hud nsp open forum q&a, 3/13/12 · hud nsp open forum q&a, 3/13/12 2 really mean completed....

HUD NSP Open Forum Q&A, 3/13/12 Kent Buhl: And now for today's main event, "Open Forum Q&A with HUD Staff." This webinar is an opportunity for NSP grantees and partners to ask questions and solve NSP problems through discussion with the NSP program managers and your peers. NSP grantees and affiliates have the opportunity to ask questions about deadlines, program design, rules and regulations, eligible uses, other federal requirements, and any other current issue of interest. This webinar is for all NSP grantees and their partners. We have with us today the familiar voices of the NSP managers at HUD headquarters in Washington, DC -- John Laswick, David Noguera, and Hunter Kurtz. And also with us today from Enterprise Community Partners is Matthew Do. Hello, all. So let's learn what's the hot topic right now. Or do you want the charts right now, John? John Laswick: Yeah. You can go ahead and put those up. That's one of our topics. We just got these charts for a process called HUDStaff that the secretary uses to track our progress on all sorts of activities across HUD. So Ryan Flanery's been using these to try to simplify where we are on various phases of the program, and I wanted to give people an update as we did that. So let me back off and say that Hunter and David are here and it's a beautiful day in your nation's capitol. The daffodils are blooming; the early magnolias are coming out; and here we are, inside. So we'll try to make it enjoyable for you. I think we've got about four charts here and they should be available in some format here after the presentation, I think, for you to download if you want. But basically these show some different takes on either expenditures or accomplishments for NSP 1, 2, and 3. So this first one is funds disbursed out of each program. And not surprisingly, NSP 1 has got the most. NSP 2 is just past 50 percent, as we all know. And NSP 3 is really just getting going. So we have, in our drawdown records, the NSP 1 funds are 86.74 percent drawn. That's a slightly different percentage than we see in disbursements. NSP 2, the expenditures are right now hovering right around 55 percent, and yesterday was the last day for grantees to post updates or corrections to their expenditure figures. And then for NSP 3 we are just about 8.72 percent drawn. So we are in the process for NSP 2 of reviewing the submissions, the expenditures that you have. And we've gotten -- most of our field offices have received information on expenditures, invoices and so forth to do a random sample. They're not due back to us until March 26th, so we can't give you a percentage of completion on that yet. But so far we haven't encountered major problems. I don't think that predicts that we won't, but it's good news so far. So you can see, if you can go to the next slide, Kent, I think this starts to get more interesting when you look at units by activity type that are completed. Now, when we say "completed" we

HUD NSP Open Forum Q&A, 3/13/12

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really mean completed. So one of the reasons that construction and new housing and rehabilitation are so low -- in the 20 to 30 percent range -- is that in order to be completed, those activities have to have occupants in the units and meet the income criteria. So those are going to substantially lag some of the other activities, like clearance and demolition, which is a fairly straightforward, in-and-out kind of procedure. And you can see that that one, at least as far as anticipated production, has already 100 percent complete. And the home ownership assistance actually is probably going to come in at some level into both the rehab and the new construction, but we've tried to separate those out. And we're talking about units here or households, depending upon the particular type of assistance. So we're hoping that these are more or less non-overlapped categories so that we can get a feel for what's happening in a sort of non-duplicated way. Next slide, please. And so this shows NSP 2 distribution of funds by activity type; a slightly different presentation style, but again, it's by dollar amounts committed, budgeted, obligated and disbursed to these various activities that we've seen here. Again, so quite a bit's going through rehab; pretty much half the funds -- a little over half the funds, $1.93 billion of NSP funds. I think these are instructive in the sense of where the money's going. Rehab clearly overshadows new construction, but new construction is not insignificant. And I think that the lower figure here for home ownership assistance may reflect this sort of more sophisticated understanding of what that really is than we probably had in NSP 1. The last slide -- thank you -- NSP 2 completion. So even though we have gone over 50 percent in expenditures for NSP 2, you can see how far behind the actual completions lag. And we're not surprised by this. We realize that there's a big time difference between being under construction and having somebody in the home and occupying it. I was just down in Florida a couple of weeks ago and was really pleased to see a lot of stuff under construction. But all that stuff has got months to go of construction alone; and then even in the best case, moving families right afterwards is going to take a number of months more. So that brings me to my big hot topic today -- is there life after deadlines? And one more time around on closeouts. So we still get a lot of questions about closeouts and what does that mean and how does that relate to these spending deadlines? So let me say that we have expenditure deadlines that are imposed by Congress for all three phases of the program. Next spring we're going to reach completion -- 100 percent expenditures for both NSP 1 and NSP 2 in February and March for the most part, and the 50 percent expenditure deadline for NSP 3. So that's going to be an interesting convergence of activity, and hopefully everybody's going to be in pretty good shape on that one. I think NSP 1 should be fine, although there are still some slow grantees. But we do not -- repeat, do not -- expect that the programs are going to close out immediately after your expenditures are done, and that last slide shows you why. There are certain things that we have to see before we can start to think about a closeout.


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So in the short run, the good news is that you will just continue to operate your program with program income, if you have some, hopefully; or just sit tight and maintain your position if you're complete and all your work is finished. Because we're writing closeout guidelines, and one of the main things that you have to do is to complete all your activities and meet a national objective with each of the activities. You have to have all your letter of credit expended and all costs paid, except for perhaps closeout or audit costs. And you have to meet your 25 percent low-income set-aside. And so most of that is going to take anywhere from 12 to 18 or more months after the completion of the expenditures. There is no legally mandated, legislatively mandated closeout date for these projects. And so you should and will be able continue to operate the program on program income by all the same rules that you're playing with now until we get to the point where you meet the requirements for closeout and we can start to execute a closeout agreement with you. After that point, the rules for the use of program income will change a little bit. We think that it'll be a little more flexible; that's not final yet. But what I want you to know and want you to tell your friends, that anytime that people get worried about next spring and the deadline for 100 percent expenditure of NSP 1 and 2 funds, it's not the end of the world. You will continue to go on. If there are funds left in your letter of credit from the fact that you have received program income and have drawn the program income prior to drawing funds from the letter of credit -- as you are required to do -- you will have access to those funds. We will not be shutting down anybody's letter of credit. That money is yours by contract and should continue to be available because of the spending rules required by OMB. So there is life after deadlines. Right now as of today, we have over $500 million in program income between NSP 1, 2, and 3. NSP 1 is the majority of it, with $460 million -- so over half a billion dollars in program income already, which is about 7.5 percent of the grant funds that we had originally. So we anticipate that that number will grow. You will be able to keep working off that, both before we close out and after. And so we will have to spell out more detailed guidelines, but you really need to understand that you can just keep going as before; that you need to hit your deadlines but you should continue to plan to keep moving and make your program income decisions accordingly so that you have a continual flow of funds, if you can. So that's today sermon from HUD headquarters on closeouts. We are actively writing this closeout notice. It will include information about how any remaining NSP 1 or 3 funds that are recaptured will be reallocated. It will also talk about -- and this is where it gets kind of complicated -- the post-closeout policies on program income, on land bank properties, and on long-term affordability of housing. They're not any real change from what we've been talking about all along, but the systems [ph] for tracking and so forth after the grant closes out will be different. We think we have answers for all these things, but sometimes they need to be coordinated with each other. We're working hard on that.


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So one thing I want to do before we take questions is to allow Hunter to talk about upcoming webinars because he has to go to another meeting for a couple minutes. Hunter Kurtz: Well, Thursday we're going to have a DRGR Q&A session. That's going to have our DRGR experts from HUD here discussing some issues that we face with the new release and just taking about workarounds and things like that. We'll then have our NDC underwriting training webinar that's sort of a prep course for those of you who are going to be taking NDC trainings that are around the country. Then starting after that -- unfortunately it's not on this list -- but on March 29th, April 5th, April 10th, and then April 17th we're going to be doing something a little different. We're going to be doing a series of webinars. The series is entitled, "What Now? Marketing, Disposition, and Other Strategies to Dispose of NSP Inventory." The March 29th webinar is going to be the opening to the series and is going to deal with marketing and disposition rules and regulations. Then April 5th, which is here, we're going to talk about scattered site rental. And April 10th we're going to look at land banking. And April 17th we're going to have a best practices peer-to-peer session with some of the experts from the other three webinars, as well as some grantees who have had some success disposing of their backlogs of property. So we're really looking forward to that and hope you all enjoy it. John Laswick: Great. And then David wanted to talk about some training that's coming up; just in general terms, right? David Noguera: Right. So many of you will recall that we had a series of problem-solving clinics in the past. We pretty much have been using these workshop-style seminars to present information on various components of the program, along with these one-on-one consultations that we made available to grantees and subrecipients. And we're actually going to be doing another round of those clinics. So we have eight of them coming, beginning at the end of April and running all the way through July/early August, I believe. Those will be posted on our website. They will be two-day clinics, with the first day being for the workshops and the second day being for the one-on-one consultations. And participants are welcome to stay for both days or come for one day. So please look out for the listserv announcements and the postings on the website. They should be coming shortly. In addition to the clinics, we're also going to be offering another round of DRGR training. These are the in-person computer lab trainings with our provider expert trainers as well as our HUD experts that will be on-hand to answer questions and troubleshoot issues as they arise. So for those of you who may not have participated in the past, what this is is an opportunity to sit down, review some case studies, learn about how to pull reports; how to use MicroStrategy to generate


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reports. And you'll be able to go into your account and they'll show you how you can manage your account. These are two-day trainings. They're usually limited to anywhere between 20 and 30 participants. We're going to have 10 of them also, and they will be running beginning in April and August. So please look out for those as it pertains to the work you're doing and let us know if there's any additional trainings that you're interested in. So right now we have the underwriting trainings, we have the DRGR; we have the clinics. If there's something else that we're not offering that you think is missing that you could really benefit from, please let us know. John Laswick: All right. So it looks like we have 143 participants; pretty good for an open forum day. Thank you all for showing up. Kent, do you have any questions? Kent Buhl: We do. And let's go first to Michael. Hi, Michael. What's your question? Michael G., are you out there? Perhaps your own phone is muted. Okay. We'll come back to Michael. And let's go to Christopher. Hi, Christopher? Q: Hi. How are you? Kent Buhl: Doing well. Where are you calling from? Q: Calling from Denver, Colorado, from the Adams County Housing Authority. So my question is technical for the use of funds, and specifically we're working on a project where we have both NSP 1 and NSP 3 funds available to the project and committed to the project. And the question is that infrastructure improvements in support of the housing project -- this is a distressed infill parcel that needs to have some infrastructure built to support the housing project. That includes a road, water, dry utilities, storm water, etc. And my question is the eligibility of that use for NSP 3 versus NSP 1 funds. John Laswick: Yeah, that's a good question. I think the restrictions on public improvements, public facilities in NSP 2 and 3 have concerned some folks. At the same time, they don't fully block projects like yours. So we appreciate you sending in the question early; gave us time to talk about it a little bit. But we understand that this infill parcel, then, is essentially a new subdivision or a new small subdivision; you're not buying into an existing, uncompleted subdivision or something like that? Q: We're buying a very large parcel on which we will be plotting a project that is smaller. So a portion of the parcel will be developed, and that will need a road put in through the entire larger parcel in order to serve it.


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John Laswick: But this is vacant land. Q: Yeah. It's vacant land but it's infill and it's surrounded by contiguous development. John Laswick: Yeah. So that meets our criteria for infill development, and you can redevelop a vacant parcel. The question about utilities, then, is really it boils down to how much they serve the housing. You know, if they are exclusively serving the needs of these housing units that will meet NSP criteria for income and so forth, then they are eligible to the same extent that the NSP units are a proportion of the whole. So if they're all NSP-eligible, then all of your infrastructure should be eligible. You know, you have some cost-benefit things to look at, so you might not want to -- Q: So the fact that it's in the public right-of-way does not automatically disqualify it from NSP 3 funds? John Laswick: No. In fact, they're public improvements. It could be either in this scenario. I mean, typically under CDBG you're restricted to the public right-of-way -- public improvements in support of housing. Here, because you can develop new housing, that would include on-site work. So not all your roads are going to be off the property. So you could do those sewer lines u to the property line and then beyond because you can do the new housing. That's where it's a little more flexible than CDBG. Q: So where the question comes into play about is it in direct service of the housing is, for example, if you have to run a looped water line and it extends off the smaller parcel that you're building for just the housing, but it needs to run through the whole site in order to connect in two places, there's a portion that is not necessarily on the same parcel as the housing. But it's being put in specifically to build that project. David Noguera: Now, tell me this. Will there be other units built with non-NSP funds that will also benefit from those water lines? Q: The water and sanitary would run through an area that, in the future, could be developed, yes. But there are no current plans to develop. John Laswick: So you're saying that but for these lines you couldn't build the subdivision because the loop requires -- Q: Exactly. John Laswick: Right. Well, I think from a sort of negotiation standpoint it would be good that if you could get some payment for the off-site portion of those at the point when the future development occurs, that would then become program income and that'd be great. But I mean, I don't think -- that doesn't have to happen. I mean, that doesn't have to be imminent for you to go forward with what you're talking about here.


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Q: Okay. David Noguera: Yeah. The way we've pitched [ph] these in the past is you can't build the housing unless you have the roads, the water, the utilities to support it. You just don't have a project without it. So from that standpoint, the public improvements become an incidental to the housing. However, if there were other units that we being funded with non-NSP funds that are also going to be benefitting from this infrastructure, then you'd probably want to use a more prorated approach; to say, this is the portion of the entire project, this percent is NSP and this percent is non-NSP, so this percent of funds is going to come from the NSP pot and so on. It doesn't sound like you're there yet, so it sounds like you can make a case for funding all of it with NSP. Q: And if a second phase was contemplated as a potential development in the future, then the idea might be to structure a reimbursement for some of those costs? John Laswick: Yeah. That's recommended. I don't think we can require that. David Noguera: Under the change of use? John Laswick: Well, no. They're not changing the use. They're basically -- David Noguera: But the fact that those other units may be market rate or -- Q: They would be affordable as well. David Noguera: Okay. John Laswick: That would kind of take some of the pressure -- I mean, that would in effect sort of retroactively prorate the costs a little bit. So yeah, I don't see a problem with this. Q: Okay. Well, thank you very much. John Laswick: All right. Good luck. Kent Buhl: Thanks, Christopher. And next up we've got Rich Molloy from rainy -- where the daffodils are blooming also, but it's raining. Q: Down the road from you, Kent. Can you hear me? Kent Buhl: I can. Hi, Rich. Q: Yeah. It was snowing down here. That's unusual. Anyway, got a couple of questions. I'm with the state of Oregon. John, you answered the closeout thing but I've got sort of a couple tail-end questions of that.


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One is, it says in FAQ 11-39, it's all clear that we could still be potentially constructing units beyond March of 2013. If those units are low-income, can they still be counted towards the set-aside, or must our set-aside expenditure count be completed by March of 2013 for NSP 1? Because I've got some Habitat projects that aren't going to be done until probably later in '13, maybe into '14 because of new construction slowness. John Laswick: With other sources of funds, you mean? \ Q: Yeah. David Noguera: So are you saying that you may get to an amount equal to 100 percent of your allocation but you would not have spent the 25 -- the set-aside funds? Q: I'm going to be close. I'm probably going to be okay. But I have a commitment from a Habitat to build some low-income units and it's about $500,000 worth of NSP. We're a little bit over par; I've got cushion. But my question is do you know if we're going to be able to count those? If we're not, it won't be the end of the world. If we can't -- I'd like to try to count them, is the point. John Laswick: Yeah. That's a good question, Rich. So the 25 percent is based on the dollar amount. Q: Right. John Laswick: It's 25 percent of your grant amount, at least. So that's one level. So I think that you would -- I mean, I think you would have to be damn close to 25 percent expended on that by the time you're fully expended. But to the extent you still have funds in your letter of credit and further income coming in, there's probably a little bit of flexibility. I wouldn't want to go too far on that. So that's the expenditure and the eligible activity. Then you still have the national objective. That's the part that we anticipate taking longer. And as you point out, a lot of these projects, particularly multifamily stuff, has tax credits, other sources of funds in there. And so you could use NSP funds first, perhaps, but you still don't have a completed project until all the other stuff is done, and that might be a little ways down the road. So we'll consider that as far as when we're writing this closeout guidance -- David Noguera: Right. Because the statute speaks to spending an amount equal to your allocation. Q: Okay. 25 percent of our allocation, which is like $4.9 million. Okay. David Noguera: I mean, it doesn't specifically address the set-aside. But obviously you have to have the funds to meet the set-aside requirement if you spent the money and you haven't done 25 percent.


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Q: Yeah. John Laswick: You should have a little bit of cushion; that's good. I mean, I think at some point it would be easier to count the units after completion than to count the expenditures after completion. Q: It probably would. Okay. And then kind of related to that -- so again, going to that deadline a year from now, let's say our agency still has administrative funds in our budget. Can the administrative funds be carried over or must the administrative funds be expended also? Because it's an operations thing, because I'm still going to have to report -- or whoever's here is going to report going down the years as these things get completed. John Laswick: Well, so here's the way we've been thinking about that. You have 10 percent of your original grant amount plus 10 percent of program income. So you're saying that you still have 10 percent -- some of that original 10 percent still hasn't been expended by February of 2013. You have expended 100 percent of your grant, so in effect you've got some money left in your letter of credit because you spent program income first. And so essentially you've complied with the requirement. How you use those funds in your letter of credit is really only driven by eligible uses and national objectives and so forth. And so if you have the way to cover that and still carry that balance forward, I think you'd be able to carry that balance at least until the closeout. And you could still use 10 percent beyond that. But it's a big concern, I know, for a lot of agencies -- those with land banks, for example. I mean, there's no source of funds beyond program income and they could be looking at it 10 years after closeout type of horizon. So that's what I've been telling people. I had this conversation with some folks in Florida a couple weeks ago and their problem was they weren't expecting all that much program income. So the more program income you have, the more flexibility you have. And your only restraint on that 10 percent is 10 percent of the grant and dollar amount -- program income amount, rather than 10 percent until you reach 100 percent and then it's all over. I mean, that wouldn't make any sense. Q: Yeah. Okay. And then one last really quick thing. So how it's going with NSP 3 in the target areas? I brought this up before; you guys are probably tired of hearing this. But the nature of our target areas is such that if we get a reasonable minimum number of units to make an impact in that target area and we approve that target area by an amendment to our plan, then we find that the actual REOs on the ground aren't there. So we recently did an amendment to do that, and here's what's going to happen. We got a count of the units on the ground, but in order to get enough units -- even if it's 10 or 15 for a small target area -- it drives the minimum unit thing up pretty high. And I think we probably achieve


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half to two-thirds of that minimum unit to make an impact, just by virtue of the fact there aren't enough units on the ground. Does that make sense? David Noguera: Yeah. Yeah. Q: It's just not dense here, you know? This isn't St. Paul, Minnesota, where I used to live where it's really dense and it was no problem. It's kind of spread out here in Oregon. John Laswick: Well, I think it's really going to come down a judgment call on your part, that what you are left with or what you can actually accomplish under the original scope essentially is meaningful. I mean, our minimum treatment units were a suggestion, so they were not a hard requirement. But I think what we were trying to get people to think about is, well, if I just do one or two units in this census check, it's probably going to just disappear in whatever. Q: Yeah. I agree. I mean, it's a good idea, but -- John Laswick: Yeah. So if the choice is to continue at a lower level of treatment or to amend into an area where you're confident you've got more units, I think that's sort of up to you. But I think that once it starts dropping below maybe half of what your commitment was, you probably ought to think about a different area. Q: Okay. Because that may mean some areas won't work. We do have a couple hotspots in Oregon where it would work pretty well. We've got a couple that the data, the need score thing, it really didn't pan out in reality. John Laswick: Well, you've got one of the best NSP specialists, Kristin Arnold, out there. Q: Oh, yeah. John Laswick: So check in with Kristin and she can help you think it through. And if you can't figure it out we can give you a call. Q: Okay. That's all I have. Thank you, gentlemen. John Laswick: All right. See you. Kent Buhl: Thanks, Rich. Let's move on to John [ph]. John, you there? Q: Yes. I'm here. Kent Buhl: Great. Where are you calling from? Q: I'm calling from Cuyahoga County Department of Development in Cleveland, Ohio. John Laswick: How are you? Just talking to Bill Whitney yesterday.


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Q: Oh, okay. How are you guys doing? John Laswick: Good. Well, we're trying to figure out how to deal with demolition and national objectives and all sorts of fun questions. Q: Yeah. I hear you. My question is NSP 3 -- if we buy a house and we do the rehab, when we go to sell a house can that house and that sale be a land swap? Hunter Kurtz: Land swap with what? Q: Well, with another parcel of land somewhere in that community. John Laswick: Of equal value? Q: In theory. We don't have all of the particulars on paper right now. David Noguera: What's behind that? John Laswick: Yeah. What are you trying to do? Q: We have a community that has NSP funds made available to it from us through competitive process. They have two target areas in their community. They have an existing eligible home that they want to acquire and rehab. And then they have some other vacant -- I have to apologize because I'm not exactly sure the exact characteristics of the other parcels. But I know that there's either an existing home that is vacant or there is -- I think there's a vacant home on this property. So they want to then swap the properties with the owner and then clear that land. John Laswick: Well, is there some reason they just can't buy it, instead? Q: Well, I don't know that there isn't a reason that they couldn't just put it up for sale and market it. I think that they probably have a -- unfortunately I came into this late, so I don't know. They might have some sort of a preliminary agreement in place with this second property owner to swap these properties. John Laswick: So on one level, an exchange of property doesn't always have to be for cash. So if you have two properties and you have appraised values and they're comparable, in theory you could do that. I'm not sure -- David's saying I'm not sure how DRGR would digest something like that. I think Ryan's on with us here today. David Noguera: You know, we typically track properties -- at least completed properties -- by addresses or lot numbers. And the extent to which services were provided to treat that property would then be tied to that address. So then taking that investment and swapping it for an alternative investment, I think it becomes a little fuzzy there. And it could be problematic for you.


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What I recommend, number one, you get the details straight on why this approach is being presented, is being pushed. And if there's a way to work it out, we'll certainly work with you. But at least my initial gut reaction is it sounds a little sketchy. John Laswick: Yeah. I think, for one thing, I think you'd have to assure that the person that was receiving the renovated home met the NSP income criteria. Q: Oh, absolutely. That goes without question. We would certainly make sure that the renovated home would follow all the rules and regulations and period of affordability and all of that. There'd be no question about that. That's really not the question. The question is the swap itself; and then is the new property program income? And does it come under the rules of program income? David Noguera: You know, I think the cleaner way to do it would be two separate transactions. On one hand you have a renovated property that you're selling to an income-eligible homebuyer. On the other hand, you are receiving a donated property from someone who happens to be a beneficiary of the program. Q: Mm-hmm. Hunter Kurtz: Yeah. I think it might work, John. You know, Kyle Darden is our -- John Laswick: I think he's your NSP specialist down at the Columbus office. Q: Yes. John Laswick: You know, maybe we could follow up. Sometimes these things depend so much on the particular details that it's hard to say. Q: So what I'm hearing is that nothing catches your eye; there's nothing that says no, you can't do that; but let's look at it a little bit. John Laswick: Yeah. I think you need to be sure that the values are similar, very close. Q: I have a feeling that the value on the vacant property is going to be really low and the value on the renovation is going to be somewhat near market. David Noguera: Well, I think the other issue -- I was going to say the affordability period. You know, any time you treat a property with NSP funds you've got all the rules and regulations tied to that property. So I don't know how that would play out with a swap. You couldn't then swap all those rules and everything to that donated property. John Laswick: But if you had -- let's say the renovated property's worth $100,000 and the property with the home that you're going to tear down or whatever is worth maybe $20,000. Well, so the owner of the property that you want to swap for is the one that's going to be acquiring the home. Maybe they could take that value and use that as their down payment.


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They'd still have to buy the house from you at some rate that was based on our underwriting -- some price that was based on affordability in some way. David Noguera: Yeah, yeah. Right. Q: Well, that would certainly seem reasonable to me. I agree with that. John Laswick: So I think there could be some way to work it. I don't know if Ryan's still on. I forgot to introduce Ryan because he's not in our building right now. He's our DRGR wiz. Ryan, do you have any ideas about how this might play through DRGR? Would that be something that's even worth trying? Ryan Flanery: Yeah. I've been trying to think about it. I can't really visualize it yet. I probably need more info to be able to come up with something. I guess you could treat it like an acquisition -- like a standalone acquisition, perhaps. I don't know. I need a little bit more info. John Laswick: Yeah. It could just be how you sort of record it. I mean, it could effectively be a swap but it looks more like a down payment or something like that. David Noguera: Yeah. Because whatever the property is that's being swapped -- the lower value property -- you could place a value on that and credit the home buyer for that value relative to what you're selling them the renovated home for. John Laswick: Right. And the program income would be the property, rather than the cash. But it'd be the value of that property. So I wouldn't rule it out. I think we want to be kind of careful -- David Noguera: -- the way you structure it. You might even request some on-call TA to help walk you through structuring it. Because the concept could probably work. It's just about how you structure it. Q: Okay. That makes sense. Can I throw someone else out to you guys? John Laswick: Only if it's easier than the last one. (Chuckles.) Q: (Chuckles.) For down payment assistance, in order to be eligible to receive federal funds, somebody cannot be in arrears in federal taxes. What if they are in a repayment plan? Do they become eligible to receive federal funds? [talking over each other] John Laswick: They're still in arrears. David Noguera: Yeah, because at any moment they could renege on a payment.


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John Laswick: Yeah. I don't know if there's anything in the purple handbook on that. Q: No. There isn't. Hunter Kurtz: Could you write that one into our AAQ? John Laswick: Yeah. If you could write that into the Ask-a-Question line and we could take a shot at it. Q: I did write it in, and the response was nonresponsive. The response came back as a question of, well, you need to call the lender to see if their monthly payment interferes with their debt ratio. They didn't catch the eligibility issue. Hunter Kurtz: Send the question again and mention that you talked about it on the webinar, and that HUD asked for it to be sent to them. Q: Okay. John Laswick: Yeah. The way we do these is that we have a group of highly trained people doing the answering the questions, and then every week they send us the ones that they can't quite get their heads around or ones where there isn't policy yet -- and we sometimes can't get our heads around them, either. And there's also a level of review in-between there. But we get these kind of stumpers that we'll just ask them to come to us and we'll try to take our shot at it or come up with a policy. But I'm guessing that until they're out of that work-out plan they're still technically in default and in arrears. And I guess I've got to ask myself, is that really -- how comfortable am I with somebody that's already kind of strained that way economically? I mean, I don't know. I'm not getting a good feeling about it. Q: Okay. Thanks a lot. Take care. John Laswick: All right. Sorry you didn't get an answer the first time. Kent Buhl: Thank you, John. And next up we've got a question from Robert [ph]. Hi, Robert. Q: Hi. Calling from Springfield, Massachusetts. John Laswick: How are you? Q: Good. And it's a question about affordability period. We converted a two-family house into a single-family house and we're approaching closing. The house appraised at $80,000 and will sell for $65,100. And we're going to use recapture, so that gives us a difference of $14,900, which would be a five-year affordability period. This particular house never had a driveway, and we've had difficulty selling it, and in the developer's negotiations in the sale they agreed to install a driveway.


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But here in the Northeast the asphalt factories are closed until spring, so they want to escrow $2,800 for the driveway. And my question is, that $2,800 that'll be escrowed, is that direct subsidy to the buyer that needs to be counted towards recapture so that I go into a 10-year affordability period? It's going to be escrowed with the seller's attorney and it'll be paid directly to the contractor that the buyer picks to do the driveway. John Laswick: All right. So you said you've got $80,000 appraised value. How much do you have into this property? Q: $78,450, I think, was the granted amount. John Laswick: $78,450. So there's actually some value that's been created. I mean, you don't have a development subsidy at this point. Your total development cost is below your appraised value instead of appraised value. Q: Nearly equal to market. Right. John Laswick: Right. David Noguera: So it's not so much an affordability period question. It's more a Treasury question; can you draw down those funds ahead of your need for them? Q: Well, I think the -- the developer, we amended our agreement to get this $2,800 in to do the driveway and I think they've just set that aside. On closing I'll probably get a little bit back in program income from them. So it's not like they want the money ahead of time. But before we close I need to give them a deed rider that will say it's a 10-year or a five-year affordability period. John Laswick: I see. And you're right on the margin there is what you're saying. David Noguera: Oh. Here's the thing, though. You can -- I mean, those HOME timelines are just the minimum threshold. You can extend them to the extent you want. So if you want to be safe just say 10 years. Q: Right. And my problem is this house has been on the market for a year, finally got a buyer, and I'm afraid to -- in the initial discussions the driveway wasn't even an issue -- and I'm surprised it appraised. I thought clearly we'd be under the $15,000. But it appraised a few days ago at $80,000. So we've got $14,900 and the threshold is $15,000. And I'm just scared of chasing the buyer away, but at the same time, I don't want -- again, the house sat. If it's looked at in the future, I want to make sure I have the right affordability period. David Noguera: Wait. Let me walk this through a second. The sales price is $65,100 and you have $80,000 into it.


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Q: Well, the lender appraised it at $80,000. So I've used that to say the market value's $80,000. I'm selling it at $14,900 under market cost. And so under recapture, that's what's going to count as a direct subsidy to the buyer. There's no closing cost assistance. David Noguera: No, no, no. I think you're misinterpreting how the recapture would work. Q: Okay. David Noguera: The difference between what the property's worth and what you're selling it for would be considered a sunk cost; right? That's a development subsidy. Yes, it's worth $80,000 -- John Laswick: No, it's over. It's anything that they put in that's over the $80,000. That would be the sunk cost. David Noguera: The only thing that they can recapture is what they are actually providing to the home buyer, either as a second mortgage, as closing costs, as a down payment assistance. That $14,900 is -- John Laswick: I know. But the problem is that the $78,450 they have into it now is not the total cost of the project. Q: Right. John Laswick: Basically you've got a project that's $82,000 or whatever -- close to $82,000; at which point I think you could say that that's the sunk cost is the piece that's over, the $80,000. But you still have more than -- Hunter Kurtz: It's the difference between what you're selling it for. You can only recapture sales price on; right? Ryan Flanery: Still total development cost. Q: And I'm pretty confident if the house value -- like I'm actually looking, I grabbed my resale recapture book from one of the onsite trainings. Resale recapture, $60,000 and home development -- this is just an example. So you gave a developer $60,000; the house value is $160,000; you sell it for $150,00 and you gave them $10,000 down payment assistance. So it says, and the answer -- the affordability period, what is it? It's 10 years of free capture because you're buying down the price from them. You're giving them 10, but you're selling it -- so that difference between the value and what they're actually paying, that counts as a direct subsidy to the buyer. I'm certain of that. David Noguera: Right. Q: Just as if he was giving them down payment assistance. So that $14,900 -- the difference between the market value and what we're going to sell it to him -- I'm certain that that counts as recapture.


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David Noguera: What's the total development cost? Q: I've paid $79,000, say, and it's probably $83,000, maybe. David Noguera: Because we don't go off of market. John Laswick: So I mean, the thing is, anything that you add at this point -- so the difference between the $78,450 and the $65,100 you're selling it for is $13,350. Because you can only sell it for the lower of TDC or appraised value. But the difference between $13,350 and the $15,000 that kicks in in the 10-year period is less than the $2,800 that you have to spend on the driveway. I don't know. David Noguera: I don't see a way around it. John Laswick: Yeah. I mean, I don't see a way to not spend another $100 -- Q: And make it 10? John Laswick: And make it 10. Q: Well, and again, in calculating this -- and again, I'm using the HOME rules -- but in calculating it I'm taking the market value of the home and I'm taking the sales price of the home and that's a discount that benefits the home buyer. So there's my $14,900. Now, I don't have anything else. I'm not giving anything else directly to them. But that does count as a direct home buyer assistance. What I'm wondering is this $2,800 that I'm escrowing, does that make me go into -- does that count as direct home buyer assistance? If I had put the driveway in, if there was an asphalt factory -- and this may be my solution, is to hold off for a month or six weeks, have the developer put the driveway, and then close. Then I'm still at the $14,900 and I've got a five-year restriction. John Laswick: Yeah. I think that might be possible. Because I think what's going to happen is that, unlike in the HOME program, NSP requires you to sell at the lower of total development cost or appraised value. So you actually have less of a development subsidy in it from an NSP standpoint. Q: I'm sorry; lower of the TDC -- which is $82,000 -- or appraised value, and that's $80,000. So I'm selling it for $60,000. I'm way under both of those. I'm selling it for $65,100. John Laswick: So I guess you could have some amount of development subsidy above $80,000 to get it down to the $80,000 that you're selling it to. But you still have this $14,900. David Noguera: See, what I'd think you would do is sell it at $80,000 -- or $78,000 or whatever --


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Q: But I can't sell it at that. David Noguera: -- give them a soft second for the $14,000 rather than making the sales price $65,000. Q: Okay. Yeah, recapture. Okay. And it's just weird. I've never escrowed this money to do something down the road. Usually the house is done and I can calculate what kind of affordability period I have. And again, I've done it more at HOME than NSP, but I'm using that as the safe harbor. John Laswick: You know, if you actually look at it as your total development cost is $81,000 and then you're going to discount -- you're going to drop the sales price to appraisal, which is $80,000, and then sell it for $65,100, then you're still at the $14,900. And potentially you could do it that way. Q: But what about this $2,800 that we're escrowing? That's what I'm worried about. John Laswick: Well, that becomes part of total development cost, and the amount that's over $80,000 gets written off as a development subsidy. Q: To the developer. It doesn't count as a direct subsidy to the home buyer. John Laswick: Well, whatever portion is above the appraised value. Q: Above the appraised value, right. And I think this $2,800 is what basically puts it above it. John Laswick: Yeah. So it gets back to an $80,000 value and a $65,100 price. Q: But then I'm at my $14,900 where I can keep it to a five-year affordability period. And it's not like I'm concerned that this area, this house has sat and the reason I can only get $65,000 for a house that anywhere else would be $80,000 is because it's more of a depressed area. And I'm sure well beyond this five-year period it'll only be available to income-eligible people. John Laswick: I mean, the other thing you might find yourself doing now is lowering the price. You know, once you go below $65,000 then you're in the 10-year territory anyway. I don't know. Q: Right, right. David Noguera: Or increase the subsidy that you're going to offer at the current sales price. Q: Right. Right now there's no real direct subsidy other than they're getting it below market value and they're going to throw in the driveway. But maybe I drop the price $2,800. That still keeps us -- I don't know. I'm scared. I finally got somebody to buy the house. [inaudible] finally got somebody to buy and I don't want to scare them off with the 10-year because the early discussions were of a five-year.


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John Laswick: Well, I mean, the other way to think about it is to see if you can make a case for resale, if the area is low enough income that the prices have not appreciated, and therefore you can meet that exception criteria so that you can impose that at resale, and then just not have to enforce the resale provision -- I can't think of the name of that. Q: Presumed affordability? John Laswick: Presumed affordability, yeah. Q: But then I need a study. That would be -- and I've got a lot of areas that that'll work and I've looked into doing it. I just haven't had time to try to document everything to do that, because that would make my world so much easier. Because I would really need -- and I haven't looked all in-depth at that -- but I really would need like a formal market study, and it'd probably have to be done annually? John Laswick: No. You just do it once. But it is -- I mean, there's a fair amount of work involved. Q: Yeah. Yeah. John Laswick: I mean, I don't know what to say. I mean, you can't lower the price anymore without hitting the 10-year number anyway, so -- Q: Right, right. Okay. I think maybe the best solution, I'll have to have the 10-year conversation. And if that's -- then they wait six weeks and we put the driveway and then we go forward. And then I'm still at my $14,900 because that's still just the development cost. John Laswick: Yeah. Well, I think it's a development cost whether you pay it now or escrow. Q: And that's what I think. But because it's not done and it's not -- the city doesn't have a contract with the contractors who are actually going to install the driveway after the fact. That's what makes it different. And that's what makes me nervous if somebody comes and looks at it later. Okay. I don't want to take more of your time on this. I thought it was going to be easier than this. I appreciate your feedback. David Noguera: You know, I recommend you put in an on-call TA request. Or you could even just send in an AAQ. We've got some folks who specialize in the HOME rules who could probably walk you through it. Q: Okay.


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John Laswick: Yeah. The on-call thing is quick. I mean, we do those every week. It would just be somebody to walk you through it on the telephone. We could give you several hours of an expert's time and figure out the best solution. Q: Okay. And I do that through the resource exchange? I did type this question in; I sent it in yesterday because it just came up yesterday. John Laswick: Well, it's the technical assistance page where you want to ask for technical assistance. Q: Okay. Gentlemen, thanks for your time. John Laswick: All right. Good luck. Q: Bye-bye. Kent Buhl: Thanks, Robert. Talk about a tough story-question. Those are the hardest ones in school, as I recall. (Chuckles.) Diana has been patiently waiting for an answer to this question. She writes -- she's with a small nonprofit neighborhood developer and they're an NSP 2 subrecipient. They're doing some scattered site rentals with a neighborhood partner doing property management and assisting with financing. Are there restrictions on them retaining an interest or joint ownership in the project? John Laswick: Scattered site rentals. David Noguera: Joint ownership with the home buyer? Kent Buhl: With a neighborhood partner, perhaps? John Laswick: With rentals. I mean, I don't think so. I mean, these things could be owned by any number of entities as long as they continue to meet the income criteria and the houses are maintained and so forth. David Noguera: They just have to negotiate that with the grantee. John Laswick: Yeah. That's a matter of negotiation. There aren't any prohibitions on it, though. [inaudible] call in with any more details, but I don't think that's a problem. Any income net of operating costs and so forth would be NSP program income. David Noguera: Yeah. I mean, all the rules would still apply. It's just a matter of how the grantee wants to structure the ownership. Kent Buhl: Let's go to Joanie [ph]. Hi, Joanie. Q: Hi.


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Kent Buhl: Where are you calling from? Q: I'm calling from North Carolina. I'm with a small Habitat affiliate and we have NSP 1 funds. And I wanted to know if there was a determination that's been made about program income in the future going forward or if we'll have to continue to remit the 2 percent for the life of the home mortgages. John Laswick: What 2 percent? Q: Apparently right now we're remitting 2 percent of our monthly program income. John Laswick: To the state? Q: Yes. John Laswick: Yeah. That's a state policy, so that really -- David Noguera: It's not a HUD policy. Q: Ah. John Laswick: HUD's policy will be that program income will most likely retain the character of NSP pretty much into the future. This states is an annual recipient of CDBG funds, so we'll probably kind of merge it with that program in terms of tracking. David Noguera: You know, what I have seen some states doing, though, is they're requiring their subgrantees or subrecipients to submit a certain portion of their program income back to the state so that the state can use it to administer the program; for program admin purposes. That may be what the state of North Carolina's doing. John Laswick: Yeah. They can do that, but that's between you and them. Q: Okay. Thank you. John Laswick: Sure. Kent Buhl: Thanks, Joanie. Who's next? It likes we're going back to Christopher. Hi, Christopher. Q: Yes, hi. Thank you. A follow-up question that I had is related to this larger parcel. If we end up developing our project, closing it out, meeting the number of units on a programmatic basis or exceeding that, and there was a portion of land subsequently sold to a private developer generating program income, would that land need to carry underlying restrictions associated with NSP? An excess parcel.


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John Laswick: No. I think it was just be program income and the requirements would track the program income, not the property. Q: Okay. Simple enough, then. Thank you. Kent Buhl: Thanks again, Christopher. And who's up next? Let's go to Carla [ph]. Hi, Carla. Q: Hi. My question is regarding realtor commissions. We recently opened up a realty department in-house -- I'm sorry; I'm calling from Affordable Homes of South Texas in McAllen. We have two realtors currently onboard and our broker, who is a full-time salaried employee. One of our realtors, besides a realtor's license, she also holds a mortgage license. So she's typically been working as a loan officer for us. But now since she's obtained her realtor's license, she wants to be helping us on the disposition side for the NSP 2 properties. My question is, can she earn a commission on that? Because I know any commissions we receive we would have to send back as program income. John Laswick: Yeah. So these are salaried employees, the realtors? Q: One of them is. The other realtor we have is a 1099. John Laswick: You know, I think we had another CPLC affiliate that has a real similar question. And it's technical enough that I don't want to -- I can't remember right now. So maybe you could write that in and we could follow up with you on it or maybe talk to German [ph] or somebody. Because I don't remember who had this question, but we went back and forth with -- David Noguera: I thought we did some kind of indirect cost allocation or something. John Laswick: Yeah. I mean, people were not crazy about the idea of earning a commission as opposed to an hourly rate, basically. So communities have used third-party realtors and paid them a fee the same way that you would pay anybody a fee as a buyer/broker. It just gets complicated when they're in-house. And I just don't remember all the gory details but I know there were some because it took us a while to figure this out. I'd like to follow up with you separately. My email address is on there -- one of us. Send us the question and let us look that up because it's a sticky area. Q: Okay. I will email you on that. But would you say it would just be best to have them on salary and not pay them any commissions at all? John Laswick: Yeah. David Noguera: Oh, definitely. John Laswick: Cleanest way to do it for sure.


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Q: Okay. I will definitely follow up with you, John. I'll send you an email regarding the questions. Thank you. John Laswick: Sorry. It was like a year and a half ago and my brain doesn't reach back farther than last week, sometimes. Thanks. Kent Buhl: Thanks, Carla. Q: Thank you. Kent Buhl: Maureen sent in a question about income eligibility. "If a purchase agreement is not in place and the applicant applied for NSP in 2011, will the new 2012 income limits affect their income restrictions?" John Laswick: I think we've said that you have six months to remain income-eligible. David Noguera: Yeah. That's the HOME rule. John Laswick: I mean, if limits go up and your income stays the same, then you're okay. But we are seeing places where the limits are going down. I don't know if that's what you're worried about. But either way, it's good for six months. I mean, if you did it five months ago and now you have new income limits, you could take another look at it. Hunter Kurtz: Also, if they enter the program -- which is sort of a very broad term -- then the limit doesn't matter. David Noguera: You're saying you don't recalculate the income? Hunter Kurtz: You don't recalculate. Like for instance, in Habitat if you enter the program with some sort of official documentation, then start working on building your home, and nine months later you don't need to recalculate your income -- that point at which you entered the program. So they may want to consider that also. John Laswick: Yeah. So what we're saying is once you're qualified, you're good, and you don't really have to -- I mean, even beyond that six months. The six months is to be approved, to be qualified as an eligible participant in the program. Once you're in, you're in. Kent Buhl: Okay. Let's see. We spoke with Carla. So if you've asked your question already and you have no further one, if you could click your "lower hand" button, that would help me out. Let's go to Vicki [ph]. Hi, Vicki. Q: Hello. John Laswick: Hi, Vicki. How's Rockford?


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Q: It's doing okay, under the circumstances. John Laswick: Good. What's happening? Q: Well, we have a lot of developers going under right now, developers and builders and contractors. So we've had a lot of situations resulting from that. I was right in the middle of typing a second question, so I'm trying to remember what my first question was. John Laswick: You can start with your second one, if you want. Q: Let's see. We have a situation where we had a developer acquire a property -- and I haven't gotten all the details yet -- but it's my understanding from talking to the Rockford Housing Authority, that at the time they acquired the property the Rockford Housing Authority was also doing their annual inspection of the property. Because the property didn't meet housing quality standards at the time and it wasn't going to meet housing quality standards within the timeframe that they required, the tenant had to move in order to maintain their Section 8 voucher status. So she moved and now we're trying to figure out, was she eligible for relocation costs? She was able to maintain her Section 8, but what about moving costs? David Noguera: Why did she move? Q: She moved because the property didn't meet housing quality standards, and that was probably because she lived there during the period of time that it was undergoing foreclosure. So you've got a bank involved; you've got an investor involved that no longer cared about the property. And so then it transitioned into new ownership but the rehab wasn't going to take place for a while and still hasn't taken place. John Laswick: She was a tenant of the housing authority in a scattered site unit with a Section 8 certificate? Q: Mm-hmm. John Laswick: Okay. You know, I would call Maureen Thurman in Chicago, the relocation specialist there. Because this Uniform Relocation Act stuff is pretty tricky, and we've had some grantees sort of try to do the right thing but still manage not to quite get it completely right. I mean, I don't think that her displacement was caused by your acquisition of the property. And she was relocated to another unit. Did they help her move or anything? Q: No. John Laswick: Yeah. I'd really defer to a relocation expert on that. That stuff is way beyond my ability to understand.


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Q: Okay. John Laswick: You know Maureen Thurman? She's very experienced. Q: Certainly do. We've been around and about the same length of time. Let's see. I'm still trying to remember what my other question was. Kent Buhl: Vicki, your other question was about structuring repayment documents. Q: Oh, yes. Because the developer subsidy is due and payable, should an owner-occupant fail to occupy the property for the term of affordability, I'm wondering how best to structure that into the legal agreements that we signed with the developer, the CHOTO [ph], or the homeowner. I'm wondering what recommendations there are to try to recapture that, because that's money that is really granted to the developer when he's developing it. And I just don't know how you could recapture that, and I'm trying to structure it so there's as little liability on the city's part to pay for something like that out of its genera fund should it ever happen. John Laswick: When you say "development subsidy," you're talking about the amount of money that it took to complete the unit above and beyond the appraised value or what you could sell it for? Q: Right. John Laswick: That is not recoverable. You don't recapture that. That's a development -- I mean, that's why it's different than a direct subsidy. The only subsidy -- Q: Well, you know what? That's what we thought, too. But some guidance came out -- let me look at the guidance -- that just kind of threw us for a loop. It's called CPD 12-003, and it gives an example on page 15 that certainly makes it sound to me like that developer subsidy has to be repaid. John Laswick: I'm positive it does not. I don't know -- who put that out? Was that at HOME? Q: Let's see. Yeah, it looks like HOME. It's off -- well, "Guidance on Resale and Recapture Provision Requirements Under the HOME Program." John Laswick: Well, I'll take a look at that. But the whole idea of development subsidy is that you can't get it back. I mean, it doesn't exist as far as market value. So the reason you're having a problem is that it's not doable. But we have other guidance from HOME that I think makes quite clear that anything that's above the appraised value that it takes to develop the home is a write-off. Q: That was we thought until we saw this, and then we kind of got pretty nervous. We were wondering who would ever buy into home ownership that was funded by HOME in those kind of


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situations. They might be expected to pay back all these thousands of dollars that were development subsidy. And Rockford's an upside-down market. We've put a lot of money into a property and the value's just not here. John Laswick: Sure. Well, think of it this way. I mean, if you actually expected somebody to repay that, then you would be saddling them with a debt that exceeds the value of the home, which is how we got here. So it's just not workable. Q: Okay. John Laswick: I'll talk to some folks over there and check out this 12-003. But I'm just having trouble understanding why they would say that. Q: Yeah. It's in the example at kind of the top of the page. So yeah, that would be great if somebody could look into it. Maybe I'd be able to sleep at night. Hunter Kurtz: Vicki, can I ask you a quick question? Q: Sure. Hunter Kurtz: Just go back to what you were saying. You said you had concern; you wanted to figure out how to write this in there because of no one living in the unit during the affordability period? Is that what I heard you say? Q: Basically it says in the guidance that if someone fails to occupy the property during the term of affordability, then the HOME funds, including the developer subsidy, would have to be paid from nonfederal funds -- have to be repaid. Hunter Kurtz: Okay. John Laswick: Well, I -- yeah. I don't know. I don't see how you could make that work. So I'll have to talk to them about that and see what they have in mind. But I agree with you, that it creates this sort of impossible situation. I mean, it may be that the HOME program just requires repayment of everything if the project goes under, but that's not a requirement of our side of it. Q: Okay. So that wouldn't have to be incorporated into NSP projects? John Laswick: The only guidance that we've adopted -- and it's really as sort of a safe harbor -- is 254. And I don't think it's development subsidy stuff -- David Noguera: "Amount subject to recapture" here. What she just said wouldn't comply with this. You can only recapture -- [talking over each other]


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John Laswick: Yeah. But basically what they're trying to do is penalize the grantee or the CHOTO or somebody like that by saying, well -- David Noguera: You sold it too cheap? John Laswick: Yeah, or you didn't maintain an eligible tenant in it or resident; therefore you owe us all the money back; which would be a pretty big disincentive to participate in this program, I would think. Q: Mm-hmm. Absolutely. John Laswick: But yeah. I mean, I think for our purposes we don't have their rules on use of funds -- you know, if the funds were misused or improperly used, what the penalties are fall under a different section of the HOME rules than the one that we adopt. I just don't think that's in there. Let's see if Earl's over there and put him on the spot. We're going to run across the hall and see if Earl Cook is there to maybe answer this for us. But I don't see it as a problem for the NSP program, Vicki. Q: Okay. John Laswick: If we find out, we'll get back to you. Q: Okay. John Laswick: Good luck. Go to sleep at night. Kent Buhl: Thanks, Vicki. And who's next? Tom, I see your hand up but I can't unmute you; there's no phone icon. So you click the "event info" tab in the upper left of your screen and call back in, that will help out. Meanwhile, let's go to Dorla's [ph] question. She says, "This is in regards to selling homes at reduced prices. We have homes that haven't sold in six months and we've reduced the prices. We're basing the affordability period on the direct subsidy, not taking into account the reduced price. Am I hearing that we should take the difference between the first list price and the reduced price, which is based on the broker's opinion?" (Pause.) John Laswick: Sorry. We were trying to get some other information there. Could you repeat the question, Kent? Kent Buhl: Sure. Dorla asks, "This is in regards to selling homes at reduced prices. We have homes that haven't sold in six months and we've reduced the prices. We're basing the affordability period on the direct subsidy, not taking into account the reduced price. Am I hearing that we should take the difference between the first list price and the reduced price, which is based on the broker's opinion?"


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John Laswick: I believe that's the way it works, yeah. I mean, if the value -- or the broker's opinion -- is still the same and you keep lowering the price to sell the unit, then you are increasing the amount of the direct subsidy because the home's value is still whatever it is. It's only if the value itself is going down and you're staying the same number of dollars below that. So you could, in fact, be putting yourself into a longer affordability period by lowering the price. But I mean, if the value is there, then you are giving more of a subsidy to the family that's buying the unit, so it's only appropriate that they would have a longer affordability period. So yeah, when you change things the relationships change and the affordability periods may change. Kent Buhl: Very good. And let's go back to Michael; see if he's there this time. Hello, Michael. Are you there? Well, his question is, "Is it possible to mix NSP 1, 2, and 3, or any combination, into a single project?" John Laswick: Yes. But you have to be operating in a target area that would be common to all three programs or any combination of those, which is not unusual. I mean, we've seen quite a bit of going back to the same area. So if the neighborhood is the same and the project meets the criteria of all the different components, then you could. For example, in NSP 1 you can do public improvements or public facilities that are not related to housing. So you couldn't one of those, or you'd have to do it with just the NSP 1 funds somehow. But most of the other requirements are fairly similar and there's no reason that you couldn't do it. I think that we would get a little interested in sort of how we count the production at the end of the day so that there isn't a lot of duplication between the programs. But we can figure that out when you get to it. Kent Buhl: And I'm scanning for additional questions. At the moment there aren't any, but a lot of times people have a little small flurry of questions after they hear me say that. So in the meantime -- John Laswick: And we are getting some. So David is talking to Earl Cook, who is one of our more experienced HOME staff people; try and explain that question that Vicki had about the repayment of the development subsidy. So hopefully we'll get a follow-up on that, for those of you who want to stay tuned. Kent Buhl: Very good. And just a reminder that today's event is being recorded, and that recording will be put along with the slides you're seeing, and shortly, a transcript of the event, under the resource exchange website. So look for that in the next coming days or two. And a reminder of some upcoming webinars -- and I apologize; there's two that are not on here that Hunter spoke about. And their dates, again, Hunter, were March 29th; is that right?


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Hunter Kurtz: Let me just look here real quick. Yes, March 29th is the marketing and disposition webinar and the beginning of the "What Now? Marketing, Disposition, and Other Strategies to Dispose of NSP Inventory" webinar series. [talking over each other] Kent Buhl: And the second one that's not on here is April 17th; is that correct? Hunter Kurtz: Yes. And that is a best practices/peer-to-peer roundtable and the conclusion of the webinar series. That is going to be with some grantees as well as experts in the field of marketing, scattered site rental, land banking, and just disposition in general. John Laswick: So I think we can tell from several of the questions today that there are these sticky points and difficulties with selling houses. And when you lower your price, you're increasing your affordability period; or you're trying to do more and then you're creating additional subsidy; or at the same time you want to sell the houses and get them occupied. So there aren't any perfect answers out here that I've noticed, but I think that there's a lot of interesting thinking going on. And we're looking forward to this series that will allow people to really kind of push what they understand about selling properties and creating options for themselves if they can't sell them. Kent Buhl: We do have a couple more questions here. Let's go to Tom. Hi, Tom. Q: Hi. This is Tom Wilson, CDLC; Phoenix, Arizona. I have a question regarding the payment of property management fees. John Laswick: Okay. Q: Let's say we have a large complex that's partly vacant and we're doing rehab. And in the process we've got onsite management. Now, we have in-house a property management entity. Can we pay a related party -- meaning our in-house managers -- a management fee? John Laswick: I think this is similar to the question we had about the brokers, and our auditors would prefer that you pay them salary rather than fee. But I have been working with the inspector general's office here to come up with a policy that looks at flat fees or percentage fees as a legitimate way to do this. I think the problem that we get into, Tom, is if you were paying that fee to Long Realty as a management fee, as a third-party fee, it's okay. It's when those property managers are on staff that the auditors get twitchy because they think that they should be paid hourly rates rather than some sort of a fee because they're employees; they're not third-party contractors. Q: Well, they're actually employees. They receive a salary. But the management company, in the agreement, charges a management fee that's a percentage of the gross rent.


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John Laswick: Right. This is a third-party management firm? Q: Actually, it's a related party. Okay. Let's say that X Nonprofit Corporation is the NSP 2 grantee. And X has Y Property Management, LLC that has experience in managing rental property. So they enter into an agreement for Y to manage the property that's acquired and rehabilitated with NSP 2 money. So the question is, can Y be paid a management fee the same as if it was a third-party entity? John Laswick: You know, you'd think so. But I really think we had some trouble -- and we had an earlier question from Affordable Housing of South Texas on real estate brokers. And I need to do some research on this, Tom. But we went around with you -- and I forget the consortium member that was involved -- Q: Yeah. I remember. John Laswick: -- back about a year and a half ago. Q: Mm-hmm. John Laswick: And I thought we kind of decided that if they were employees, that they couldn't get a fee. Now, if it's a related company, personally I don't have as much of a problem with that. But I've got to tell you, our IG has been really pretty tight on these things. And they have not really seemed to understand that a related company type of a developer is sort of a standard way of doing business. And it's not because they're somehow different, but the problem is I think the IG is not used to looking at developers and not understanding developers in the same way that we do. But you guys are all subgrantees as members of the consortium. I mean, I think you're on -- I hate to say this; I know in Phoenix you're on thin ice all the time -- but I think that's a problem. And I think you're better off paying them direct expenses with invoices rather than a flat fee. I just don't -- I mean, you could do it. But I've seen a number of findings, so I would not advise doing it. Q: Yeah. It's not a flat fee that's paid. The agreement calls for a percent of gross income. John Laswick: Well, okay. But it's a fee. I think you should pay actual expenses. I mean, I think that's the safest way to go. Q: That could be worse than paying the percent. Because with the number of properties, the property management arm can share cost. But when it's one project or one property that is trying to sustain maintenance and management staff and everything, then it's a different ballgame. John Laswick: Yeah. Well, I mean, this affiliated management company has other properties that they maintain and manage for you guys?


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Q: Yes. John Laswick: Uh-huh. And how are those projects funded? Q: Section 202. Some are Section 8 project-based. Some are tax credit. John Laswick: And you're the owner and they're an affiliated company that is managing them on a percentage basis? Q: Correct. John Laswick: And you've gotten past audits with [inaudible]? Q: Yep. John Laswick: Well, that's good. I mean, I'm a little hesitant in this area because I have been fighting too many audit findings for my personal taste. Let me look into it some more. And I've got another one of your members with a related question, so I'll get back to both of you guys on it. Q: Yeah, yeah. Because we discussed it yesterday and I know that when we did a peer support visit to one of our consortium members, it came up. And I knew that we had resolved it but I couldn't remember how we resolved it. John Laswick: Yeah. I mean, there was a finding not long ago in the Valley with a developer with an affiliated building company that ran into a bunch of trouble with the auditors. And you guys have less flexibility than developers. I mean, it makes sense to me, but I guess I'm not an auditor. Let me follow up on this with you. Q: Okay. I certainly would appreciate it. That way we can give guidance to all of our consortium members. Thank you. John Laswick: Sure, Tom. Kent Buhl: Thank you, Tom. And one question still in the queue, and that is from Santiago, who says, "In rental leases, is the owner/landlord required to institute a civil court proceeding in order to evict?" John Laswick: I don't think we have a requirement. I mean, I don't think our rules go that deep into lease situations. I would consult my attorney on that. State laws are very different on all this stuff and it's really hard for HUD to make a statement that works under all these different state laws. So you really need to just talk to your own attorney and find out what your state requires. I mean, some states mandate that so you don't have a choice. So I think that's the way you need to go. It's not a HUD issue.


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Kent Buhl: That makes sense. Well, I see no more questions. And I would remind folks that as they exit you'll be taken automatically to a survey form, and we'd appreciate you taking a moment to complete that form, give us some feedback. Written comments are especially helpful. Numbers are always great, but written comments are even better. And I'd like to thank all our panelists today -- John Laswick, David Noguera, Hunter Kurtz, Ryan Flanery, and the very quiet Matthew Do. So thank you all for helping the NSP grantees today. And thank all you NSP grantees for being here. We look forward to seeing you all soon on another NSP webinar. Take care, everyone. Hunter Kurtz: Take care, everyone. (END)

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