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The City-CLT Partnership
Municipal Support for Community Land Trusts
Agenda
CLTs in Context
The CLT-City Partnership
Building the CLT Portfolio
Sustaining CLT Operations
Taxing CLT Property
Regulating CLT Activities
Planning for the Worst
Introductions
CLTVariations
CLT “classic”
Ownership
Dual Ownership
Leased Land
Organization
Nonprofit Corp.
Tripartite Governance
Place Based Membership
Resident Control
Operation
Perpetual Affordability
Dual Ownership
“Classic”
“Variations”
Nonprofit corporation
“Classic”
Independent 501(c)3 tax-exempt corporation
Variations:
Program of existing housing nonprofit
Tripartite Governance
“Classic”
Variations:
Place Based Membership
“Classic”
Defined geographic area
Any adult resident can join
Members elect part of board
Variations
No general membership
Regional service area
Resident Control
“Classic”
1/3 of board elected by homeowners/residents
Variations
Resident directors appointed by board
Perpetual Affordability
“Classic”
CLT retains affordable units as long as possible
Variations:
All CLTs strive for perpetual affordability
Perpetual Responsibility
“Classic”
CLT serves as steward of the property
Ensures maintenance
Monitors for occupancy, etc
Variations
None
Development
“Classic”
Active ongoing development program
Variety of housing types
Some commercial
Variations
Stewardship only
City-CLT trends
City as Instigator
Cities are playing a bigger role launching new CLTs
Highland Park, Chicago, Irvine, Sarasota
How do we ensure participation of broader
community stakeholders?
Is affordable homeownership the only goal?
City as Governor
Cities are playing a greater role in governance
Burlington: four seats appointed by CLT
Chapel Hill: City appoints one representative
Irvine: 1/3 of board appointed by city council
Chicago: City appoints all board members
Flagstaff: No independent board
What is the right level of accountability?
CLT as Steward
More CLTs are focusing on stewardship rather than
development
Portland, Cleveland, Boston, Sonoma, Irvine
Can the CLT generate sufficient revenue to sustain
itself without development fees?
Can the CLT achieve the necessary economies of
scale quickly enough if they don’t control
development?
City-CLT Partnerships
Rational for municipal support
Preserving affordability
Protecting public investment
Backstopping the security of homeowners
Ensuring owners occupancy
Ensuring condition of homes
Reducing the burdens of government
CLT Stewardship
Overseeing production
Pricing units
Fair Marketing
Buyer Education
Documenting buyer eligibility
Executing legal documents
Monitoring compliance
Stewardship Functions
Stewardship Functions
Who holds key responsibilities?
Potential Administrators
No Designated Steward
Minimal Administration
Santa Barbara County
Local Government as Steward
City of Salinas
Developers Hire Private Contractor
Lafayette, CO
City Hires Private Contractor
City of Palo Alto
City Contracts with Nonprofit
Tri-Valley Housing
Local Governments Form Nonprofit
Chapel Hill
Community Land Trust as Steward
Building the Portfolio
Menu of Project Support
Municipally-owed land and buildings
Loans
Grants
Inclusionary Housing
Regulatory Concessions
Municipal Land and BUildings
Examples:
Boston donated 30 acres for CLT development
Cleveland, OH donated tax foreclosed properties
Burlington,VT donated a decommissioned fire station
LOANS AND GRANTS
Examples:
Orange County, NC provides grants to support CLT
project development
Minneapolis provides interest free loans deferred for
30-years which are then forgiven if CLT in compliance
Inclusionary Housing
Examples:
Chapel Hill, NC “strongly encourages” developers to
work with CLT to meet affordable housing
requirements
Petaluma, CA provides incentives to encourage
developers to donate land to CLT
See also: Burlington,VT, Boulder, CO, Chicago, IL
Regulatory Concessions
Examples:
Burlington,VT offers fee waivers for permanently
affordable housing units
Bellingham,WA offers 50% density bonus for
affordable ownership units on leased land
Ashland, OR waived requirement for Homeowner’s
Association for CLT project
Structuring Subsidy
Good Money vs. Bad Money
Defining “Affordability”Defining “Affordability”
Housing that people can afford!Housing that people can afford!
Housing cost as a % of incomeHousing cost as a % of income
What percentage? (25%, 30%, 33%)What percentage? (25%, 30%, 33%)
Which costs?Which costs?
Principal, interest, taxes, insurancePrincipal, interest, taxes, insurance
Homeowner Assn. FeesHomeowner Assn. Fees
Ground Lease FeeGround Lease Fee
Two ApproachesTwo Approaches
Two Different Approaches:Two Different Approaches:
Reduce the price by $100,000Reduce the price by $100,000
Provide a $100,000 silent second loanProvide a $100,000 silent second loan
Housing Cost = $300,000Housing Cost = $300,000
People can afford = $200,000People can afford = $200,000
Affordability Gap = $100,000Affordability Gap = $100,000
Types of Subsidy StructureTypes of Subsidy Structure
Bad MoneyBad Money
Sort of Bad MoneySort of Bad Money
Good MoneyGood Money
GREAT MoneyGREAT Money
Types of Subsidy StructureTypes of Subsidy Structure
$ to homebuyer over time$ to homebuyer over time
$ recaptured by the source$ recaptured by the source
$ assumed by future homebuyers$ assumed by future homebuyers
$ permanent asset of CLT$ permanent asset of CLT
BADBAD
GREAT!GREAT!
Bad Money
Price to CLT Buyer 300,000
First Mortgage 200,000
City Second Loan 100,000
Affordable to 70% of AMI
Resale Price 370,000
2nd buyer mortgage 370,000
Second Loan $
Available 0
Affordable to 95% of AMI
Appreciation to Seller 170,000
Homebuyer grant or forgivable loan
Better Money
Price to CLT Buyer 300,000
First Mortgage 200,000
City Second Loan 100,000
Affordable to 70% of AMI
Resale Price 370,000
2nd buyer mortgage 370,000
Second Loan $
Available ?????
Affordable to 95% of AMI
Appreciation to Seller 70,000
Homebuyer loan recaptured by public agency
Good Money
Price to CLT Buyer 300,000
First Mortgage 200,000
City Second Loan 100,000
Affordable to 70% of AMI
Resale Price 370,000
2nd buyer mortgage 270,000
Second Loan 100,000
Affordable to 70% of AMI
Appreciation to Seller 70,000
Homebuyer loan assumable by all future buyers
Great Money
Market Value 300,000
City Subsidy 100,000
Price to CLT Buyer 200,000
Affordable to 70% of AMI
Resale Price 270,000
2nd buyer mortgage 270,000
Second Loan 0
Affordable to 70% of AMI
Appreciation to Seller 70,000
Grant of permanent subsidy to CLT
Comparison
Forgivable to
Buyer
Recaptured
Loan
Assumable
Loan Grant to CLT
Market Value 300,000 300,000 300,000 300,000
Subsidy to CLT 0 0 0 100,000
Price to CLT Buyer 300,000 300,000 300,000 200,000
First Mortgage 200,000 200,000 200,000 200,000
City Second Loan 100,000 100,000 100,000 0
Affordable to 70% of AMI 70% of AMI 70% of AMI 70% of AMI
Resale Price 370,000 370,000 370,000 270,000
2nd buyer mortgage 370,000 370,000 270,000 270,000
Second Loan $ Available 0 0? 100,000 0
Affordable to 95% of AMI 95% of AMI 70% of AMI 70% of AMI
Appreciation to Seller 170,000 70,000 70,000 70,000
Programatic Compatability
Competing Programs
Example: Portland, OR
City operated Shared Appreciation Loan program and
funded CLT
Both programs served low-income buyers
Loans up to $71,000, CLT subsidy around $70,000
CLT units price restricted, Loans required repayment
of 25% of appreciation
Modifying Programs
Repayment/recapture
requirements
Forgiveness
CLT as borrower
CLT performance requirements
Sustaining CLT Operations
CLT Operating Support
Government grants
HOME CHDO
CDBG
HousingTrust Funds
Development Revenue
Development Fees
Marketing Fees
Operating Revenues
Government Grants
Examples:
Albuquerque, NM: $200,000 annual CDBG grant
King County,WA: $30,000 in HOME CHDO operating
funds
Highland Park, IL: $100,000 per year from housing
trust fund
Burlington,VT
City has supported Champlain Housing Trust since
1984
2006/07
$125,000 from CDBG for predevelopment
$25,000 HOME for staffing HOME funded projects
$46,500 from trust fund for homeownership
center
Taxing CLT Property
Taxation
How should the taxible value of a CLT home be
established?
Market value of comparable homes
Restricted Price
Other
Taxation
How should tax assessments increase over time
when the rate of home price appreciation is limited?
With the market
Along with the limited price
Other
Taxation
How should the CLT’s land be taxed?
Comparable sales prices
Cash flow
Other
Fair Taxation
Homes
Taxed based on the restricted resale value
Increased over time along with formula price
Land
Taxed based on the present value of lease
payments
Regulating CLT Activities
Municipal Oversight
Project development
Marketing
Selecting buyers
Pricing CLT homes
Maintaining affordability
Monitoring homeowner compliance with lease
Promoting maintenance of homes
Development
Are there development issues that are unique to
CLTs?
Marketing
How does the City know
that all eligible housholds
have a fair chance to buy
CLT units?
Can the CLT sell to its
staff?
Marketing
Berkeley, requires an Affirmative Fair Marketing Plan
for each project before start of marketing.
Boulder and Albuquerque approve a general
marketing plan for all projects.
Buyer Selection
Who is eligible to buy a unit?
Do certain eligible buyers have priority over others?
Does the selection process have to be transparent?
Buyer Selection
Highland Park, IL
115% of AMI or less
Asset Limit
Mortgage Approval (approved lender)
Immigration Status
Size of household appropriate for unit
Priorities
Initial Pricing
How do we define “Affordable?”
Target income group (80% of AMI)
What percent of household income (33%)
Which costs (mortgage, taxes, insurance, etc.)
Who fills in all the assumptions and calculates the
actual price?
Initial Pricing
Most cities set general rules and rely on CLT to
determine specific price
Bellingham,WA reviews sales price prior to closing
Madison,WI provides annual price table for all
projects
Resale Pricing
Should the City help set the CLT resale formula?
What happens if the formula generates a price that
turns out to be too high?
Should the city monitor each resale to ensure
affordability?
Resale Pricing
Most cities have not been involved in setting CLT
resale formlas
Sarasota, FL and Chicago, IL are examples where the
City actively debated the options with the CLT
Chapel Hill, NC reviews and approves each price for
each resale
Burlington,VT relies on CLT but reserves the right to
audit later
Homeowner Compliance
Can the CLT promise to ensure that units are owner
occupied?
Can the CLT promise that units will be well
maintained?
Can the CLT promise that owners will carry
insurance and pay property taxes?
Can the CLT prevent foreclosures?
Homeowner Compliance
Right to require proof of occupancy
Right to Require Proof of Insurance and Payment of
Taxes
Right to Inspect and bill for maintenance
Foreclosure Rights
Right to Notice
Right to Cure
Performance Standards
Example: Marketing
CLT must produce a marketing and selection plan
that describes how the CLT will ensure that all
eligible households have equal opportunity to
purchase the homes. City must approve the plan
before any marketing begins.
Planning for the Worst
CLT Defaults
Failure to act to protect occupancy or condition of
homes
Failure to act to preserve affordability
Sale of CLT land
Dissolution of CLT
City-CLT agreements
Grant Agreements
Loan Agreements, Deeds of Trust
Development Agreements
Regulatory Agreements
Covenants, Deed Restrictions
Purchase Options
City-CLT Agreements
Regardless of the legal form, should include:
Performance Standards
Events of Default
Opportunity to Cure
Remedies
Non-disturbance of the Ground Lease
Exercise
What rights should
the city have in the
event of a CLT
default?
LoANSVS GRANTS
What does the City really
want?
Repayment of subsidy
Preservation of
affordability
City-CLT Loans
Bellingham,WA makes loans to support Kulshan CLT
projects
The loans allow the City to demand repayment if
KCLT fails to meet certain conditions
.... But how would KCLT ever repay?
City Foreclosure
Some states allow lender to take posession of the
property
Others require auction of property with lender
receiving the proceeds
City-CLT Loans
Cleveland, OH loans funds to Cuyahoga CLT
City can demand repayment of subsidy in the event of
default
Foreclosure would result in City owning land
Loan Agreement states that foreclosure by city will
not alter homeowner/lender rights under lease
Loan with Option
Santa Monica, CA developed a CLT loan
Right to require “specific performance”
City has option to purchase land for the amount of
the initial subsidy in the event of CLT default
City can appoint another nonprofit to buy land
All homeowner rights under lease protected
Impact on homeowners
Loans secured with a lien on the land complicate
financing for homeowners
Fannie Mae allows superior leins on CLT land only for
public agencies
And only if ground lease survives foreclosure
But they don’t provide an approved mechanism for
nondisturbance of the lease
Grant with Covenants
Orange County, NC provides grants to OCHLT
They also record a restrictive covenant on the land
Requires CLT to preserve affordability
Names county as ‘third party beneficiary’ of lease
Loans vs Grants
Repayment is usually not an option
Repayment is usually not enough - cost to
replace affordable unit has grown
City needs to be able to require
performance
Or take possession of the land from the CLT
Become the CLT or find another CLT
Loans vs Grants
Loans and grants with covenants
provide similar levels of protection
to the City
But loans make homebuyer
financing more difficult
And loans look bad on CLT balance
sheet
Supporting CLT Startups
CLT Startup
Prior to Incorporation:
Planning Committee
Education and Organizing
Market Assessment
Resource Assessment
Legal Research
Articles and Bylaws
After Incorporation:
Form Board
Municipal Support
Building commitment to permanent affordability
Introducing the model
Participating in planning
Staffing start up
Contracting for assistance
Providing start up grants
Re-tooling funding programs
Evaluation
Evaluation
How could we improve the workshop?
How could we improve the program manual?

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City-Community Land Trust Partnerships

  • 1. The City-CLT Partnership Municipal Support for Community Land Trusts
  • 2. Agenda CLTs in Context The CLT-City Partnership Building the CLT Portfolio Sustaining CLT Operations Taxing CLT Property Regulating CLT Activities Planning for the Worst
  • 5. CLT “classic” Ownership Dual Ownership Leased Land Organization Nonprofit Corp. Tripartite Governance Place Based Membership Resident Control Operation Perpetual Affordability
  • 7. Nonprofit corporation “Classic” Independent 501(c)3 tax-exempt corporation Variations: Program of existing housing nonprofit
  • 9. Place Based Membership “Classic” Defined geographic area Any adult resident can join Members elect part of board Variations No general membership Regional service area
  • 10. Resident Control “Classic” 1/3 of board elected by homeowners/residents Variations Resident directors appointed by board
  • 11. Perpetual Affordability “Classic” CLT retains affordable units as long as possible Variations: All CLTs strive for perpetual affordability
  • 12. Perpetual Responsibility “Classic” CLT serves as steward of the property Ensures maintenance Monitors for occupancy, etc Variations None
  • 13. Development “Classic” Active ongoing development program Variety of housing types Some commercial Variations Stewardship only
  • 15. City as Instigator Cities are playing a bigger role launching new CLTs Highland Park, Chicago, Irvine, Sarasota How do we ensure participation of broader community stakeholders? Is affordable homeownership the only goal?
  • 16. City as Governor Cities are playing a greater role in governance Burlington: four seats appointed by CLT Chapel Hill: City appoints one representative Irvine: 1/3 of board appointed by city council Chicago: City appoints all board members Flagstaff: No independent board What is the right level of accountability?
  • 17. CLT as Steward More CLTs are focusing on stewardship rather than development Portland, Cleveland, Boston, Sonoma, Irvine Can the CLT generate sufficient revenue to sustain itself without development fees? Can the CLT achieve the necessary economies of scale quickly enough if they don’t control development?
  • 19. Rational for municipal support Preserving affordability Protecting public investment Backstopping the security of homeowners Ensuring owners occupancy Ensuring condition of homes Reducing the burdens of government
  • 20. CLT Stewardship Overseeing production Pricing units Fair Marketing Buyer Education Documenting buyer eligibility Executing legal documents Monitoring compliance
  • 23. Who holds key responsibilities? Potential Administrators
  • 25. Santa Barbara County Local Government as Steward
  • 26. City of Salinas Developers Hire Private Contractor
  • 27. Lafayette, CO City Hires Private Contractor
  • 28. City of Palo Alto City Contracts with Nonprofit
  • 30. Chapel Hill Community Land Trust as Steward
  • 32. Menu of Project Support Municipally-owed land and buildings Loans Grants Inclusionary Housing Regulatory Concessions
  • 33. Municipal Land and BUildings Examples: Boston donated 30 acres for CLT development Cleveland, OH donated tax foreclosed properties Burlington,VT donated a decommissioned fire station
  • 34. LOANS AND GRANTS Examples: Orange County, NC provides grants to support CLT project development Minneapolis provides interest free loans deferred for 30-years which are then forgiven if CLT in compliance
  • 35. Inclusionary Housing Examples: Chapel Hill, NC “strongly encourages” developers to work with CLT to meet affordable housing requirements Petaluma, CA provides incentives to encourage developers to donate land to CLT See also: Burlington,VT, Boulder, CO, Chicago, IL
  • 36. Regulatory Concessions Examples: Burlington,VT offers fee waivers for permanently affordable housing units Bellingham,WA offers 50% density bonus for affordable ownership units on leased land Ashland, OR waived requirement for Homeowner’s Association for CLT project
  • 38. Defining “Affordability”Defining “Affordability” Housing that people can afford!Housing that people can afford! Housing cost as a % of incomeHousing cost as a % of income What percentage? (25%, 30%, 33%)What percentage? (25%, 30%, 33%) Which costs?Which costs? Principal, interest, taxes, insurancePrincipal, interest, taxes, insurance Homeowner Assn. FeesHomeowner Assn. Fees Ground Lease FeeGround Lease Fee
  • 39. Two ApproachesTwo Approaches Two Different Approaches:Two Different Approaches: Reduce the price by $100,000Reduce the price by $100,000 Provide a $100,000 silent second loanProvide a $100,000 silent second loan Housing Cost = $300,000Housing Cost = $300,000 People can afford = $200,000People can afford = $200,000 Affordability Gap = $100,000Affordability Gap = $100,000
  • 40. Types of Subsidy StructureTypes of Subsidy Structure Bad MoneyBad Money Sort of Bad MoneySort of Bad Money Good MoneyGood Money GREAT MoneyGREAT Money
  • 41. Types of Subsidy StructureTypes of Subsidy Structure $ to homebuyer over time$ to homebuyer over time $ recaptured by the source$ recaptured by the source $ assumed by future homebuyers$ assumed by future homebuyers $ permanent asset of CLT$ permanent asset of CLT BADBAD GREAT!GREAT!
  • 42. Bad Money Price to CLT Buyer 300,000 First Mortgage 200,000 City Second Loan 100,000 Affordable to 70% of AMI Resale Price 370,000 2nd buyer mortgage 370,000 Second Loan $ Available 0 Affordable to 95% of AMI Appreciation to Seller 170,000 Homebuyer grant or forgivable loan
  • 43. Better Money Price to CLT Buyer 300,000 First Mortgage 200,000 City Second Loan 100,000 Affordable to 70% of AMI Resale Price 370,000 2nd buyer mortgage 370,000 Second Loan $ Available ????? Affordable to 95% of AMI Appreciation to Seller 70,000 Homebuyer loan recaptured by public agency
  • 44. Good Money Price to CLT Buyer 300,000 First Mortgage 200,000 City Second Loan 100,000 Affordable to 70% of AMI Resale Price 370,000 2nd buyer mortgage 270,000 Second Loan 100,000 Affordable to 70% of AMI Appreciation to Seller 70,000 Homebuyer loan assumable by all future buyers
  • 45. Great Money Market Value 300,000 City Subsidy 100,000 Price to CLT Buyer 200,000 Affordable to 70% of AMI Resale Price 270,000 2nd buyer mortgage 270,000 Second Loan 0 Affordable to 70% of AMI Appreciation to Seller 70,000 Grant of permanent subsidy to CLT
  • 46. Comparison Forgivable to Buyer Recaptured Loan Assumable Loan Grant to CLT Market Value 300,000 300,000 300,000 300,000 Subsidy to CLT 0 0 0 100,000 Price to CLT Buyer 300,000 300,000 300,000 200,000 First Mortgage 200,000 200,000 200,000 200,000 City Second Loan 100,000 100,000 100,000 0 Affordable to 70% of AMI 70% of AMI 70% of AMI 70% of AMI Resale Price 370,000 370,000 370,000 270,000 2nd buyer mortgage 370,000 370,000 270,000 270,000 Second Loan $ Available 0 0? 100,000 0 Affordable to 95% of AMI 95% of AMI 70% of AMI 70% of AMI Appreciation to Seller 170,000 70,000 70,000 70,000
  • 48. Competing Programs Example: Portland, OR City operated Shared Appreciation Loan program and funded CLT Both programs served low-income buyers Loans up to $71,000, CLT subsidy around $70,000 CLT units price restricted, Loans required repayment of 25% of appreciation
  • 51. CLT Operating Support Government grants HOME CHDO CDBG HousingTrust Funds Development Revenue Development Fees Marketing Fees Operating Revenues
  • 52. Government Grants Examples: Albuquerque, NM: $200,000 annual CDBG grant King County,WA: $30,000 in HOME CHDO operating funds Highland Park, IL: $100,000 per year from housing trust fund
  • 53. Burlington,VT City has supported Champlain Housing Trust since 1984 2006/07 $125,000 from CDBG for predevelopment $25,000 HOME for staffing HOME funded projects $46,500 from trust fund for homeownership center
  • 55. Taxation How should the taxible value of a CLT home be established? Market value of comparable homes Restricted Price Other
  • 56. Taxation How should tax assessments increase over time when the rate of home price appreciation is limited? With the market Along with the limited price Other
  • 57. Taxation How should the CLT’s land be taxed? Comparable sales prices Cash flow Other
  • 58. Fair Taxation Homes Taxed based on the restricted resale value Increased over time along with formula price Land Taxed based on the present value of lease payments
  • 60. Municipal Oversight Project development Marketing Selecting buyers Pricing CLT homes Maintaining affordability Monitoring homeowner compliance with lease Promoting maintenance of homes
  • 61. Development Are there development issues that are unique to CLTs?
  • 62. Marketing How does the City know that all eligible housholds have a fair chance to buy CLT units? Can the CLT sell to its staff?
  • 63. Marketing Berkeley, requires an Affirmative Fair Marketing Plan for each project before start of marketing. Boulder and Albuquerque approve a general marketing plan for all projects.
  • 64. Buyer Selection Who is eligible to buy a unit? Do certain eligible buyers have priority over others? Does the selection process have to be transparent?
  • 65. Buyer Selection Highland Park, IL 115% of AMI or less Asset Limit Mortgage Approval (approved lender) Immigration Status Size of household appropriate for unit Priorities
  • 66. Initial Pricing How do we define “Affordable?” Target income group (80% of AMI) What percent of household income (33%) Which costs (mortgage, taxes, insurance, etc.) Who fills in all the assumptions and calculates the actual price?
  • 67. Initial Pricing Most cities set general rules and rely on CLT to determine specific price Bellingham,WA reviews sales price prior to closing Madison,WI provides annual price table for all projects
  • 68. Resale Pricing Should the City help set the CLT resale formula? What happens if the formula generates a price that turns out to be too high? Should the city monitor each resale to ensure affordability?
  • 69. Resale Pricing Most cities have not been involved in setting CLT resale formlas Sarasota, FL and Chicago, IL are examples where the City actively debated the options with the CLT Chapel Hill, NC reviews and approves each price for each resale Burlington,VT relies on CLT but reserves the right to audit later
  • 70. Homeowner Compliance Can the CLT promise to ensure that units are owner occupied? Can the CLT promise that units will be well maintained? Can the CLT promise that owners will carry insurance and pay property taxes? Can the CLT prevent foreclosures?
  • 71. Homeowner Compliance Right to require proof of occupancy Right to Require Proof of Insurance and Payment of Taxes Right to Inspect and bill for maintenance Foreclosure Rights Right to Notice Right to Cure
  • 72. Performance Standards Example: Marketing CLT must produce a marketing and selection plan that describes how the CLT will ensure that all eligible households have equal opportunity to purchase the homes. City must approve the plan before any marketing begins.
  • 74. CLT Defaults Failure to act to protect occupancy or condition of homes Failure to act to preserve affordability Sale of CLT land Dissolution of CLT
  • 75. City-CLT agreements Grant Agreements Loan Agreements, Deeds of Trust Development Agreements Regulatory Agreements Covenants, Deed Restrictions Purchase Options
  • 76. City-CLT Agreements Regardless of the legal form, should include: Performance Standards Events of Default Opportunity to Cure Remedies Non-disturbance of the Ground Lease
  • 77. Exercise What rights should the city have in the event of a CLT default?
  • 78. LoANSVS GRANTS What does the City really want? Repayment of subsidy Preservation of affordability
  • 79. City-CLT Loans Bellingham,WA makes loans to support Kulshan CLT projects The loans allow the City to demand repayment if KCLT fails to meet certain conditions .... But how would KCLT ever repay?
  • 80. City Foreclosure Some states allow lender to take posession of the property Others require auction of property with lender receiving the proceeds
  • 81. City-CLT Loans Cleveland, OH loans funds to Cuyahoga CLT City can demand repayment of subsidy in the event of default Foreclosure would result in City owning land Loan Agreement states that foreclosure by city will not alter homeowner/lender rights under lease
  • 82. Loan with Option Santa Monica, CA developed a CLT loan Right to require “specific performance” City has option to purchase land for the amount of the initial subsidy in the event of CLT default City can appoint another nonprofit to buy land All homeowner rights under lease protected
  • 83. Impact on homeowners Loans secured with a lien on the land complicate financing for homeowners Fannie Mae allows superior leins on CLT land only for public agencies And only if ground lease survives foreclosure But they don’t provide an approved mechanism for nondisturbance of the lease
  • 84. Grant with Covenants Orange County, NC provides grants to OCHLT They also record a restrictive covenant on the land Requires CLT to preserve affordability Names county as ‘third party beneficiary’ of lease
  • 85. Loans vs Grants Repayment is usually not an option Repayment is usually not enough - cost to replace affordable unit has grown City needs to be able to require performance Or take possession of the land from the CLT Become the CLT or find another CLT
  • 86. Loans vs Grants Loans and grants with covenants provide similar levels of protection to the City But loans make homebuyer financing more difficult And loans look bad on CLT balance sheet
  • 88. CLT Startup Prior to Incorporation: Planning Committee Education and Organizing Market Assessment Resource Assessment Legal Research Articles and Bylaws After Incorporation: Form Board
  • 89. Municipal Support Building commitment to permanent affordability Introducing the model Participating in planning Staffing start up Contracting for assistance Providing start up grants Re-tooling funding programs
  • 91. Evaluation How could we improve the workshop? How could we improve the program manual?

Editor's Notes

  1. In a mixed income condo project, it may not make sense for the CLT to own the land. In this case the CLT would control a covenant or deed restriction and have an option to purchase units at a formula driven price. This gives the CLT the same kinds of rights as land ownership. The CLT “owns” the social equity in these condo units. When all the condo units are affordable, often the CLT will retain ownership of the land.
  2. 19% of CLTs are affiliated with another nonprofit.
  3. Lincoln Institute survey found only 29% of CLTs followed the “Classic” tripartite government structure.
  4. Different resale formulas maintain affordability with differing levels of precision. Ie. Some preserve affordability to exactly the same income level (assuming exactly the same percentage of income for housing costs) while others preserve affordability more roughly but in the long term these differences are very small.
  5. Who should the CLT should be “accountable” to?
  6. Whether funding is provided through loans or grants, the terms and conditions are generally very similar.
  7. Boulder, CO has produced 500 inclusionary ownership units. Most developers do it without the CLT but Thistle has been successful in negotiating voluntary agreements with builders where they buy units for 5-9% less than the city mandated affordable price and then market them to eligible buyers. Thistle promises to buy the units if they can’t find a buyer.
  8. Ask the audience to define affordable housing. Explain that the industry standard is generally that people pay no more than a third of their gross monthly income towards housing. Point out the difference in owner-occupied and rental housing in terms of how affordability is calculated. Also highlight that each funder may have different requirements/underwriting re: affordability and that they also use different calculations for repayment income vs. eligibility income. The CLT should establish their own criteria for what it considers an acceptable % of income going towards housing. If you rely on the lender, people may end up way over-extended – as lenders have moved away from looking at housing costs and towards total debt ratios.
  9. Here is an example in numbers. Emphasize that it is based on GROSS income and that the payment includes principal, interest, taxes, insurance and usually the lease fee and HOA dues. If taxes, insurance, ground lease and HOA dues = $256 and interest rates are 6.5%, this person could afford a mortgage of $140,000.
  10. Point out that “cost” includes everything – the land, the infrastructure and the building.
  11. This is a broad definition that includes “permanent subsidies” but it also includes other types of subsidies that are not permanent. Grants or deferred loans are permanent subsidies to reduce the cost of the home to the homebuyer. The gap between what your target household can afford and what it costs = the amount of subsidy you need to find.
  12. Though it is sometimes said that CLTs create affordability by “removing the cost of land for the homebuyer,” in reality the amount of cost that is removed for the homebuyer (the subsidy) is usually NOT determined by the land value. It is determined by the size of the affordability gap that must be filled – and may therefore be greater than or less than the land value. In CLTs serving disinvested communities, land has little value and subsidy amounts often far exceed land value. In very expensive real estate markets, where the price of a single lot may be hundreds of thousands of dollars, the subsidy amount is usually less than land value. Nonetheless, the CLT’s OWNERSHIP OF THE LAND allows it to lock in the subsidy as an asset that will not only continue to be available from one homeowner to the next but will increase in value as property values increase.
  13. There are two basic ways subsidies can flow into a deal, and they have very different implications for permanent affordability. The money can be in the form of a grant/forgivable loan to the CLT, who permanently invests it in the home to reduce the cost to the homebuyer. Or, the money can flow to the family, in the form of a grant, forgivable loan, deferred loan or interest rate subsidy to reduce the monthly payment required for the mortgage. Tim McKenzie calls this affordable financing, not affordable housing.
  14. We are all trying to address the issue of the growing affordabilty gap between what people can afford to pay for housing and how much that housing costs. There are 3 basic ways to do this: Increase the income of the homebuyers – a nice idea, but not terribly realistic Decrease the cost of the home – that is what CLTs do – and they do it permanently Bridge the gap with a subsidized mortgage – a loan or grant directly to the homebuyer to fill the gap.
  15. Looking back at our numbers example, the two most common ways we have worked to close the affordability gap are by 1 – reducing the sale price to the buyer to an affordable level – in this case $160,000 or 2 – providing financing to fill the gap that does not impact the borrowers monthly payment. These numbers reflect what we’re working with in NW Washington – but if you’re working in a depressed market, the figures are different.
  16. Looking back at our numbers example, the two most common ways we have worked to close the affordability gap are by 1 – reducing the sale price to the buyer to an affordable level – in this case $160,000 or 2 – providing financing to fill the gap that does not impact the borrowers monthly payment. These numbers reflect what we’re working with in NW Washington – but if you’re working in a depressed market, the figures are different.
  17. There are 4 basic types of subsidy. Note that the good-bad spectrum is from the CLT’s perspective. Lenders & funders may have the opposite perspective and Homebuyers are likely to be indifferent. If shared equity mortgages comes up as a good idea out of the Symposium, be sure add a note to bad money about the incompatibility of shared equity housing and shared equity mortgages. Handout: Types of Housing Subsidies
  18. In identifying these types here, we are not concerned with what the subsidy source CALLS the subsidy – the agency dispensing the subsidy may call it a land-acquisition subsidy, or a development subsidy, or a homeownership subsidy. They may also use language like grant, forgivable loan, recoverable grant. We are concerned here with what happens to the subsidy over time. There are 4 basic types of subsidy. From the CLT perspective, the best money is a direct grant to the CLT – this does the best job of maintaining affordability over time (we’ll look at the numbers to show this in a minute). Conversely, the worst money is money that is given to a homebuyer and either walks away with that homebuyer OR is recaptured by the subsidy source. Either way, the subsidy does nothing to create affordability after the initial homebuyer. The Funders, on the other hand, may have a VERY different perspective. They often focus on their existing infrastructure (ie. A down payment assistance program that is already up and running) and view it to be a much higher risk to give money directly to the CLT. After all, they know how down payment assistance works and they have a lien on the property which they can use to recapture their funds if need be. Handout: Types of Housing Subsidies: Using handout, review different types of subsidies in more detail.
  19. The city discontinued the loan program in 2007
  20. Often programs have to be altered to work with a CLT. Ideally the CLT is allowed to be the borrower and eligibility standards are changed from, for example “borrowers must earn less than 80% of AMI” to “Borrowers either earn less... Or be a CLT that commits to selling to buyers that...”
  21. Housing Trust fund is funded through a 1% property tax and can be used for “capacity grants” for nonprofits that guarantee perpetual affordability Grant amounts are renegotiated each year
  22. Ask participants to suggest likely city concerns/requirements in each of these areas? How much should the City get involved in the day-to-day decisions?
  23. The city of Highland Park requires that the CLT consider these criteria.
  24. The calculation generally includes the ground lease fee and any HOA costs. Who decides which interest rate to use? Who decides how much downpayment?
  25. Ex. 80% units should be priced to 70%
  26. Some CLTs have established Reserve Accounts to improve maintenance
  27. See Appendix of Program Handbook for more examples The idea is to let the CLT do their job but to hold them accountable for meeting the City’s general goals.
  28. Ask participants to suggest situations that might lead to one or the other of these failures. Are there other ways that the CLT could fail?
  29. Washington law calls for property to be auctioned on courthouse steps in the event of foreclosure - City might not end up with title to land.
  30. This should allow the City to find another CLT and give the project to them
  31. Ideally this gives the county the ability to take action to enforce the terms of the lease. They would go to a judge to require performance rather than foreclosing. Even in Santa Monica requiring performance necessitates a Covenant.
  32. This can be achieved with loans or grants but loans make homebuyer financing more complicated.
  33. Loans also look bad on the CLT balance sheet.