Former Attorney General Peg Lautenschlager filed a lawsuit in Racine County Circuit Court Thursday claiming the city reneged on a deal to knock $200,000 off of a mortgage on a low-income apartment building that Spodick had turned around. The complaint alleges Spodick had a deal with former Mayor Gary Becker and City Development Director Brian O'Connell to reduce the mortgage, but the city backed out just before Spodick was to sell the property.
Lautenschlager, who served one term as Attorney General, now works for the Madison-based law firm Bauer & Bach. Daniel Bach, one of the lead partners, is a Racine native.
The suit was delivered to City Hall on Friday and the case has been assigned to Judge Richard Kreul.
Here's the key graph:
That in 2008 and 2009, Jim Spodick had several conversations with city officials regarding the amount required to pay off the loan. Gary Becker, who serve as mayor of the City of Racine, and Brian O'Connell, who served and serves as Director of City Development, promised Spodick the mortgage payoff amount would be reduced from $675,000 to $475,000 if Spodick could find a buyer for the property.The city has 20 days to respond to the claim. Kreul will then decide if the case can proceed to trial.
Read our past coverage of the story here.
To recap, the deal surrounds a mortgage Spodick took on in 2006 for the Wilmanor Apartments at 255 N. Memorial Drive. At the time, the low-income apartment building had been through at least three professional management companies, but was deteriorating quickly due to unpaid rent and crime. Becker, knowing Spodick through his work on low-income apartments on West Sixth Street, asked Spodick to takeover the building in hopes of avoiding a default on the mortgage. The default would have been costly for the city because it had received low-income housing tax credits for the property. If the building failed, the city would have had to pay the money back to the federal government.
Spodick and his wife took over management of the building, spent several hundred thousand dollars on renovations, managed the problem tenants and made the apartments profitable. After stabilizing the building, Spodick looked to sell the apartments with the understanding that the city would reduce the mortgage on the property by $200,000 to compensate Spodick for part of the renovations. (Incidentally, it was almost a fluke the city got any money back on the property. Two banks dismissed over $2 million in loans on the property - well more than the apartments were ever worth. The city then fell into first position on the loan, allowing them to collect when Spodick sold the building.
In the lawsuit, Spodick claims he went ahead with a sale assuming the city would reduce the $675,000 mortgage by $200,000. When the city refused the deal, he was on the hook for the money, which cost him an opportunity to buy another building. Spodick is claiming he lost $450,000 because he was unable to complete the purchase.
After the council rejected his request to reduce the mortgage, Spodick filed a claim against the city. The council rejected the claim on Nov. 17, opening the door for Spodick to sue the city.
He'll have a tough case to prove. City Council members argued in November that even if Becker or O'Connell made the deal with Spodick, the council has to give it final approval. But he can also tell a good story about how he helped turn around a problem building and preserved its low-income tax credits, only to lose money in the end.
The wild card may be Becker, who, despite being in prison, could testify in the case. If Kreul allows the case to proceed, Lautenschlager and Spodick may call him to verify their claims of a handshake deal on the property. Then again, it's hard to say how much credibility the former mayor would have under oath.