Dorothy’s Woods (City-owned Parcel of Washington-McLaughlin Property)
**October 11, 2017 Update: Earlier today, the U.S. District Court conducted a hearing on motions filed by the City and the U.S. Department of Housing and Urban Development (“HUD”) seeking to dismiss a federal complaint filed by Fairview Investment Fund II 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.**
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 II, LP. 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. The motions are scheduled for a hearing in October 2017.
Meanwhile, the Washington-McLaughlin School entities have filed for Chapter 11 bankruptcy.
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.