FARGO — The court-appointed third party now managing hundreds of affordable housing units owned by Lutheran Social Services of North Dakota has concluded that the properties' market value is less than amounts owed to creditors.

Preliminary financial analysis results are included in a court document prompted by several banks' objections to some of the properties being placed in receivership, a court process to oversee sale of the properties so creditors can be paid.

Specifics of the financial analysis, including the property values and total owed to creditors, were not included in the document.

Lutheran Social Services of North Dakota announced on Jan. 15 that it was forced by financial problems in its housing program to shut down. The organization had long been the state's largest private social services agency, with a history spanning more than 100 years.

A Cass County District Court judge on Jan. 24 appointed a temporary receiver, Lighthouse Management Group of New Brighton, Minn., and a hearing is scheduled for March 11 to decide whether a permanent receiver will be appointed.

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As receiver, Lighthouse Management Group has taken over management of 577 affordable housing units owned by Lutheran Social Services in 15 cities as well as 407 units owned by others and previously managed by the nonprofit.

In arguing against several banks' opposition to naming a receiver, Lighthouse Management Group said all of the housing employees of Lutheran Social Services had resigned or been terminated -- leaving the buildings with no management or maintenance without the receiver.

Lighthouse is taking care of the properties with a "skeletal crew" of 15, without whom the values would be diminished — "as well as jeopardizing the health, safety, and welfare of the tenants," and cited the Creekside Cottages in Watford City as an example.

American Bank Center, Dacotah Bank, Dakota Western Bank and First International Bank & Trust have filed a motion to set aside the receivership.

"Lighthouse is obligated to maximize the financial situation to the benefit of all of the creditors," Patrick Finn, a partner with the management group, told The Forum. "Additionally, Lighthouse, as the receiver, must take into account the general health, safety, and welfare of the several thousand tenants who currently reside in these properties."

Because Lutheran Social Services of North Dakota is no longer able to maintain and manage the properties, placing them in the care of a receiver is the best avenue for creditors and tenants, said Bob Otterson, president and CEO of Lutheran Social Services of North Dakota.

“The receiver removes the risk of losing property management and the loss of property management would present a risk to residents, especially in winter,” he said. “Lutheran Social Services is certainly concerned with the ongoing need to serve people who are in these complexes.”

In preparation for selling the properties, Lighthouse Management Group has done cash flow projections, an analysis of claims from more than 800 creditors and a financial analysis aimed at maximizing the outcome for all creditors, Finn said in a statement with the court.

After a property is sold, any excess proceeds after paying all creditors belong to Lutheran Social Services Housing, and will be available to pay the parent organization's creditors.

In November, First Interstate Bank & Trust filed a lawsuit demanding immediate repayment of $8.3 million, the balance of a loan for a large apartment complex in Watford City that had gone into default.

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That forced Lutheran Social Services of North Dakota to cease operations. Under the receivership action in court, two other banks have filed notices that the charity's housing affiliate owes them large sums for loans in default.

Alerus Financial Corp. said that Lutheran Social Services Housing still owes more than $4.7 million on a 2017 loan for a housing project in Stutsman County, and Cornerstone Bank said it owes more than $7.5 million on a 2016 loan for a project in Watford City, according to court documents.

To prepare for sale, the apartment buildings will be appraised. It wasn’t clear when that process would take place, Otterson said. Lighthouse Management Group still is determining the best course for selling the apartment buildings.

"While no active marketing has taken place, the receiver has been in discussions with partners and mortgagees who have an interest in these properties on how to best move forward," Finn said. "Although there are no plans for an auction, if later Lighthouse determines an auction is in the best interests of the parties, it may happen. Prospective buyers have approached the receiver, however, no sale is currently imminent."

Besides apartment buildings, Lutheran Social Services owns its Fargo headquarters as well as a program center in Bismarck, an office building in Williston and the 16-bed Luther Hall, a residential psychiatric treatment center for youth in Fargo.

“They’re being prepared for market,” Otterson said. Some prospective buyers have expressed interest in the Fargo offices. “People interested in the building have walked through it.”

When Otterson announced that Lutheran Social Services of North Dakota would shut down, the agency had 283 employees. On Wednesday, Feb. 24, the number of remaining employees was 92, with about half working at Luther Hall and an administrative team of nine employees. The housing program had about 15 employees, not all full-time, Otterson said.

New agencies are being found to take over programs. The North Dakota Department of Human Services, for example, has taken over refugee resettlement and a program for assisting unaccompanied refugee minors.

Healthy Families, a home visitation program to assist children up to age 3, will be taken over by a new North Dakota nonprofit that is being put together by staff members in the program, Otterson said.

“I would say we’ve had a great deal of success finding new homes for many of the programs,” he said.

Tuesday happened to mark an anniversary for Lutheran Social Services of North Dakota. On Feb. 24, 1919, the Lutheran Children’s Finding Society, a predecessor organization, was founded.

Dismantling an organization with a rich history and a wide reach, serving thousands of North Dakotans in need, has been a difficult task for remaining staff members, Otterson said.

“Some days are better than others,” he said.