Loading...
HomeMy WebLinkAbout06/20/1989, 4 - CITY PARTICIPATION IN ASSISTANCE PROGRAM FOR HARDSHIP CASES IN CHUMASH MOBILEHOME PARK CONVERSION �i°� ►�I�II�IIp���IU city or San tuts OBIspo M MO Nil; COUNCIL AGENDA REPORT nW NUMEER FROM Michael Multari, Community Development Director SUBJECT: City participation in assistance program for hardship cases in Chumash Mobilehome Park Conversion CAO RECOMMENDATION:Approve in concept city participation in assistance program as discussed below; staff will develop necessary contracts/documentation and return to Council for final approval. Summary Discussion In 1987, the City Council approved a tentative tract map for the conversion of the Chumash Village Mobilehome Park to condominiums to allow residents to purchase their spaces. The Council required various measures to ensure that existing tenants who wanted to purchase their spaces would be given the opportunity to do so. The most significant assistance program was the State's offer of low-interest; deferred loans to low-income tenants. The Homeowners' Association (HOA) also contributed approximately $270,000 to the low-income tenants who applied to the State, to bridge the gap between the maximum the State would lend and the full amount needed by these tenants. So far, 34 low-income tenants have purchased their spaces through this program. The city was not a direct financial participant in any of the assistance programs, but the Council indicated that they would consider such participation for "hardship" cases. Of the 235 spaces, approximately 185 have been purchased as of this writing. There are still 11 households who would like to purchase but have not yet been able to. Of these, four are low-income households who did not apply for State assistance during the last round. A recent change in the State's program, allows HCD to increase the original assistance total to help these people. The HOA, however, has exhausted its reserve used to provide the "gap" between the State maximum and the full amount needed by these people. This is estimated at approximately $45,000 for all four combined. The city has been asked to provide deferred loans to these low-income households to augment the State assistance so that these low-income tenants can buy their spaces. There are also seven other "hardship" cases: people who are not low-income but who have suffered credit problems which prevent them from getting conventional loans. Through a long process described further below, a somewhat complicated plan has been found to assist them: Commerce Bank would loan the necessary funds to the Housing Authority, who in turn would provide loans to the households. The City would provide security to the Housing Authority to ensure that there are no significant cash losses if foreclosure is necessary. The Housing Authority and City would be reimbursed for expenses upon resale of the foreclosed unit. The buyers and, possibly the Homeowners' Association, will contribute to a fund which will be used to pay the Housing Authority for administrative costs and to help offset at least some of the short term expenditures during foreclosure. City risk is very low; maximum likely amount to be needed is around $10,000 (if we assume we need to foreclose on three of the seven someday) which should be reimbursed at time of resale. C °`�i ���►►►��I� ��IIN city of san tus oBispo COUNCIL AGENDA REPORT Page 2 Significant Impacts None. Conseouences of Not Taking the Recommended Action It is unlikely that alternative assistance programs can be devised in a timely way; the 11 households will not be able to buy their spaces. Their rents, which are no longer controlled, will rise which may jeopardize their ability to stay in their homes. I i- I 1110%111$W�� city of sa►n tuts osispo Eft ACOUNCIL. AGENDA REPORT Page 3 Backsround In 1986, the tenants of the Chumash Mobilehome Park at 3057 S. Higuera Street, asked the City to approve a subdivision to allow "air space condominiums" so that the tenants could buy their spaces. The majority of the tenants felt that purchasing their spaces would give them greater long term security than continued renting. The principal problem raised by the request related to rent control. Under the City's ordinance (now adopted as Measure "D" which was approved by the voters), parks which convert to condominiums (resident ownership) are exempt from rent control. This is to encourage people to own their own spaces and to help make such conversions more financially feasible. At about the same time, the City sponsored a grant application to the California Department of Housing and Community Development (HCD) under the Mobilehome Park Assistance Program (MPAP) for funds to help low-income tenants purchase their spaces. In 1987, after several hearings, the City approved the subdivision subject to a "tenant protection plan" which had a number of features. The most significant features were 1) assistance to low-income tenants who wanted to purchase (see below); 2) a phased increase in rents over four years (rather than immediate conversion to market rates), including significant subsidies for low-income renters during those four years; and,:3) some relocation assistance for persons who wanted to or felt they had to move. Meanwhile, the State funded approximately $535,000 for loans to low-income tenants. Under the MPAP, the State offers a 7% loan which is deferred until time of title transfer. The State loans, however, will cover only up to 50% of the cost of the spaces. In most cases, the low-income tenants need additional money to buy the spaces. Frequently, the local government has provided these loans. In our case, the Homeowners' Association provided approximately $270,000. Thus, the non-low income buyers in the park helped pay for the purchases by their low-income neighbors. The HOA assistance is also in the form of a deferred loan. The City did not commit to any direct financial assistance at that time, but did indicate that city participation would be considered for "hardship" cases. Current Status There are 235 spaces in the park. Of these, approximately 190 have been purchased; 34 are low-income households who have bought their spaces with MPAP assistance. Last October and November, in an attempt to clarify the status of the conversion, city staff conducted surveys of the unsold spaces. The surveys found some tenants who still wanted to purchase but were encountering various difficulties. Currently, there are still 11 households who would like to buy their spaces: four who are low-income but did not apply for MPAP assistance in time and seven who are not low-income but can not get loans from conventional lending institutions because of past credit problems. ��►M�i�auVIIIII�11p��� ll city of san tins osispo AMIGe COUNCIL AGENOA REPORT Page 4 Low-income buyers Under the original agreement, low-income households needed to apply for MPAP assistance within certain deadlines; anyone who came into the park after the deadline was ineligible. Recent changes to the program now allow the State to offer assistance to persons who apply after the original deadline. Thus, HCD informed us that they have up to about $90,000 available for low-income tenants who wish to purchase in Chumash. There are four remaining low-income households who wish to purchase. With the assistance of the Housing Authority, we are completing their applications (all four applications have now been sent on to the State for processing). Again, the State will lend only up to 50% of the purchase price (the lower one's income, the more they will lend up to 50%). Realistically, the tenants will need additional loans to allow them to purchase. In the previous 34 cases, the HOA made up the difference with deferred loans from a fund created at the time of conversion. That fund is exhausted. Staff is recommending that the City offer loans, modeled on the State program for the difference. The amount is about $50,000 for all four combined. The buyers' payments will be set at a maximum related to a percent of their income (not more than 40% of their incomes for housing costs). The portion of the costs not covered by these payments will _ be deferred (principal and, in some cases, some of the interest, too). We are still discussing with HCD staff how much of the payments will used to offset the City loans and State loans (probably half to each). Under our proposal, our loans would be 7% interest, partially deferred to time of title transfer. The City loan would be subordinate to the State loan (a requirement of the MPAP program). Credit-problem buyers There are also seven households who want to buy, who are not low-income (so are ineligible for State assistance), but who have credit problems which have prevented them from getting conventional loans. All have applied to conventional lenders, some to several such lenders. City staff has been working with the tenants, the HOA, the Housing Authority and Commerce Bank to come up with a way for these people to buy their spaces. Our first idea was for the City to provide some security to a bank so that they would be willing to loan directly to the seven households. The basic approach would have been for the City to guarantee that if the household defaulted on payments, the City would make up those losses while the bank foreclosed on the space and sold it. The City would then be reimbursed from the resale of the unit (either in whole or in part depending on the amount of the sale). Two banks who were initially supportive of this approach have now turned this idea down. Commerce Bank, however, has indicated a willingness to lend the money if we use a somewhat different approach. __ 1110$1111�11MI JJ city of san Luis osispo AMICon COUNCIL AGENDA REPORT Page 5 The bank would lend the money to the Housing Authority, who in turn would provide loans to the households. If any of the households defaults on its payments, the Housing Authority will proceed with foreclosure. During the time when foreclosure is proceeding, the City will pay the Housing Authority funds equal to the unpaid mortgage payments, so that the Housing Authority, in turn, can make the payments to the bank without any significant cash losses. The City will be reimbursed for these payments when the space is resold. We expect that the bank will offer the Housing Authority a favorable rate, since the loan is, for all practical purposes, guaranteed. We would expect to offer the households a slightly higher rate, as well as charge them some reasonable loan fee. These monies would go into a fund which will be used to help compensate the. Housing Authority for administrative costs and could be used as a first source of reimbursement if a foreclosure is necessary. Care must be taken in assembling this program to make sure the rates/fees are not so burdensome as to make the purchases infeasible. Staff has also asked the HOA if they would be willing to contribute some money toward this fund to help. offset administrative costs, too. Staff, the Housing Authority and the bank, all recommend that the loans be for the space and for refinancing the existing loans on the coaches (it will be a much stronger position for the lenders if foreclosure is required than if the loan is just for the space). The estimated loan amount for all seven cases combined is about $350,000. The term on the loan will likely be 15 years; the interest rate has not yet been determined. In a worst case scenario, all seven households default and the units do not sell at a price which recovers any of the City out-of-pocket expenses. If we assume an average of six months for foreclosure, this would be a cumulative total of about $21,000 the City would need to pay the Housing Authority to cover uncollected mortgage payments. More realistically, we would expect all these costs to be reimbursed upon resale of the foreclosed units. A more realistic scenario may be that three of the seven households default at some time. The expected short term obligation of the City would be a cumulative total of about $10,000. Again, we would expect all to be reimbursed when the foreclosed units are resold. It is worth pointing out that all of these households are current (and have been for a considerable time) on their coach payments and space rents. They currently are employed and have sufficient incomes to cover the expected loan payments; previous credit.problems (eg: medical-related bankruptcy) prevent their getting conventional loans. Housing Authority and Bank Approvals The staff officers of Commerce Bank have indicated that they would be willing to recommend this program to their loan board. The board has not yet acted on the proposal. The Housing Authority board reviewed the proposal on May 25 and gave a conceptual approval to the program, pending bank and City Council approval and subject to their review of the specific contracts and related documentation. 4LZOO I 'MR111121§1 city of san tins oBispo COUNCIL AGENDA REPORT Page 6 Next Stens Staff is recommending that the Council grant conceptual approval to the two assistance programs outlined above. We will then have the necessary documents and contracts for formal implementation drafted. The final versions will be returned to the Council, as well as to the bank board and Housing Authority board, for final approval and execution. Low-income Renters The survey done last fall also identified eight low-income households who do not wish to purchase their spaces. All of these households are single, elderly women, most on fixed incomes. Although their rents are currently subsidized, there have been rent increases as allowed under the tenant protection plan. In 1991, these rents may go to market rates. Staff, the Housing Authority and the HOA have been investigating ways of increasing and extending support for these tenants. The HOA has tentatively agreed to extend the rent subsidies and the Housing Authority staff have indicated willingness to contribute some funds in a special account reserved for low-income mobile home tenants toward even further extension of the subsidies. No direct financial participation by the City is expected at this time. Recommendation By minute motion, grant conceptual approval to this program with the formal documents and contracts to return for final authorization. chumash3 I C� WPM GENDA nd 0,1 hh rt ago -�91TEM # . June 12, 1989 C City Council RECEIVE® San Luis Obispo, Calif. JUN 1 5 1989 Dear City Council, CITY CLERK SAN LUIS OBISPO,CA About 5 years ago we obtained a V.A. loan .and bought our mobile home in Chufnash Village Mobilehome Park. de purposefully bought here because we were protected by rent control. A few years later when plans for the conversion to Own Your Space were being formed, we were promised that the land would be afforabie, and that everyone in the park would be able to buy his own space. In the Spring of 1987, the City Council approved the subdivision of Chumash Village Mobilehome Park, and the removal of rent control upon completion of the subdivision. The subsequent high rent increases have been a great hardship on us, and we will. not be able to continue to pay them much longer6 lords can not tell- enough the emotional strain this has caused. Why should some renters in mobile home parks in San Luis Obispo be protected by rent control and those in Chumash subject to high rent increases? ide have not been able to obtain a loan to buy our space due to a bankruptcy caused by larve medical bills, bills due to cancer. We will soon be displaced out of our home due to the conversion and removal of rent control, if the promises of the City are not kept. Please advise as soon as possible, as this situation has continued for a very long time, over two years. Sincerely, F-4 IlAi- Peter T. Butler 7L'C� Nancy L. Butler 1 _,AEETING// AGENDA DATE ITEM # June 14 , 1989 Chumash Residents Seeking Equal Financing Opportunities San Luis Obispo City p� ���' Y �f� Mayor and City Council 55''AA Y San Luis Obispo , Ca . JUN 1 (\ I(I P,'4Honorable Mayor , and Distinguished City CITY CLERK Councilmembers : SAN LUiSOBISPO.CA We , the residents of Chumash Village mobile home park Seeking Equal Financing Opportunities , would like to express our appreciation for the work you have all done to secure financing for our homes . It would be an understatement to say that we have experienced much anxiety at the thought of being "displaced" citizens of this lovely community . Obviously , the spiraling cost of homes in San Luis Obispo County has made it impossible for limited income people like us to afford our own property . Your concern , and diligence in working together to secure funding for our mobile home lots has demonstrated the "special" ,qualities of the San Luis Obispo city goverment , and of their efforts to keep its unique population intact . We would also like to extend a special note of appreciation to Michael Multari for his continued support and recognition of our plight . We respectfully request timely processing of our Than arrangements due to the increasing interest rates , and extend our continued support to you all . #Denotes axion by lead Person Sincerely Respond by: Chumash Residents Seeking vcwmii Equal Financing Opportunities id"AO P4 Any �f laik-ong. r�rr: