long term affordability - hud exchange · continued affordability • nsp notice: 3. continued...
TRANSCRIPT
Technical Assistance- Florida Housing Coalition
• Workshop Series– 1. Acquiring and Rehabilitating Abandoned
and Foreclosed Properties- Ownership– 2. Acquiring and Rehabilitating Abandoned
and Foreclosed Properties- Rental– 3. Rehabilitating Foreclosed and Abandoned
Properties- detailed– 4. Long Term Affordability
BRIEF OVERVIEW OF NSP
• The NSP Grant is a special CDBG allocation to address the problem of abandoned and foreclosed homes.
• HERA establishes the need, target areas, and limits of NSP funds.
• $3.91 Billion allocation nationwide• Florida- $541 million • DCA - $91.14 Million- 26 communities• 48 communities- $451 Million
There are two times not to speculate.
• When you can afford to. • When you can not afford to.
Continued Affordability• NSP Notice: 3. Continued affordability.
Grantees shall ensure, to the maximum extent practicable and for the longest feasible term, that the sale, rental, or redevelopment of abandoned and foreclosed-upon homes and residential properties under this section remain affordable to individuals or families whose incomes do not exceed 120 percent of area median income …
Minimum Standard- HOME
– HUD will consider any grantee adopting the HOME program standards at24 CFR 92.252(a), (c), (e), and (f), and 92.254 to be in minimal compliance with this standard and expects any other standards proposed and applied by a grantee to be enforceable and longer in duration.
– (Note that HERA’s continued affordability standard is longer than that required of subrecipients and participating units of general local government under 24 CFR 570.503 and 570.501(b).)
• 5. Resale and recapture. To ensure affordability, the participating jurisdiction must impose either resale or recapture requirements, at its option. The participating jurisdiction must establish the resale or recapture requirements that comply with the standards of this section and set forth the requirements in its consolidated plan. HUD must determine that they are appropriate.
Homeownership assistance HOME amount per-unit
Minimum period of affordability in years
Under $15,000 5
$15,000 to $40,000 10
Over $40,000 15
DCA-NSP: New Construction
20
Rental Housing Activity Minimum period of affordability in years
Rehabilitation or acquisition of existing housing per unit amount of HOME funds: Under $15,000
5
$15,000 to $40,000 10
Over $40,000 or rehabilitation involving refinancing
15
New Construction or acquisition of newly constructed housing
20
CONTINUUM OF AFFORDABILITY
Forgiveness
• ADVANTAGES• Maximizes asset
accumulation• Program is simple to
administer• Easier to market to
buyers
• DISADVANTAGES• New subsidy funds
needed for subsequent buyers
• Need more subsidy to assist buyers
• Large grants are hard to justify politically
Consider Forgiveness when…
• Subsidy levels are low• Long term affordability is not a priority• Need to make difficult property or area
attractive to buyers
RECAPTURE
• the participating jurisdiction must recoup all or a portion of the HOME/NSP assistance to the homebuyers,
• Subject to period of affordability-• 1. Recapture entire amount. • 2. Reduction during affordability period.
Pro-rata basis
RECAPTURE
• ADVANTAGES• Funds can be used to
assist more buyers• Homeowners don’t take
resources with them• Homeowners earn equity• Easy to administer
• DISADVANTAGES• Recaptured funds may
not be adequate to assist new buyers
• Programs serve fewer households
• Does not ensure continued affordability
• Require ongoing administration
RECAPTURE- WHEN TO USE
• Fairly low subsidy amounts• There are funds to supplement future
homebuyers• Home prices not expected to rise
significantly• Market offers large and expanding supply
of moderately priced housing units to reinvest recaptured funds
RECAPTURE - SHARED
• Shared net proceeds. Homeowner to recover the amount of the homeowner’s down payment and any capital improvement investment
• The participating jurisdiction may share the net proceeds.
• The net proceeds are the sales price minus loan repayment (other than HOME funds) and closing costs.
RESALE• Fair return on investment (including the
homeowner’s investment and any capital improvement)
• Housing will remain affordable to a reasonable range of low-income homebuyers.
• The period of affordability is based on the total amount of HOME/ NSP funds invested in the housing.
• Deed restrictions, covenants running with the land, or other similar mechanisms must be used as the mechanism to impose the resale requirements.
Deed Restrictions-or Deed Covenants
• Three types of Restrictions:– Price Restrictions– Buyer Eligibility Restrictions– Occupancy and Use Restrictions
Buyer Eligibility Restrictions
• Income category of people permitted to buy the home
• NSP- up to 120% AMI• Period of Affordability• Other resale restrictions- equity sharing
Resale text from HOME rule• i. Resale. Resale requirements must ensure, if
the housing does not continue to be the principal residence of the family for the duration of the period of affordability, that the housing is made available for subsequent purchase only to a buyer whose family qualifies as a low-income family and will use the property as its principal residence.
• Except as provided in paragraph (a)(5)(i)(B) of this section, deed restrictions, covenants running with the land, or other similar mechanisms must be used as the mechanism to impose the resale requirements.
Advantages and Disadvantages of Deed Restrictions
• Do not require separate ownership of land and improvements
• More acceptable to buyers- “own the land as well as the house”
• Avoid separate tax compilations
• Appear to require less oversight
• Not Perpetual- limited time
• Privity- weakens over time
• Self Enforcing• Sponsor unaware of
problems• Subordinated to
Mortgagee
Preparing for Resale Restrictions
1-Option to Purchase Agreement- stating purchase price - OPTIONAL
2-Promissory Note3-Covenant (deed restriction)4-Request for notice of default or sale5-Disclosure to Buyer
Option to Purchase Agreement
• Procedures for property transfer- timeframe• Treatment for involuntary sale- divorce,
inheritance etc.• Addition of parties- by marriage• Requirements for insurance- hazard, liability• Provisions for subordination• Buyers consent to option to purchase• Default events- failure to pay mortgage, taxes,
primary residence, waste, etc.
Also in Agreement
• Buyer protection- FHA requires original purchase price, commission, cost of cap improvements
• Capital improvements- treatment• Deferred maintenance• Repayment of secondary financing• Subsidy program requirements- residency,
etc.
Disclosure to Buyers
• Explanation of resale restrictions, promissory note, deed restriction or covenant.
• Rationale for pro bono counseling• Buyer acknowledges reading and
understanding
- a tool for providing home ownership to those who would otherwise be renters or forced to leave the high cost community in which they work.
Community Land Trusts
Tax exempt nonprofit organization (CLT) deeds the improvements (the home) to the home buyer together with a 99 year ground lease for the land.
How Does it Work?
Two key provisions in the long term ground lease:
-resale is limited to income eligible household; -resale price is limited to keep the house affordable to the next buyer (fair but not a market rate return)
Components of a Community Land Trust
• Viable Non-Profit Organization– Own land– Develop Housing
• Community Housing Development Organization (CHDO)
• Board of Directors- Representation of Owners– No more than 50%
Components of a Community Land Trust
• Partnership and support of the local government
• - Donation of land to the CLT • - A highly functioning nonprofit with the
ability to provide a pipeline of qualified home buyers
• - A fully informed and engaged community of prospective home buyers ; Homebuyer Counseling
• - A fully informed and engaged lending community
• - Full appropriation of the state and local housing trust funds
Ground Lease- ICE Model
• Design of the resale formula – Appreciation Formula– Index Formula
• Mechanics of Resale – Seller Direct– Via CLT
• Foreclosure– Restrictions Survive– Restrictions Do Not Survive
Florida’s Community Land Trusts
• 25 Florida Community Land Trusts- 10 active
• Most formed since 2005- response to land value escalation
• Can work with Local Government to implement Inclusionary or Density Bonus Programs
Development Considerations
• Basic Real Estate Development Criteria– Costs– Sources of Funds– Buyer Readiness
• Subsidy Structure– Land– Improvement
Market Conditions
• Market Study- demographic overview of potential market and sub-market
• Analyze ground lease terms• Analyze overall demand for proposed
product• Supply= housing available for target
income group• Demand= number of buyers in area who
qualify
Evaluating Your Market
• Can the target market afford product based on its cost?
• Does the buyer have other choices in market that do not have equity restrictions?
• Is it a good deal- compare savings in payments vs. equity appreciation?
• Does the buyer get an advantage choosing a land trust model over market rate or other subsidized units in community?
Community Land Trusts
• Disadvantages• Buyer doesn’t get market value- may go
elsewhere• CLT needs to operate as a nonprofit with
ongoing expenses• Maintenance can be problematic• Second or third buyer may inherit old
problems
Community Land Trusts
• Advantages• Restrictions are more enforceable• Create a permanent supply of affordable
housing- stewardship• Ongoing interaction between the parties• Owner can sell directly to the land trust• Community presence is more visible• Less Subsidy over time
Lease Purchase Contracts
• Purpose– Address destabilized neighborhoods by
putting potential homeowners in abandoned and vacant properties
– Assist low-mod to attain homeownership- who cannot qualify for conventional mortgage
– Implements PLAN B for NSP- delay in credit, no ready buyers
Lease Purchase Contract
• Also known as Lease with an Option to Purchase
• Buyers makes a down payment• Buyer leases the house• Buyer can exercise option to purchase at
given time• If Buyer cannot purchase, seller can evict
buyer or choose not to renew the lease
Pitfalls with Lease Purchase
• Method has past abuses• Buyer loses all payments to Seller if
defaults on agreement, including down payment
• Seller can borrow on property or transfer to another
• Judgments filed against Seller can attach to property and jeopardize ownership
There’s more…
• If Buyer is paying taxes and insurance, the standard homeowners policy covers the owner-not the buyer
• The Seller owns all improvements buyer made by the buyer. The Seller does not have to reimburse the Buyer for these costs if the Buyer is evicted or fails to purchase
• The Buyer many not be eligible for normal renter consumer protections
And more…
• The Buyer cannot get an equity loan even though they are making long term payments that would otherwise build up as equity (do we care?)
• Watch out for contract for deed- a rent to own agreement that is not legal in Florida but still practiced- Seller still holds title to the property
• Wrap Around Financing- Seller offers a new mortgage that includes a previous mortgage– If Seller defaults, Buyer also loses home
Rent to Own Under NSP
• Provider– Structure the Lease– Lease Amount is estimate of Mortgage
Amount-PITI– Mortgage Amount- project costs– Less sweat equity if allowed– Charge maintenance fee– Include a savings fee for closing costs
Rent to Own Under NSP
• Provider Responsibilities– Counseling services– Classroom education– Maintenance Costs– Reserve costs– Taxes– More information- Colorado Rural Housing
Development Corp. www.crhdc.org
Land Banks
• NSP Activity-DCA #4• Definition: A land bank is a governmental
or nongovernmental nonprofit entity established, at least in part, to assemble, temporarily manage, and dispose of vacant land for the purpose of stabilizing neighborhoods and encouraging re-use or redevelopment of urban property.
Land Banks…
• Operate in Defined Geographic area• Need long term strategy• Public or Private?• Vacant or Improved?
Land Bank Activities per NSP
• FOR THE PURPOSE OF NEIGHBORHOOD STABILIZATION:
Assembly
• Assembly- Joining contiguous lots to make one larger parcel of developable land.
• Contiguous parcels in an urban area are often too small to build anything more than one house.
• Putting land together one piece at a time can be very expensive for a developer, especially if there are pollution or title problems..
Redevelopment
• Facilitate redevelopment-• Create a redevelopment plan • The bank will be obligated to sell or
transfer land from the bank only if its development is consistent with this plan.
Land Bank cont.
• What are carrying costs?– Lot maintenance– Insurance– Inspections on a regular basis
• Land Bank Policies– Disposition- nonprofits, community land trust,
etc.– Use
Disposition of Land Bank Properties
• Dispose of properties• Develop policies• Rezone Prior to Disposition• Purchase or donation• Joint agreements with developers and
nonprofits
Local Government Maintenance of Land Bank Properties
• Local government may also maintain property it does not own provided it charges the owner full cost of service or places a lien
Marketing
• Market NSP properties• Inventory• Parcel Descriptions• Available appraisals• Redevelopment Plans• Incentives or Subsidies