The Oak Bluffs affordable housing trust has recommended that the town planning board require a contribution of $880,000 to the town’s affordable housing efforts from the principals involved in the sale of a failed housing development.

The issue could be decided following a public hearing before the planning board Thursday evening at 7 p.m.

An investors group headed by Boston businessman Paul Adamson bought the former Kupersmith property in the Southern Woodlands in June from NLP Finance at a foreclosure auction. As a condition of the sale, NLP Finance agreed to clear all licensing and permitting issues before the town. A series of meetings have been held between the seller and the Oak Bluffs planning board with the public hearing set for tonight.

Affordable housing trustees, made up of members of the affordable housing committee and selectmen, met during the selectmen’s meeting Tuesday.

Town manager Bob Whritenhour said a contribution of $880,000 would comply with the town’s flexible development bylaw, which was not in effect when the town issued a building permit for the original development in 2004. The bylaw requires 10 per cent of lots in any new project to be set aside for low income residents. That would amount to two lots in the 26-lot subdivision.

Mr. Whritenour said town assessors valued the lots at $440,000.

“If this subdivision came in today, they would be required to have a contribution of 10 per cent, if monetized, at $880,000,” the town administrator said. “I’m very much recommending in favor of having a lump sum payment. I think it’s entirely appropriate that those funds would go to the affordable housing trust.”

Marie Doubleday, chairman of the affordable housing committee, called for a slightly higher contribution.

“If we could get the value of the two lots up front, roughly $900,000 to $1 million, and have it directly submitted to the Oak Bluffs housing trust, I could be in support of that,” she said.

The decision rests with the planning board, which began wrestling with the issue and negotiating in open session with the sellers shortly after the foreclosure auction last month. In a legal opinion issued before the property was sold, special town attorney Daniel Perry said the planning board has the right to void the original permit and begin the permitting process all over again. The board could also negotiate a settlement with new affordable housing mitigation and nitrogen levels that would allow the project to move forward immediately. Attorneys for the seller vigorously disagree with that opinion and have threatened litigation if the matter cannot be resolved.

Planning board chairman Brian Packish attended the selectmen’s meeting Tuesday.

The property buyers increased an original offer of $480,000 for affordable housing to $650,000 in a letter to Mr. Packish Tuesday afternoon.

“I can’t speak for the rest of the board,” Mr. Packish said, “but this is a lot more in line with our method of thinking. It’s a significant improvement.”

Also at issue is the amount of nitrogen that will be released from septic systems in the new development. Oak Bluffs is developing regulations that will limit nitrogen flowing into groundwater, which eventually makes its way to Sengekontacket Pond and Lagoon Pond. Both ponds are already at their limit for nitrogen loading. The planning board could set a limit on nitrogen loading as a condition of any special permit.

Looming over the negotiations is the threat of a lawsuit.

Michelle Manners, the attorney who represents NLP Finance, contends that the planning board has no authority to void the original permit.

In a July 23 letter, she informed the planning board that she has asked the Massachusetts attorney general’s office to issue an advisory opinion on the planning board’s authority.

“The planning board lacks the authority to rescind the special permit,” Ms. Manners wrote. “To do so exposes planning board members and the town of Oak Bluffs to substantial legal liability from claims by NLP Finance LLC, individual lot owners, the trustee in bankruptcy from the Kupersmith bankruptcy estate, as well as our prospective buyers.”

She said town officials should weigh the cost of litigation against the offer of affordable housing mitigation made by the buyers and the seller.

The sellers will also need to return to the Martha’s Vineyard Commission, which approved the subdivision as a development of regional impact (DRI) in 2004.