STOCKTON -- Wells Fargo Bank, for the second time since late February, has succeeded at repossessing property from Stockton for skipping bond payments in an effort to keep the city from bankruptcy.
The city has lost a final bid to keep hold of the eight-story former Washington Mutual building that officials had planned on turning into the new City Hall.
San Joaquín County Superior Court Judge Roger Ross granted a motion last Friday for summary judgment, shortening the process by which Wells Fargo can repossess the building at 400 E. Main St. in downtown Stockton.
It is unclear what will become of the building.
The city and Wells Fargo now must work out details of the judge's order and the transition of the building.
"It's subject to negotiations," Stockton City Attorney John Luebberke said. "We're certainly working on a satisfactory resolution."
Stockton issued nearly $41 million in lease-revenue bonds in 2007 to buy the glass-and-polished stone building with a pyramid-like base. JPMorgan Chase is now the building's major tenant.
Stockton's Information Technology Department is the lone city department to occupy the building. On April 26, the city skipped a $197,280 payment, triggering the repossession.
On Feb. 28, the City Council decided to enter mediation with its bondholders and major creditors in an effort to restructure its debt and financial obligations.
Buying time for mediation to play out, council members also agreed in a near-unanimous vote to stop payments on three of their many bonds in an effort to remain financially solvent through June 30, the end of the fiscal year.
Stockton first defaulted on a $799,935 payment of a $32.8 million bond it issued in 2004 to build three downtown parking garages. Wells Fargo repossessed them.
A second bond the City Council agreed to default on was one issued in 2009 for $35 million to build seven city parks, move the police communications center and expand or upgrade fire houses, city spokeswoman Connie Cochran said.
This $1.2 million payment went past due March 1.
And then in late April, Stockton defaulted on the former Washington Mutual building.
In an attempt to retain the building, Stockton's attorneys argued in court papers that Wells Fargo should first have to participate in the confidential mediation under AB506.
Yet, Wells Fargo's attorneys maintain in its court filings that its desire to repossess the new City Hall is identical to when it prevailed in April foreclosing on the three garages. The judge agreed.
Wells Fargo spokeswoman Julie Campbell defended the bank's reputation, saying that in this case Wells Fargo has no direct financial interest.
Rather, the bank serves as a trustee for the bondholders and Assured Guaranty Corp., the bond insurer, which is making the payments to bondholders that the city missed.
"Wells Fargo has no funds at risk in this case, nor are we attempting to recover funds for our own accounts," Campbell said in a written statement. "We are acting solely in the interest of the bond insurer and the bondholders and at their direction."