods property and the adjacent Washington-McLaughlin Christian School-owned property, reached an agreement in which HUD granted Fairview’s lien on the City’s property priority over HUD’s lien. HUD entered the agreement with Fairview over the City’s objection and despite the City’s efforts to advocate in opposition to the settlement between HUD and Fairview.
In mid-February 2018, the City learned that HUD agreed to release its lien on the City’s Dorothy’s Woods property. This leaves one remaining encumbrance on Dorothy’s Woods, a lien held by Fairview Investment Fund.
In early March 2018, the federal suit was dismissed and HUD’s release of its lien on the City’s property was made final.
The City continues to take every step possible to preserve Dorothy’s Woods and will now work to obtain the release of the remaining encumbrance. We are also monitoring Washington-McLaughlin School’s bankruptcy proceeding and the dormant foreclosure action in the Circuit Court for Montgomery County.
Deputy City Manager
Summary of Financial Transactions Related to the Property
- The City purchased property at IRS tax auction for $253,000, about $69,400 of which was donated by residents advocating for the purchase of the property. The City paid outstanding property taxes in the net amount of about $28,700 on the City-owned portion in order to record the deed for the property. Total City payments for ownership of the property equal $281,700.
- The surplus proceeds from the IRS auction of the portion of the Washington-McLaughlin property which was purchased by the City of Takoma Park—i.e., the amount realized from the IRS auction, in excess of the IRS lien—equaled approximately $186,400. These surplus proceeds were due and paid to Montgomery County to be applied to the Real Property Tax Bills of the Washington-McLaughlin Church School, satisfying the amounts owed for levy years 2008 through 2012. Takoma Park received $142,400 of the property tax amount paid from the IRS surplus proceeds. The rest of the $186,400 tax payment went to other taxing authorities, such as the State of Maryland and Montgomery County.
- For levy years 2012-2016, the City received $202,600 for remaining outstanding Washington-McLaughlin property taxes. These property taxes are not related to the IRS auction or the City-owned parcel.
- Depending on the outcome of the foreclosure effort, there could be other financial impacts to the City of Takoma Park, including the possibility of losing the City-owned property. In any event, there have been and continue to be legal costs involved with this matter.
- The City received the Declaration of Covenants dated November 9, 2017, and recorded on November 28, 2017, in Book 55281, Page 492 among the Land Records of Montgomery County, Maryland.