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Council denies loan‑forgiveness request from Mary Erickson Community Housing, directs repayment demand
Summary
After staff urged denial, council voted 5–0 to deny Mary Erickson Community Housing’s request to forgive roughly $245,000 in loans (plus about $18,000 interest) and directed staff to demand repayment; the nonprofit offered deeper affordability in exchange for forgiveness, which council debated but ultimately declined.
The San Clemente City Council on May 12 denied a request from Mary Erickson Community Housing for forgiveness of outstanding city loans tied to three small affordable properties. Staff told the council the loans were structured as deferred-payment, interest-bearing obligations with an expectation of repayment at maturity; the total principal discussed at the meeting was about $245,000 plus approximately $18,000 in accrued interest.
Executive Director Susan McDivitt told council the nonprofit has operated the properties for three decades as very‑low‑income housing and requested loan forgiveness in exchange for extending deeper affordability (50% of area median income) for additional years. McDivitt asked for a deferral or further consideration and proposed that forgiveness structured in exchange for extended affordability would preserve affordable housing and not be a gift of public funds.
Staff recommended denial, arguing the loans were not originally structured as forgivable, that forgiveness would remove a secured city asset and could be construed as a gift of public funds without a clearly justified and measurable public benefit. Staff noted alternative options such as extending the loan or pursuing other funding sources for rehabilitation, and advised the council on potential legal steps if the loans were not repaid.
Following public comment and council questions about the financial mechanics, liens and the feasibility of refinancing, the council voted to adopt the staff resolution denying the forgiveness request and to direct staff to issue a demand letter and pursue repayment (vote 5–0). Councilmembers said they were sympathetic to the nonprofit’s mission but concerned about management, precedent and the most effective use of limited city funds.
The council asked staff to follow up with information about the loan priority (liens) and to return with recommended next steps if repayment is not forthcoming; the city attorney noted that, if necessary, the council could pursue collection action after appropriate notice and, in closed session, consider litigation or receivership options.
