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Apartments Ltd. evidenced by a disbursement agreement, promissory
note, deed of trust, and other related loan documents.
Except for the relatively modest amount spent to purchase
the Ironwood land, the Ironwood project was financed by a
conventional mortgage loan from a conventional savings and loan,
not with bond proceeds. Given the structure of the deal, it
could not have been otherwise. The lion's share of the Ironwood
bond proceeds had already been invested in the Ironwood GIC.
From February 20, 1986, until December 1, 1993, when the GIC paid
off and the bonds were redeemed, that is where they stayed.
The Riverside Housing Authority could not have reasonably
expected that substantially all of the proceeds of the Whitewater
and Ironwood bonds would be used to construct the projects. This
is because the bond financing documents deprived it, the Trustee,
and the conduit borrowers (the developers) of control over the
bond proceeds and allowed the bond proceeds to be diverted.
Without any agreement, the Riverside Housing Authority, the
Trustee, and the conduit borrowers had no assurance that the bond
proceeds would be used, as required by the bond indentures, to
finance the multifamily housing projects.
Petitioners have argued that the Riverside Housing Authority
was duped, indeed that the bond proceeds were stolen, and Judge
Jacobs seems to agree. It was not, however, reasonable for the
Riverside Housing Authority to sponsor a financing structure that
permitted it, the Trustee, and the developer to lose control of
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