Hempstead Village's Community Development Agency has had to divert nearly half its annual funding to cover a $10 million mortgage it backed on behalf of a now-defunct Hempstead development group that was unable to pay the bill.
The agency had to cut back on funding it provides to nonprofit groups in the village as a result, officials said.
Hempstead's CDA has been paying $588,000 annually for the last 10 years in order to help cover the mortgage taken out by the 100 Black Men of Long Island Development Group. The agency still owes the county $6 million, village and county officials said.
"It's a burden on the CDA," said Hempstead Village Mayor Wayne J. Hall Sr., also the CDA chairman. "The CDA is having a cash flow problem because of the money, but we have absolutely no choice but to pay that."
In 2001, the Nassau County Office of Community Development borrowed $10 million from the U.S. Department of Housing and Urban Development, and lent that to Hempstead's CDA.
That agency then loaned the money to the 100 Black Men development group, which used it to acquire the block-long old bus terminal at 100 Main St., after a 1998 foreclosure judgment against the earlier owner, the Nassau County Economic Opportunity Commission.
But the building's rent rolls did not cover mortgage payments, taxes and operational expenses, causing the group to default on the loan.
The county's foreclosure action against 100 Black Men, started in 2006, is pending and a court-appointed receiver has been managing the building, Deputy County Executive Charles Theofan said. Real estate taxes also have not been paid for more than 20 years, he said.
"I think had the property been managed properly, it would have been productive for the community," said James Garner, who was mayor and the CDA's chairman when the loan was guaranteed with the agency's yearly allocation of Community Development Block Grant money.
"It's just unfortunate. I thought it was a marvelous idea, but now that has cut into the CDA's budget," Garner said.
The village also has paid about $120,000 of the CDA's payroll; the agency will reimburse the village when it receives the remaining portion of its allocated $1,015,675 from HUD. The practice is not uncommon, village and county officials said.
"They're broke," village trustee Perry Pettus said of the CDA. "We have been making their payrolls and they have other bills that have not been taken care of."
In 2007, the development group sued Nassau County, Hempstead Village and officials of both for $45 million, charging officials refused to support a restructuring of the loan, refused to give the group a needed tax break and conspired against it so the village could give the property to another developer.
The suit was dismissed, village officials said.
"My thoughts were the loan could have been paid back if they would have approved the refinancing," said the group's former attorney, Lance Clarke of Hempstead. "The foreclosure should not have been forced."
The county is working with the village, CDA and HUD to obtain a marketable title to the building and enter into a municipal tax collection agreement with the village to enable the sale of the building, Theofan said.
"The goal is to hopefully eliminate or greatly reduce the crushing burden on the CDA, and to restore the property to the active tax roll," Theofan said in a statement. "This is not going to be an easy task but a favorable result will be well worth the effort."