The city of Durango is taking its resale of a deed-restricted townhome unit in north Durango back to the drawing board after questions arose about a city workplace relationship and the city’s processes.

Durango City Council opted not to vote on an ordinance that would approve the sale of a city-owned townhome on Tuesday, allowing the legislation to expire.

City Council approved the city’s purchase of Animas City Park Overlook townhome unit 501 across the street from Animas City Park for $547,000 in April with the intent to resell the unit as a below-market price, deed-restricted unit.

The city partnered with HomesFund, a mortgage assistance nonprofit, to notify prospective buyers, perform underwriting and identify qualified buyers.

By mid-June, a buyer prepared to purchase the property for $399,999 had been found. But the city pumped the brakes on the sale when the city manager’s office learned the homebuyer was a city employee in a relationship with another employee in the city’s Housing Innovation Division.

The relationship was not problematic, City Manager José Madrigal said in an interview last week. But the decision by former Housing Innovation Manager Eva Henson, who was aware of the relationship, not to disclose the relationship to city officials was problematic, he said.

When questioned by city officials about why the relationship was not disclosed, Henson resigned, he said.

HomesFund Executive Director Pam Moore and real estate agent Zane Wells, who said he worked with purchasers of four other deed-restricted Animas City Park Overlook townhomes and the would-be purchaser of the fifth unit in question, attended Tuesday’s City Council meeting.

During a public comment period, Moore distanced HomesFund from the controversy, saying the mortgage assistance organization objectively followed the processes and procedures set by the city.

She said the single qualified buyer, the city employee, completed every step to receive a qualified buyer letter from HomesFund. He or she had acceptable credit, acceptable debt-to-income ratios and had a down payment of their own.

“With all the required approved conditions met, we issued the qualified buyer letter,” she said. “HomesFund was not aware of the relationship that seems to be an issue in this matter and we did not deviate from our process in the application. We processed it like any other.”

Wells said City Council should go forward with selling the townhome to the buyer, and that the ordeal cost the city a “very good employee” with Henson’s resignation.

Responding to the comments, Madrigal said staff’s recommendation to not approve the sale of unit 501 on Tuesday was to redesign the city’s process to allow more time for prospective homebuyers to inquire and to include some form of randomized lottery for selecting applications for review.

Homebuyers initially had just two weeks to apply for the townhome, which was announced for sale on April 25. By May 11, about 93 households had been notified of the townhome being made available for purchase, Madrigal said last week.

In an interview on Wednesday, Moore said there’s a lot of interest in housing, but hard math determines who can actually buy in the end. HomesFund spends ample time talking with prospective homebuyers about their personal finances, she said.

She said if HomesFund was a Plinko board with prospective homebuyers represented by little balls, only one ball at a time is going to land in the correct slot, or be able to purchase a home.

“With homeownership, some families really need to spend some time getting ready, right? You need to get your financial house in order. With rates at 7% to 7¼%, the math is hard right now, it's real hard,” she said.

Madrigal said on Tuesday it is not the city’s intent to implicate HomesFund in anything inappropriate – the issue lies with how the city designed its process for the sale of the townhome, adding, “there is information that was withheld” in reference to the workplace relationship.

“When you’re dealing with public dollars, public funding, everything should have been fully disclosed to the council to make a decision,” he said. “Because that decision is based on what (councilors) think is best for the community and best for the finances of the city.”

Durango Community Development Director Scott Shine reiterated Madrigal’s point.

“It wasn’t that was done improperly or not administered well; it was in the design that was led by city staff to give to HomesFund about how to go about this process,” he said.

Shine said purchasing housing units for resale at below market rates with deed restrictions remains a workable model for increasing Durango’s housing supply. Internal processes just need to be refined, he said.

cburney@durangoherald.com