A Lindon investment holding company that owns about 50 acres on the southwestern boundary of The Ranches residential development in Eagle Mountain is facing foreclosure after defaulting on its special improvement district assessment.

An attorney for Eagle Mountain filed a notice of default against KEB Enterprises late last week after the company failed to make its annual payment of about $70,000, which came due in September 2008. City officials said the company has about $550,000 in outstanding special improvement district assessments to be paid over the next few years.

Eagle Mountain set up special improvement districts in 1998 and 2000 to fund the construction of roads and installation of electrical lines, water and sewer pipes, parkways and other infrastructure. The city uses funds from the assessments to make payment on bonds issued to finance the infrastructure build-out.

"We sent KEB notices asking them to pay over the past 45 days," said John Hendrickson, city administrator for Eagle Mountain. "They've been paying all along, but haven't developed the land yet. But they still owe money for the improvements made."

Property foreclosures by cities over unpaid assessments aren't common, Hendrickson said, but the housing slowdown and economic downturn raises the possibility that such foreclosures may happen more often.

But David Shurtliff, a representative of KEB Enterprises, said he believes the assessment "isn't reasonable because it now exceeds the perceived potential value of the property."

"The economic downturn has made the property less marketable," he said. "We're capable of paying the assessment but the city has to make concessions. Because of the economic downturn, we may not be able to sell the property for an amount that would satisfy the value of our investment."

The company bought the land in a deed in lieu of foreclosure about four years ago, he said.

"The dilemma I'm facing is whether to hold a property when we're not sure of the returns, or to let it go into default," Shurtliff said.

City Attorney Gerald Kinghorn said the city will schedule a trustee's sale of the property if the assessment isn't paid in three months.

The City Council last week appointed Kinghorn's law firm of Parsons Kinghorn Harris in Salt Lake City to handle foreclosure proceedings.

"KEB bought the land and is therefore responsible for paying its portion of the special improvement district assessment. Our responsibility is to collect those funds and place it in a trustee's account to pay off bond holders," Hendrickson said. "The bond holder's collateral is the land, so if KEB doesn't pay the bill, then the city has the right to foreclose on the land."

The city is weighing different options for the property.

"If we do foreclose on the land, we'll sell it for at least $70,000, and the new owners will also have to take on responsibility for paying the remaining $480,000 owed on the special improvement district assessment," he said. "If the city doesn't find a buyer, then it'll have to use funds in the reserve accounts, which are adequate at this point, to pay off the assessment."