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LONG TERM AFFORDABILITY Call for Technical Assistance 850-878-4219 [email protected]

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Page 1: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

LONG TERM AFFORDABILITY

Call for Technical Assistance850-878-4219

[email protected]

Page 2: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 3: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 4: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

There are two times not to speculate.

• When you can afford to. • When you can not afford to.

Page 5: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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 …

Page 6: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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).)

Page 7: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

• 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.

Page 8: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 9: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 10: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

CONTINUUM OF AFFORDABILITY

Page 11: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the
Page 12: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 13: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

Consider Forgiveness when…

• Subsidy levels are low• Long term affordability is not a priority• Need to make difficult property or area

attractive to buyers

Page 14: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 15: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 16: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 17: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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.

Page 18: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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.

Page 19: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

Deed Restrictions-or Deed Covenants

• Three types of Restrictions:– Price Restrictions– Buyer Eligibility Restrictions– Occupancy and Use Restrictions

Page 20: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 21: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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.

Page 22: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 23: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 24: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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.

Page 25: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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.

Page 26: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

Disclosure to Buyers

• Explanation of resale restrictions, promissory note, deed restriction or covenant.

• Rationale for pro bono counseling• Buyer acknowledges reading and

understanding

Page 27: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

- 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

Page 28: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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)

Page 29: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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%

Page 30: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 31: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 32: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 33: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

Development Considerations

• Basic Real Estate Development Criteria– Costs– Sources of Funds– Buyer Readiness

• Subsidy Structure– Land– Improvement

Page 34: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 35: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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?

Page 36: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 37: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 38: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 39: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 40: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 41: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 42: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 43: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 44: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 45: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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.

Page 46: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

Land Banks…

• Operate in Defined Geographic area• Need long term strategy• Public or Private?• Vacant or Improved?

Page 47: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

Land Bank Activities per NSP

• FOR THE PURPOSE OF NEIGHBORHOOD STABILIZATION:

Page 48: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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..

Page 49: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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.

Page 50: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 51: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

Disposition of Land Bank Properties

• Dispose of properties• Develop policies• Rezone Prior to Disposition• Purchase or donation• Joint agreements with developers and

nonprofits

Page 52: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

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

Page 53: LONG TERM AFFORDABILITY - HUD Exchange · Continued Affordability • NSP Notice: 3. Continued affordability. Grantees shall ensure, to the maximum extent practicable and for the

Marketing

• Market NSP properties• Inventory• Parcel Descriptions• Available appraisals• Redevelopment Plans• Incentives or Subsidies