Sale of Volga's Countryview Estates has been halted by a judge's order.

The City of Volga and its Housing and Redevelopment Commission (HRC) suffered another setback this week in a lawsuit brought against them by the Brookings-based development corporation, Sandcreek, LLC. The city's planned sale of the first two phases of the Countryview housing development does not comply with state law, Circuit Judge David Gienapp decided Thursday.

The judge granted a request for a preliminary injunction on the real estate deal, enjoining the defendants from the sale of the subsidized housing without complying with South Dakota Codified Law 6-13 .

Sandcreek, headquartered at the Mills Property Management offices in Brookings, initially filed suit more than a year ago to prevent the city and the HRC from beginning construction on the third phase of the Countryview development in Volga.

The plaintiff built the Sandcreek Apartments on the west side of Volga in 2000 and 2001. The city's Countryview is a townhouse development in the same area in Volga and could be described as a Sandcreek competitor . That was the basis of the Brookings company's complaint .

The municipal housing project began well after Sandcreek opened. Countryview Phase 1, consisting of eight units, was completed in 2001, and construction of the six-unit Phase 2 was completed about two years later.

The HRC project was financed with tax-exempt bonds. Consequently, the city does not have to pay real estate taxes on the property and only makes a voluntary payment in lieu of taxes to Brookings County, amounting to 10 percent of gross rents. No lack of housing

In his May 2007 decision to place the initial injunction on the construction of Phase 3, Gienapp said Volga never established a limitation requiring that Countryview tenants be of low or moderate income, and a city study did not conclude that there was a lack of low- to middle-income housing there. Essentially, the judge said that the City of Volga and the HRC violations caused harm to the Brookings developer. HRC officials later set a limit for moderate income, but the judge ruled earlier this year that the $87,750 maximum for single occupancy was too high, making nearly 90 percent of the city's population eligible for government-assisted housing. June 20 compliance ordered

Gienapp ruled that the city and HRC had until June 20 to set a new definition for moderate income and get Countryview Phases 1 and 2 and their tenants into compliance.

On June 10, the Volga HRC passed Resolution No. 2008-3 , defining moderate household income for the City of Volga as $72,450. That figure is now the maximum income level to qualify for renting Countryview townhomes for 2008, and the level will be reviewed on an annual basis.

On June 19, the Volga HRC also passed Resolution No. 2008-4 , "Countryview Project Rental Guidelines" to bring the development into compliance with South Dakota Codified Law 11-7 .

Copies have been provided to Sandcreek officials, and Volga City Attorney Steve Britzman says it's up to the plaintiffs to initiate a hearing on the issue if they are not satisfied . Council sells for $1 million

But the City Council and HRC also made plans this spring to sell Countryview to a private entity, Edman Enterprises Inc., for $1 million.

Joel and Vicki Edman of Volga, owners of the Valley Mart, are principal owners of the corporation.

Sandcreek has objected to that sale, saying the city did not follow state law requiring it to get the property appraised, provide public notice of the sale and allow others to submit bids.

Not allowing a public bidding process increases the likelihood for Countryview to be sold below market value, and the new owner could charge below-market rents, Sandcreek owner John Mills argued in an affidavit.

That, in turn, could harm the competitive position of Sandcreek and other owners of rental property in Volga, he added.

Sandcreek attorney James Moore said the plaintiffs had no objection to the sale of Countryview as long as it follows state law. 'Statute not applicable'

In a court hearing Tuesday, Britzman argued that the state statute that Moore referred to did not apply to this case, a sale by a housing and redevelopment commission.

No public notice was needed for the Countryview sale, Britzman claimed, because it was not a transaction involving surplus property or a redevelopment area.

In his written opinion two days later, Gienapp disagreed. The judge said SDCL 6-13 does apply to the Countryview sale and the law had not been followed. He granted Sandcreek's request for a preliminary injunction on the sale until the city and its housing commission comply with the state law.

"The Court finds that the proposed sale threatens irreparable harm to the Plaintiff and is not in the public's interest ," Gienapp wrote.

Craig Howell, a member of the Volga HRC, said both the HRC and the Volga City Council have not had a chance to meet since the ruling.

The defendants haven't formally responded to the decision , but one of the group's options includes an appeal, he added.

Contact Jill Fier at jfier@brookingsregister.com.