The Pine River City Council met Dec. 3 to decide what to do with collateral it took possession of after business owner Sue Stroinski defaulted on her $50,000 Pine River Revolving Loan through the city for that business.

Stroinski failed to make required debt payments on her loan. The city sent Stroinski a certified letter as notice of defaulting on her loan in July. At that point she had missed three consecutive payments. She did not make remedies to remove the loan from default.

According to Stroinski, she was not financially able to remedy the loan with the city at that time. "I planned to continue to work out a payment plan with them," she said in a statement.

The city will sell the secured property from the loan - including coffee shop and some quilt shop equipment - and apply proceeds from the sale against the total loan amount - including interest - that she owes the city.

Stroinski will be responsible to pay the remaining balance on the loan after the collateral is applied.

Stroinski moved her quilting business to Jenkins and opened on Dec. 1. Signs posted at her former business location and on her business Web site www.prpantryandquilters.com announced the move.

She moved some of the collateral items to a new quilt business location in Jenkins, contrary to her loan security agreement with the city.

That written agreement said that she must not sell, lease or encumber the collateral property without the city's consent - which she lacked, according to city councilors.

Other collateral items - coffee grinding and brewing equipment, kitchen items, appliances and some electronic equipment - were left in the building.

Following her business move to Jenkins, city councilors took inventory of items remaining in the O'Dell's building and, on Dec. 1, located - and retrieved - the collateral items from her.

According to Stroinski the only items she moved to Jenkins were computers and two used sewing machines. "I did not feel the computers or machines would be safe in an empty building and ... I needed to remove my data from the computers."

Stroinski said that she made arrangements to return the items to the city on Dec. 4, four days after the move. A check with city hall Tuesday morning confirmed that Stroinski returned those items Friday, Dec. 4.

The city has possession of some of the secured property but the bulk of the collateral is in the O'Dell's building. Stroinski no longer has a lease with the O'Dells.

The O'Dell's attorney, Paul Sandelin of Sandelin Law Office in Pequot Lakes, sent Stroinski notice of default on her lease agreement with the O'Dells by certified letter on Nov. 25.

The O'Dells also sent letters to Stroinski on Oct. 23 and Nov. 2 asking for the lease payments agreed upon in the terms of the lease.

Because of her failure to pay them October and November lease payments, her lease with them was terminated on Nov. 30.

The O'Dells attended the Dec. 3 meeting and notified the city that their July 2008 lease agreement with Stroinski stated that items installed as permanent fixtures in their building must remain with the building if the lease was terminated or in default.

Those items included a three-hole sink, water filtration system, hand sink, counters and security system. The total approximate value of those items is $5,000. Stroinski paid for the items and the O'Dells installed them.

However, Stroinski listed some of those items as collateral on her city loan. In addition, some of the collateral items Stroinski declared as her business assets were actually leased items from other parties. She pledged $38,856-worth of assets as collateral on the $50,000 loan - including nearly $7,000-worth of leased items.

"The leased items on the asset list were listed in error," according to Stroinski, "a mistake I sincerely regret." She asserted in a statement that the city requested an asset list and she provided them a list from her files that she did not update to reflect only the collateral assets.

The O'Dells position is that the permanent fixtures belong to them and should remain in the building.

"It states clearly in the lease that permanent fixtures were to be returned back to the building," Chris O'Dell said. If removed the items could cause hardship and damage to the building.

O'Dell told councilors that because the lease agreement between the O'Dells and Stroinski predates the loan agreement between Stroinski and the city - the items installed as permanent fixtures belong to the O'Dells.

He added that he and his wife are concerned that if the city removes those items from their building that it may cause damage to the building.

Mayor Jim Sabas asked the O'Dells what they would like to see happen with the equipment in the building.

"We would like to see business reopen. We'd like to see if we could get somebody to come back in there and operate the business similar to what it was before. If there was a party interested in purchasing that equipment, that would be great," Chris O'Dell said.

Mayor Sabas agreed. "It started out as a real fine business, and it's all set up for it, I think it's the easiest way we can proceed. If somebody steps into this and takes it over, and makes a go of it, it'll make all of us happy," he said.

The council voted to authorize City Attorney Ted Lundrigan to draft a memorandum of agreement between the city and the O'Dells.

Dec. 4 Lundrigan said that he had drafted an agreement that states that the collateral items may stay in the O'Dells' building until Jan. 4. The city will give up the claim to the permanent fixtures as rent.

However if the O'Dells find a leaser for the building who does not want to purchase the items, the items would need to be removed immediately, stored in a secure place and sold.

At the Dec. 3 meeting Chris asked the council if they had received any offers to purchase the collateral items: "Have you had any viable offers that you're considering?" he questioned.

Sabas responded that he hadn't been approached with any offers, personally, but a couple of the council members had talked to some individuals who expressed interest.

Chris told the council that he and his wife would be very happy to negotiate with prospective renters and encouraged the city to move quickly in selling the equipment - opening up the possibility that someone would open a coffee shop in the same location.

However, Chris stressed, "If it becomes a long drawn out process ... it's not beneficial to us."