In observance of the Memorial Day holiday, the Northwest Herald newspaper will not be published May 28. Breaking news and information will be updated on

Family Service assets turned over

McHENRY – In lieu of foreclosure proceedings, all Family Service and Community Mental Health Center assets have been turned over to a trust – including its 40,000-square-foot building off Route 31 and everything in it.

As the fiduciary of what is called the Family Service Trust, John C. Wheeler will manage and liquidate the assets of what was McHenry County’s largest mental health provider, and maintain its properties to try to make good on outstanding debts.

Wheeler couldn’t put a dollar amount on the total assets that now belong to the trust.

By far, the largest debt is two mortgages, one on the 4100 Veterans Parkway headquarters property and another on the building at 5320 W. Elm St.

Family Service took out a $5.3 million mortgage in 2006. When the agency folded, it owed about $4.5 million, said Ned Neumann, a member of the now-disbanded Family Service board. An additional $753,402 is owed on the Elm Street property, according to the agency’s last IRS-filed economic statement.

Both properties are leased and occupied, but the rent that Rosecrance McHenry County and QoL pharmacy pay at Veterans Parkway is “not enough” to cover that mortgage, Wheeler said. The Elm Street property is rented by various nonprofits.

Attempts will be made to collect any unpaid accounts receivable, primarily outstanding payments from the state.

“We’re looking into seeing if there’s any collectible,” Wheeler said. “But I kind of doubt it.”

Every tangible item in each building, including desks and other furniture, is part of the trust and subject to being sold piecemeal.

“That even includes the toilet paper, I assume,” Neumann said.

Although each property will be put on the real estate market, the tenants likely will remain in place.

“I’m going to be talking to them about their continued occupancy, but I see no reason to change that at this point in time,” Wheeler said.

Rosecrance McHenry County, which occupies the Veterans Parkway property, addressed that issue at a mental health forum last week, saying “We’ll be there until we can’t be there anymore.”

Before its collapse, Family Service’s financial woes were no secret.

Just before the agency folded, the Family Service Board approached its bank, First American Bank in Elk Grove Village, seeking a line of credit to make payroll. At the time, the agency was looking to bridge the gap created by delayed and reduced state payments.

Before considering lending more money, the bank, as the Veterans Parkway mortgage-holder, ordered the agency to have its building reappraised.

What appraisers found was that the agency’s loan-to-value ratio was 92 percent, meaning that for every $100,000 of value, it still owed $92,000. That violated a condition of the mortgage agreement that stated the loan-to-value ratio be 85 percent or better.

The bank not only denied the line of credit, it also asked the agency to remedy the violation by putting at least $700,000 into a reserve fund as added security for the creditors.

Former Family Service board members claim that they never missed nor were late on the $30,833 monthly mortgage payments.

“I feel like the rug got pulled out prematurely,” Neumann said.

The Mental Health Board eventually fronted the agency more than $1.4 million to cover payroll and other expenses while Family Service then looked to third parties to take over.

That’s when North Central Behavioral Health Systems came into the fray. Family Service agreed to transfer services to it, but one month into the arrangement, North Central pulled out.

The bank warned of foreclosure before North Central came on board and did not support the transfer of services agreement. Bank officials sent the Family Service board a strongly worded letter calling the agreement “fraudulent.” The bank believed it had a right to review the North Central agreement, Neumann said.

Loading more

Digital Access

Digital Access
Access from all your digital devices and receive breaking news and updates from around the area.

Home Delivery

Home Delivery
Local news, prep sports, Chicago sports, local and regional entertainment, business, home and lifestyle, food, classified and more! News you use every day! Daily, weekend and Sunday packages.

Text Alerts

Text Alerts
Stay connected to us wherever you are! Get breaking news updates along with other area information sent to you as a text message to your wireless device.

Email Newsletters

Email Newsletters
We'll deliver news & updates to your inbox. Plan your weekend and catch up on the news with our newsletters.