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|CITY COUNCIL AGENDA ITEM NO. 12
Meeting Date: June 10, 2008
Subject/Title: Adopt Resolution amending First Time Homebuyer Program Administrative Manual to permit rental of affordable for-sale units for hardship cases, approving and authorizing the execution of an amendment to the form Resale Restriction Agreement and approving a title change to the Manual.
Prepared by: Kwame P. Reed, Senior Community Development Analyst
Submitted by: Casey McCann, Interim Community Development Director
Adopt Resolution amending First Time Homebuyer Program Administrative Manual to permit rental of affordable for-sale units for hardship cases, approving and authorizing the execution of an amendment to the form Resale Restriction Agreement and approving a title change to the Manual.
On July 26, 2005, the City Council adopted a Resolution approving the First Time Homebuyer Assistance Program and Implementing Loan Documents.
On January 24, 2006, the City Council adopted the First Time Homebuyer Program Administrative Manual for the programs administered by the Housing Division. The manual provides information and guidance for participants, lenders and city staff.
At the April 7, 2008 Land Use and Development Committee meeting, staff presented the Committee with a proposal to change the Program that will allow homeowners to rent their restricted units in hardship cases.
In the current real estate market, homeowners are facing difficult times with keeping and selling of their homes. The current market conditions are not only affecting market rate sales, but those conditions are now spilling over into the below-market rate (“BMR”) sales. The current Refinance and Resale Limitation and Option to Purchase Agreement (Resale Agreement) is a document eligible households in the Affordable Housing Program are required to execute. This agreement requires the BMR unit to be the primary residence of the qualifying household and prohibits renting of the unit.
Recently two homeowners requested permission to rent their BMR units. Both owners need to find residency closer to their new places of employment north of Sacramento and have tried to sell their BMR units for several months without success. One homeowner has the unit on Craigslist and is actively trying to sell it. The other owner realizes owning and trying to sell a moderate BMR unit at this time is difficult due to declining market values matching the value of a BMR unit with restrictions. The initial response by staff was to advise the homeowners of the prohibition to rent their BMR units, to assist them in finding buyers, and to encourage them to continue to market the sale of their homes. Due to their continued lack of success in selling their units, the homeowners have requested the City to consider amending the Resale Agreement in hardship cases to allow renting their BMR units to income-qualified tenants for a temporary period.
Staff has identified two other East Bay cities that have allowed or have provision to allow the renting of BMR units. In both cases, a finding of hardship is required. A hardship is generally a condition outside of the control of the homeowner. As discussed at the Land Use and Development Committee meeting, a hardship can be the relocation of a place of employment, a temporary job assignment or needing to care for a relative outside of the area for an extended period of time. In a typical real estate market, BMR homeowners can find buyers when their personal circumstances demand a change in living locations, thus avoiding this hardship. The alternative for these BMR homeowners is to keep their unit vacant, which the City wants to avoid since vacant units add to neighborhood blight and declining values. Renting the home during one of these hardships periods is an available option for a market-rate homeowner.
The following proposal to allow BMR units to be temporarily rented in hardship cases was presented to the Land Use Development Subcommittee and incorporates their comments:
1) The owner of the restricted affordable housing unit may rent the unit for a period not to exceed twelve (12) months upon demonstration of a hardship as determined in the sole and absolute discretion of the City Manager or his/her designee, and written approval from the City of Brentwood and execution of an agreement with the City.
2) A hardship is defined as circumstances in which a owner of a restricted affordable unit is required to be absent from the unit for an extended amount of time due to either a change in the location of his or her place of employment, unforeseen health problems of the homeowner or an immediate family member of the homeowner, or other situations at the discretion of the City Manager or his/her designee.
3) Upon approval, the rent shall not exceed the lesser of the maximum affordable rental rate for the unit based on bedroom size (to maintain the unit’s affordability level) or the maximum amount of the homeowners current mortgage, including monthly property taxes, insurance, homeowners association dues and property management commission.
4) The homeowner must furnish proof of current monthly mortgage payments including property taxes, insurance, HOA dues.
5) The homeowner must enter into an agreement with the City’s Rental Program property management company that will oversee the application process, collection of rents and other applicable duties. This is needed to appropriately screen the applicants and to monitor the unit’s continued affordability.
6) The leasing/rental agreement shall be reviewed by the City of Brentwood prior to approval and the tenant moving into the restricted affordable unit.
No changes to the Affordable Housing Ordinance is necessary for this revised policy. The First Time Homebuyer Administration Manual, which provides the administration policies to implement the Affordable Housing Ordinance, will need to be revised to allow the temporary hardship rental provision and to establish, a separate, stand-alone agreement between the homeowner and the City.
The current manual sets for the policies and guidelines for all City Housing Programs, in addition to rental house and the First Time Homebuyer Program. Therefore, staff recommends revising the name to “Affordable Housing Program Administrative Manual” to better describe the comprehensive nature of the City Housing Programs offered through the Affordable Housing Ordinance and Chapter 17.725 of the Brentwood Municipal Code.
Adopt Resolution amending First Time Homebuyer Program Administrative Manual to permit rental of affordable for-sale units for hardship cases and a title change to the manual.
There are no fiscal impacts associated with the proposed amendments to the First Time Homebuyer Administrative Manual. The amount of the monthly rental fee will be the lesser of the existing mortgage (property taxes, principal, and interest) plus any homeowner association fees or the maximum affordable monthly rent for a unit that does not include utilities paid by the homeowner. The homeowner shall pay any and all fees associated with the renting of a home including but not limited to a business license tax and property management fee.
Amended portions of the First Time Homebuyer Programs Administrative Manual
Amendment to Refinance and Resale Limitation Agreement and Option to Purchase
CITY COUNCIL RESOLUTION NO.
A RESOLUTION AMENDING THE FIRST TIME HOMEBUYER PROGRAM ADMINISTRATIVE MANUAL TO PERMIT RENTAL OF AFFORDABLE FOR-SALE UNITS FOR HARDSHIP CASES, APPROVING AND AUTHORIZING THE EXECUTION OF AN AMENDMENT TO THE FORM RESALE RESTRICTION AGREEMENT AND APPROVING A TITLE CHANGE TO THE MANUAL.
WHEREAS, on July 26, 2005, the City Council adopted a Resolution approving the First Time Homebuyer Assistance Program and Implementing Loan Documents; and
WHEREAS, January 24, 2006, the City Council adopted the First Time Homebuyer Program Administrative Manual for the housing programs offered by the Affordable Housing Ordinance, Chapter 17.725 of the Municipal Code, and administered by the Housing Division. The Manual provides information and guidance for participants, lenders and city staff; and
WHEREAS, at the April 7, 2008 Land Use and Development Committee meeting, staff presented the Committee with a proposal to revise the Program that will allow homeowners to rent their restricted units in hardship cases, and the Committee directed staff to bring forward the recommendation; and
WHEREAS, the purpose of the revision to the Administrative Manual is to provide rental of affordable for-sale units in cases of hardship at the discretion of the City Manager or his/her designee; and
WHEREAS, the purpose of changing the title of the First Time Homebuyer Administrative Manual to the “Affordable Housing Program Administrative Manual” is to clarify its overall importance to all programs offered through the Affordable Housing Ordinance and Chapter 17.725 of the Brentwood Municipal Code
NOW, THEREFORE, BE IT RESOLVED, BY THE CITY COUNCIL OF THE CITY OF BRENTWOOD AS FOLLOWS:
1) The City Council hereby amends the First Time Homebuyer Administrative Manual to include language regarding the rental of affordable ownership units in cases of hardship and authorizes the City Manager or her designee to execute the amendment to the Resale Restriction Agreement, in the form attached hereto with minor modifications approved by the City Manager in consultation with the City Attorney, and any other implementing documents.
2) The City Council hereby approves and authorizes the changing of the title of Administrative Manual from the First Time Homebuyer Administrative Manual to the Affordable Housing Program Administrative Manual.
PASSED AND ADOPTED this 10th day of June, 2008, by the following vote:
NOTE: THE PROPOSED REVISION ARE IN BOLD TYPE
FIRST TIME HOMEBUYER PROGRAMS
1. First Time Homebuyer
Borrowers (homebuyers) must be first time homebuyers. The borrower (homebuyer) shall be considered a first-time homebuyer if they have not had an ownership interest in any principal residence (a home in which they lived) during the three-year period prior to the execution of the mortgage loan. Owners of mobile homes without permanently affixed foundations qualify as first time homebuyers.
2. Household Composition
A household is comprised of one or more persons who may or may not be related and will live together in the unit. All members of the household must include their income in the total annual household income. Every person who will be on title must meet all eligibility requirements, go through every step of the application and purchase process, and agree to comply with the program requirements. The City will accept applications from more than one adult who will live together in the unit as co-applicants. Married couples must apply as co-applicants and both must be on title unless they are legally separated. The combined income and assets of all adult household members must not exceed the maximum income and asset limits of the program. If the borrowers (homebuyers) are proposing to combine households with the purchase of the unit, each household must meet minimum eligibility requirements and their combined income must meet the household income limits.
An unborn child can be counted in household size once there is medical confirmation of pregnancy. An adoption in process will be counted in family size with verification of the adoption process. A child will be considered part of the household when the child lives with a single parent for at least 75% of the time or in instances of joint custody, at least 50%. The borrower (homebuyer) will need to submit a copy of the divorce decree and/or child custody agreement as verifiable documentation. If a divorce is in process and support has not been agreed to and recorded in Court, it may not be possible to qualify a borrower (homebuyer) because household size and financial status is unclear.
3. Income Limits
The Brentwood City Council established the First Time Homebuyer Programs with the principle that assistance shall be provided only to moderate, low or very low income households. The IDA program is currently limited to very low income households.
The income limits that define moderate, low and very low income households are updated annually by the U.S. Department of Housing and Urban Development (HUD) and the State of California Department of Housing and Community Development (HCD). (See Attachment A-2 for a description of income inclusions and exclusions.)
As of April 18, 2008, the following maximum income limits apply:
Maximum Allowable Income by Household Size
1 2 3 4 5 6 7 8
DAP $69,050 $78,900 $88,800 $98,650 $106,550 $114,450 $122,350 $130,200
AHP/GAP $66,300 $75,800 $85,300 $94,700 $102,300 $109,900 $117,500 $119,350
IDA Program $30,150 $34,450 $38,750 $43,050 $46,500 $49,950 $53,400 $54,650
The DAP will be limited to very low, low and moderate income households, as defined by HCD, using HUD standards. HCD defines moderate income as households earning a maximum annual income that is 120 percent of area median income (AMI).
AHP / GAP
The AHP/GAP will be limited to very low, low and moderate income households, as defined by California Community Redevelopment Law (CRL). CRL defines moderate income as households earning a maximum annual income that is 110 percent of AMI.
The IDA will be limited to very low income households, as defined by HCD and CRL. Both HCD and CRL define very low income as households earning a maximum annual income that is 50 percent of AMI.
4. Required Personal Contribution
The borrower (homebuyer) must have sufficient readily available assets for personal contribution in the required amount as described below. Verification of total assets will be required. (See Attachment A-2 for a description of allowable assets and verifiable documents.)
At the time of purchase of a unit, the borrower (homebuyer) must have a minimum of 3 percent of the purchase price in readily available funds to pay toward the down payment and closing costs. The borrower (homebuyer) may use other approved assistance programs to assist in obtaining the funding needed to pay for the total cost of the down payment and/or closing costs.
AHP / GAP
At the time of purchase of a BMR unit, the borrower (homebuyer) must have the greater of 3 percent of the purchase price or $4,000 in readily available funds to pay toward the down payment and/or closing costs or have successfully completed the IDA program. The borrower (homebuyer) may use other approved assistance programs to assist them in obtaining the funding needed to pay for the total cost of the down payment and/or closing costs.
Participants must outline a schedule of monthly payments to complete savings goal. Participants must complete personal savings within three years, but no earlier than 18 months. If three monthly payments are missed for reasons other than approved emergency or leave of absence, the participant is no longer eligible for matching funds.
5. Asset and Gift Limits
Gifts of funds are included in eligibility considerations and may not exceed a total of $11,000. Gifts may be used for the borrower’s personal contribution. The borrower (homebuyer) must submit a “gift letter” signed by the granter stating that the money is a gift that is not to be repaid.
Assets included in eligibility considerations are separated into liquid assets and other cash assets. The sum of liquid and other cash assets is used to determine availability of required personal contribution. (See Attachment A-2 for a description of liquid assets.) If liquid cash assets are not sufficient to meet the required personal contribution as described above, the borrower (homebuyer) will need to demonstrate that the cash requirement can be met from some other cash assets. (See Attachment A-2 for a description of other cash assets). Liquid assets (including the required personal contribution) may not exceed the greater of $15,000 or 10 percent of the purchase price.
6. Owner Occupied
Within 60 days of close of escrow, the borrower (homebuyer) and the entire household must occupy the unit as their primary residence and remain in residence. Any residential unit where more than 15 percent of the total area of the residence will be used for a trade or business and which qualifies the borrower (homebuyer) for a tax deduction for business expenses for business use of the residence under
Section 280A of the IRS code is not eligible.
Occupancy is defined as a minimum stay of ten months in every twelve month period. If an employer requires the borrower (homebuyer) to work at another location more than 40 miles from Brentwood on a short-term temporary basis, and the borrower (homebuyer) needs to relocate his/her residence temporarily (more than two months), the borrower (homebuyer) must contact the City Housing Division prior to the relocation to notify them of the temporary involuntary relocation and provide all documentation requested.
The borrower (homebuyer) may not terminate occupancy of the unit or allow the occupancy of the unit by anyone who is not a member of the borrower’s household. All borrowers (homebuyers) who are on title to the unit must occupy the unit. If the borrower (homebuyer) violates these occupancy restrictions, the City will pursue its available remedies, including loan repayment and/or sale of the unit.
The unit may not be rented. The City will require the borrower (homebuyer) to reimburse the City for all rent that was collected or the amount of any presumed rent, based upon established market rents. In any instance that the City determines that the unit has been rented, the City will pursue its available remedies, including loan repayment and/or the sale of the unit.
In certain cases, market conditions, health circumstances or other situations beyond the control of the homeowner may prevent, hinder or constrain the sale or continued occupancy by the homeowner of a restricted unit. The City and/or Agency, in their sole discretion and determination of homeowner hardship, may allow the unit to be rented for a period not to exceed 12 months. Hardship cases will be considered administratively on a case by case basis and approval is not guaranteed. A hardship is defined as circumstances in which a owner of a restricted affordable unit is required to be absent from the unit for an extended amount of time due to either a change in the location of his or her place of employment, unforeseen health problems of the homeowner or an immediate family member of the homeowner, or other situations at the discretion of the City Manager or his/her designee. If administratively approved, the restricted unit must be rented in compliance with the City of Brentwood’s Affordable Housing Program and in accordance with an executed agreement between the homeowner and the City and/or Agency.
7. City Homebuyer Classes
All borrowers (homebuyers) will be required to participate in two City First Time Homebuyer Classes. After the borrower (homebuyer) is determined to be eligible for a first time homebuyer program the borrower (homebuyer) is required to attend the first pre-purchase education program offered by the City of Brentwood. Borrowers (homebuyers) will be asked to bring Form A-3: Verifiable Document Checklist along with verifiable documentation to support eligibility, preferences and availability of required personal contribution to the first class. Borrowers (homebuyers) should not bring original documents for supporting documentation. Borrowers (homebuyers) who have been selected to purchase a home must attend a second City-sponsored First Time Homebuyer class.
The borrower (homebuyer) must complete the pre-purchase education classes within a reasonable timeframe established by the City, or they will be removed from the list. At the end of each class, the borrower (homebuyer) will receive a certificate of completion. The certificates of completion must be submitted as proof of participation in the program.
Ongoing Participation (IDA Program)
Participants who lack sufficient down payment funds for immediate home purchase will be selected to participate in the IDA Program based on eligibility and status. Participants will be required to establish IDA savings accounts with the approved financial institution, participate in ongoing financial literacy courses, and make required deposits. At the close of the savings period, the City will make every attempt to have a BMR unit available for participant purchase through the AHP or GAP.
8. Residency/Work Status Preferences
Preference is given to Brentwood residents, full time workers in the City of Brentwood, local emergency services personnel and local school district employees. Residency in Brentwood requires living at a specific address in the City of Brentwood for at least six months prior to submitting a wait list application. Actual residency in Brentwood, not legal residency, is required. Those who simply have a post office box, park overnight or visit in the City are not considered residents. Full-time employment in the City of Brentwood requires 40 hours per week within the City of Brentwood for at least six months prior to submitting a wait list application.
The City will require documentation to verify the claims on the application. Intentionally false statements to gain priority ranking will result in removal of the applicant from the waiting list and permanent ineligibility from the program. (See Attachment A-2 for examples of preference characteristics and verifiable documents.)
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
City of Brentwood
150 City Park Way
Brentwood, California 94513
Attn: City Clerk
(Space Above This Line for Recorder's Use Only)
[Exempt from recording fee per Gov. Code § 27383]
AMENDMENT TO REFINANCE AND RESALE
LIMITATION AGREEMENT AND OPTION TO PURCHASE
For valuable consideration, the receipt of which is hereby acknowledged, _____________________________________________ (individually or collectively, "Owner"), and THE CITY OF BRENTWOOD and THE REDEVELOPMENT AGENCY OF THE CITY OF BRENTWOOD (collectively defined herein as "City") agree as follows, with reference to the following facts:
A. Owner owns that certain real property located at _____________, Brentwood, California and more particularly described in Attachment 1 attached hereto and incorporated herein. The real property, which includes the land, the residence and all other improvements thereon, and all membership and other rights appurtenant thereto, is referred to in this Agreement as the "Restricted Unit."
B. The Restricted Unit is part of the City’s Affordable Housing Program and is subject to a Refinance and Resale Limitation Agreement and Option to Purchase entered into by and between Owner and City and recorded in the Official Records of Contra Costa County on as Document No. (the “Resale Agreement”). The Resale Agreement provides that, among other things, Owner is required to occupy the Restricted Unit as his or her principal residence.
C. The City has adopted an amendment to its Affordable Housing Administrative Manual which allows owners of restricted units to rent their units for a period of up to 12 months in cases of demonstrated hardship. The City has approved Owner’s request to rent the Restricted Unit and the parties desire to document the terms of that approval.
NOW, THEREFORE, in this factual context, for good and valuable consideration, Owner and City agree as follows:
1. Amendment to Section 1 on Principal Residence. Section 1 of the Resale Agreement is hereby deleted in its entirety and replaced with the following:
“1. Principal Residence and Exception. Owner shall occupy the Restricted Unit as his or her principal and legal residence, except that Owner may rent the Restricted Unit to an Eligible Rental Household, as defined and provided herein, for a period from to (the “Rental Term”). Except during the Rental Term, upon request by the City, the Owner shall submit an affidavit to the City certifying that the Restricted Unit is the Owner's principal and legal residence.
1.1 Rent Restrictions. Owner may rent the Restricted Unit for the Rental Term to an Eligible Rental Household approved by City for an amount that does not exceed the lesser of: (a) the Affordable Rent, or (b) the sum of the Owner’s current monthly mortgage payment, monthly portion of property taxes and homeowner’s insurance and homeowners’ association dues, if any (“Owner Monthly Obligation”). As used in this Agreement:
a. "Affordable Rent" shall be as defined in Health and Safety Code Section 50053 or any successor statute thereto. If the statute is no longer in effect and no successor statute is enacted, the City shall establish the Affordable Rent for purposes of this Agreement. For purposes of determining the Affordable Rent: (i) the rent for a 2 bedroom Restricted Unit shall be established using the assumption that the Eligible Rental Household purchasing the Unit is comprised of three persons; (ii) the rent for a 3 bedroom Restricted Unit shall be established using the assumption that the Eligible Rental Household purchasing the Unit is comprised of four persons; and (iii) the rent for a 4 bedroom Restricted Unit shall be established using the assumption that the Eligible Rental Household purchasing the Unit is comprised of five persons.
b. "Eligible Rental Household" shall mean and include a person or household whose annual gross income does not exceed [insert "50%" for very-low income household, "80%" for low income household, or "120%" for median income household] of the Median Income, as defined below (which percentage shall be adjusted as provided in Title 25, Section 6932 of California Code of Regulations).
c. "Median Income" shall mean the area-wide median gross yearly income in Contra Costa County, adjusted for household size, as established from time to time by the U.S. Department of Housing and Urban Development ("HUD"), or, by the California Department of Housing and Community Development ("HCD") if HUD ceases to establish such income standards. In the event that neither HUD nor HCD are establishing such income standards, the City shall determine income standards in a manner reasonably similar to the methods of calculation previously used by HUD or HCD.
1.2 Management of Rental of Restricted Unit. Owner must contract with the property management company that manages the City’s Rental Program to manage the rental of the Restricted Unit in accordance with the terms of this Agreement, including overseeing the application process and the collection of rent. The Owner’s rental agreement with a tenant must be reviewed and approved by the City’s Redevelopment/Housing Division prior to execution.
13. Documentation. During the Rental Term, Owner must submit to the City’s Redevelopment/Housing Division by the fifth day of every month, documentation evidencing the Owner Monthly Obligation.”
2. Resale Agreement in Full Force and Effect. Except as amended herein, the Resale Agreement is in full force and effect.
[Signature page follows]
IN WITNESS WHEREOF, the City and the Owner have caused this Agreement to be executed on their behalf by their respective officers thereunto duly authorized.
Dated for reference purposes only as of , 20__.
APPROVED AS TO FORM:
City Attorney CITY:
THE CITY OF BRENTWOOD and THE REDEVELOPMENT AGENCY OF THE CITY OF BRENTWOOD
Name: Its: City Manager and Executive Director
Date: _________________________ OWNER:
SIGNATURES MUST BE NOTARIZED
Legal Description of Restricted Unit
[to be inserted]
City of Brentwood City Council
150 City Park Way
Brentwood, CA 94513
Fax (925) 516-5441