A Great Bend, Kansas bank, Farmers Bank & Trust, is suing the City of Junction City and Homestead Community Development operated by Thomas Bishop in Holton, Kansas. Homestead owns the Bartell House in downtown Junction City.
The lawsuit alleges that on Jan. 26, 2007, Junction City executed a loan guaranty agreement to induce the Bank to enter into a loan agreement with Homestead in the principal amount of $600,000. On Feb. 27, 2007, the Bank and Homestead entered into a commercial security agreement for the $600,000 amount.
The loan dealt with funding for the renovation of the former restaurant area in the Bartell House.
Farmer’s Bank and Trust alleges that Homestead and the guarantor, the City, have refused and failed to make the required payments on the note as they became due, and defendants are in default.
According to court records as of April 1 of this year Homestead and the City were obligated to pay all amounts due under the loan documents including principal totaling $418,963.11, unpaid interest totaling $14,576 which continues to accrue, late fees totaling $1,680, and attorneys fees and expenses to be determined by the court.
Farmers Bank & trust is also seeking to foreclose on the mortgage, and that if the principal and interest due the plaintiff remains unpaid within 10 days after the date of judgement that the court order the Geary County Sheriff to advertise and sell the property.
Also named as defendants in the case are former Junction City Mayor Terry Heldstab, whose signature is on the loan guaranty in the court records provided by the Bank; former City Clerk Colleen Woodruff who allegedly attested to Heldstab’s signature, and former City Attorney Charles Zimmerman.
According to court records current Junction City Attorney Katie Logan in April of 2014 told the Bank that it is her opinion the Guaranty is void and unenforceable under Kansas cash-basis law. She cited state law that it is unlawful for the governing body of any municipality to create any indebtedness in excess of the amount of funds actually on hand in the treasurery of a municipality for such a purpose. Logan noted that she had been informed by City staff that the City did not have $600,000 on hand in its treasury for the purpose of paying the Guaranty in January or February of 2007.
Logan also noted that there was no evidence in City files or in records of City Commission meetings that any provision was made by the City for payment of the Guaranty by issuance of bonds, temporary notes or no fund warrants. In fact during the 2006 early 2007 time frame there is no evidence that the Guaranty was ever approved by the City Commission at all.