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DeKalb bond default leaves investors in the lurch

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Cleveland McFarland was among the early residents of Creekside Vista when it opened in 2006. The apartments went into foreclosure early this year.

The Marietta couple,  both retirees, couldn’t understand what had happened. They had been living on interest on bonds issued by DeKalb Housing Authority a decade ago. But in late March, they were told to return the last check they had received. The bonds were in default. The couple and others who invested weren’t getting the money they had counted on.

They asked the AJC to look into the bonds. Here’s what we found.

The bonds – $13.5 million worth – were to help fund construction of Creekside Vista, a 208-unit complex described as luxury apartments for affordable living, and it  featured such amenities as a free childcare center in the clubhouse and a state-of-the-art fitness facility. Pretty nice for Section 8, subsidized housing. When the bonds were issued back in 2005, the mortgage giant Fannie Mae also provided some financial help, in the way of a credit enhancement. And the state Department of Community Affairs OK’d tax credits, to help.

But in January, the apartment complex, near I-285, south of I-20, went into foreclosure and Fannie Mae took it over. Belatedly, on March 1, ratings on the bond sunk into oblivion – S&P lowered the rating 19 notches, from AA+ (very strong capacity to meet financial commitments) to D (payment default on financial commitments).

So what went wrong?

The former owners – Candler Vista LLC – could not be reached for comment.

Housing Authority records indicate the apartments were well maintained. DCA said occupancy didn’t seem to be a problem. As of the last inspection of the apartments, back in December 2013, every deficiency that was found was addressed, DCA says.

There were no discussions at Housing Authority board meetings or correspondence from the apartment owners that pointed to trouble, according to the agency’s response to an AJC open records request. And the authority apparently didn’t receive any notice when the March payment on the bonds wasn’t made.

A statement from Fannie Mae didn’t shed a lot of light, either. The emailed statement says that when default became apparent, Fannie Mae took immediate steps to secure the property and to address safety concerns that were neglected by the previous owner. It didn’t respond to a question about what those safety issues were. But it said that tenants shouldn’t see any disruption, as long as they pay their rents and have bona fide leases.

As for the elderly couple and other investors who bought the housing authority bonds, the outlook is also murky. Earlier this month, the bonds’ trustee advised investors that Fannie Mae hasn’t said whether it intends to redeem the bonds. Money from Fannie Mae’s credit facility were used to pay the principal and interest due in March. As for future payments, the trustee will have to determine the amount of money available. Investors will have to wait for more details as development occur, the notice says.


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