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Old business with the former Taste of Lonsdale restaurant has been finalized now that former owners Brian and Claudia Otto have agreed to pay the city and EDA a settlement of $39,000. The Taste of Lonsdale closed in November 2018, and the Ottos stopped paying back the loan soon after. (News Review file photo)

Owners of a Lonsdale restaurant that closed in November 2018 have reached a settlement agreement with the city and Economic Development Authority after failing to pay off the loan agreement.

During its Thursday online meeting, the City Council unanimously approved a resolution allowing the city of Lonsdale/EDA to enter into a settlement agreement with the Taste of Lonsdale and its former owners, Brian and Claudia Otto. Under the agreement, which the Ottos proposed, the Ottos will repay the city/EDA $39,000.

On Sept. 29, 2017, the Ottos entered into a 60-month loan agreement with the EDA/city of Lonsdale to borrow $39,489. The Ottos used the loan to make a down payment on the property used for Taste of Lonsdale, buy business equipment and use it for working capital. In exchange, they agreed to make 59 payments of $363.35 as well as a balloon payment of $21,000.

The Ottos provided their private New Prague residence as collateral, a decision that could have resulted in them losing their house to foreclosure as a consequence of not paying back the loan. Shortly after Taste of Lonsdale closed in November 2018, the Ottos stopped making payments. The EDA motioned to demand the total unpaid balance due immediately, and staff worked with the Ottos to try to refinance their house, but ultimately the unpaid loan resulted in the city/EDA filing a lawsuit against the Ottos and the Taste of Lonsdale.

City Administrator Joel Erickson said he calculated the amount of the principal balance due, as well as the legal expenses and late fees accrued, and named the total just over $47,000. The total outstanding balance for the loan payment was just over $35,000. Erickson said in accepting the payment of $39,000 from the Ottos, the city would not recover about $8,600 in legal fees associated with the matter. The city/EDA agreed to waive the Otto’s late fees, which totaled between $850 and $900.

“I think that’s more than fair,” said Mayor Tim Rud in regards to the settlement. “In fairness to Ottos … you have to give them credit for certainly trying. I, myself, think this is a pretty equitable outcome for this situation.”

Council member Steve Cherney was at first reluctant to vote in favor of the settlement, particularly the mitigation of the legal fees. He was initially concerned about setting a negative precedent, but Rud and other council members disagreed.

“I think we settle and move on,” said Rud. “Attorneys will just keep racking the bill. I strongly think we should settle.”

Added Councilor Cindy Furrer: “Being involved with the project since the very beginning … this has dragged on a long time. I think taking the $39,000 is the best option for us. We have had other loans where we took it to court and got nothing.”

Erickson also said when he first talked to the Ottos about negotiating the settlement, he sent them the full amount owed and they offered what they could. After hearing Rud and councilors’ perspective, Cherney recanted his no vote and made the motion to approve the settlement as written.

Based on the agreement, the Ottos will pay the $39,000 before the scheduled May 21 court hearing.

Reporter Misty Schwab can be reached at 507-333-3135. Follow her on Twitter @APGmisty. ©Copyright 2020 APG Media of Southern Minnesota. All rights reserved.

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