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HomeMy WebLinkAbout10-18-2016 Item 17 Allocate up to $300,000 from the Afforadable Housing Fund for the purchase and resale of an Afforadable Housing Unit Located on 867 Humbert Ave, within the Moylan Terrace Development Project Meeting Date: 10/18/2016 FROM: Michael Codron, Community Development Director Prepared By: Jenny Wiseman, Acting Housing Programs Manager SUBJECT: ALLOCATE UP TO $300,000 FROM THE AFFORDABLE HOUSING FUND FOR THE PURCHASE AND RESALE OF AN AFFORDABLE HOUSING UNIT LOCATED ON 867 HUMBERT AVENUE, WITHIN THE MOYLAN TERRACE DEVELOPMENT PROJECT. RECOMMENDATION 1. Approve up to $300,000 from the Affordable Housing Fund to purchase, and resell, an affordable housing unit located at 867 Humbert, and appropriate funds accordingly; and 2. Authorize the City Manager to execute documents as required to implement the purchase, and eventual sale of 867 Humbert Ave. DISCUSSION On October 4, 2016, the City Council authorized staff to move forward with a settlement agreement to purchase an affordable housing unit which is in default of the City’s Equity Share Affordable Housing Program. By entering into the settlement agreement with the owner, the City can maintain the affordability of the unit by purchasing and reselling the unit to a certified moderate-income household. Reasoning for City Involvement The settlement agreement to purchase 867 Humbert Avenue is the result of the owner being in default under the Equity Share Agreement, the Note, and Deed of Trust for failing to occupy the Property as his sole principal place of residence and for renting the property to a third party. Various complaints about the unit were received by the City in August 2016. The City worked closely with the Housing Authority of San Luis Obispo (HASLO) to determine if the unit was in compliance with the City’s Affordable Housing Program. Once sufficient evidence of non- compliance was determined, the owner was given a 30-day notice to cure all violations. Due to the homeowner residing in a foreign country and being unable to cure, a decision was reached with the property owner to enter into a settlement agreement to avoid the City foreclosing on the unit. If the owner had not agreed to enter into the settlement agreement and instead chose to sell the unit at market rate, or if City proceeded with foreclosure, the unit’s deed restriction would have been removed and the City would not have the opportunity to sell to another moderate income buyer to maintain the unit’s affordability. This unit has only been in the Equity Share Program for one year and it is staff’s goal to keep this unit affordable as the intent of the Equit y Share Program is to encourage, and award with equity, long term affordable homeownership. 17 Packet Pg. 192 Conformance with General Plan The purchase, and resale of this unit is consistent with General Plan Housing Element Programs and Policies: 2.12, 3.2, and 3.12; which focus on discouraging removal of affordable housing, and monitoring affordable housing at risk of being converted to market rate housing. In addition, on October 12, 2016, the Planning Commission found the acquisition and resale of 867 Humbert to be in conformance with the General Plan. Previous City Involvement in Purchasing Affordable Housing In 2009, the City purchased an affordable unit on Sacramento Drive (Attachment A) in a short sale to avoid foreclosure and maintain its affordability. The City rented the unit to a qualified household that expressed interest in purchasing the unit however, the tenant’s financial situation precluded the transaction from occurring and the property was vacated. At that point, and due to the existing economic recession conditions, no eligible household could be found to purchase the unit and the City had to sell the unit at market rate and the funds from the sale were put back into the City’s affordable housing fund. Staff and HASLO are confident that 867 Humbert will be purchased by a qualified moderate income buyer as several pre-approved households are currently on a ‘waiting’ list from previous Moylan Terrace phases over the past five years. Due to the amount of qualified households, HASLO will conduct a lottery to identify a buyer. Property Acquisition Cost The property was purchased by the current owner for $291,375 in September 2015, with a first mortgage in the amount of $286,000. The unit appraised for $401,000 at that time, with similar units now selling for over $450,000. The property will be purchased by the City for the amount owed on the first mortgage, an amount not to exceed $283,302.45. The current owner shall be responsible for closing costs associated with this transaction, including, but not limited to, the following: the escrow fee; all documentary tax, sales tax, or real property transfer tax, if applicable; and the premium for the Title Policy. The unit will then be re-sold to an eligible moderate-income household (Attachment B) for $291,375, the maximum sales price allowed for a two-bedroom moderate income unit. Closing costs for this transaction are expected to be approximately $15,000, including broker’s fees, and will be partially recovered through the difference between the purchase price and higher sale price currently allowed by the City’s Affordable Housing Guidelines. The entire process is expected to cost the City less than $8,000 in Affordable Housing Funds after all closing costs and remaining fees are accounted for. Next Steps At the end of the forty-five (45) day escrow period, assuming all conditions precedent are satisfied, title to 867 Humbert will be transferred to the City of San Luis Obispo. The City will then proceed with the sale of the unit to a certified moderate income household. Once a purchase agreement has been signed, the City will prepare a new Equity Share Agreement for the homebuyer. 17 Packet Pg. 193 An Equity Share Agreement is preferred over a Long Term Affordable Housing Agreement as lenders find it difficult to, or are no longer willing to finance units under a long term deed restriction similar to the City’s Long Term Affordable Housing Program. The Equity Share Program allows the homeowner flexibility in sale and allows them to earn equity in the home based on the length of time they live in the unit. Status of the Affordable Housing Fund The current balance of the Affordable Housing Fund is $2,848,000 (Attachment C). The City Council has approved commitments of $1,276,228 leaving a balance of $1,571,772 available to allocate to new projects. There are currently no pending proposals. The purchase price for the home will be $283,302. When the home is resold to a certified moderate income household for $291,375, another escrow will be opened and staff expects the closing costs from the sale to be less than $15,000. Staff is requesting that the Council allocate a maximum of $300,000 to the property to cover those closing costs and any other unexpected costs, such as maintenance items that may arise while the City owns the home. After purchase, the AHF balance will be approximately $1,288,470; once the City sells the unit back to a new moderate income household and pays share of closing costs, the balance will be approximately $1,563,147. Based on recent building permit activity, Affordable Housing Funds used to pay any closing costs not covered by the sales price will be restored to the AHF by early 2017. ENVIRONMENTAL REVIEW The project is exempt from environmental review per Section 15061 (b)(3) General Rule of the CEQA Guidelines. The project is an action to authorize funds for purchase and sale of an existing dwelling unit. It can be seen with certainly that the proposed action to award funding will have no significant effect on the environment. No changes to land use or existing use will occur. FISCAL IMPACTS The recommended allocations would be paid out of the AHF, which consists of in -lieu fees collected under the City’s Inclusionary Housing Ordinance. The fund may only be used for projects or purposes that create or support affordable housing within the City of San Luis Obispo. Based on prior expenditures and pending commitments, there will be a balance of $1,288,470 remaining in the AHF after this award prior to City reselling this unit. The project will have no impact on the General Fund. ALTERNATIVES 1. Do not authorize affordable housing funds for the purchase of unit. This action is not recommended because the unit will be sold at market rate and the deed-restriction for affordability will be lost. 17 Packet Pg. 194 2. Authorize affordable housing funds for purchase of the unit but require the unit be sold at market value. This action is not recommended because the wait list for moderate income units has several qualified households and affordable ownership units are in high demand. 3. Authorize affordable housing funds for purchase of the unit but require the unit be sold at a price other than moderate income or market rate. This action is not recommended because the wait list for moderate income units has several qualified households and affordable ownership units are in high demand. 4. Continue consideration of the authorization of funds. The City Council can direct staff to return with additional information regarding the fund authorization so that a final decision can be made. Attachments: a - City of San Luis Obispo 2009 Purchase of Affordable Unit b - 2016 City of San Luis Obispo Affordable Housing Standards c - Affordable Housing Fund Status as of 09-26-2016 17 Packet Pg. 195 counci l.agenOa 12epoit Meeting D Item Numbe rc~a C I T Y O F S A N L U I S O B I S P O FROM : John Mandeville, Community Development Directo r Prepared By :Michael Codron, Housing Programs Manage r SUBJECT : ALLOCATE $325,000 FROM THE AFFORDABLE HOUSING FUND FO R THE PURCHASE OF AN AFFORDABLE HOUSING UNIT LOCATED O N 3591 SACRAMENTO DRIVE, UNIT #53, WITHIN THE BROAD STREE T MIXED USE PROJECT . RECOMMENDATIO N Approve the use of $325,000 from the Affordable Housing Fund to purchase an affordabl e housing unit located on 3591 Sacramento Drive, Unit #53, and appropriate funds accordingl y Situatio n On June 7, 2009, during a closed session meeting of the City Council to discuss real estat e negotiations, staff presented the Council with an opportunity to prevent the imminent foreclosur e of an existing affordable housing unit . The owners had not made payments in several month s and the City's efforts to assist in the sale of the unit to a new, income-eligible owner could not b e completed in time for a bank sale that was scheduled to occur on June 16, 2009 . As a result of the pending bank sale, the Council provided staff with the following direction t o ensure that the unit remains affordable : 1.Allocate a maximum of $325,000 towards a foreclosure prevention program to allo w the City to purchase and resell the inclusionary housing unit located on 359 1 Sacramento Drive #53 . 2.Authorize the City Manager to execute documents as required to implement thi s purchase . If the property had been sold at auction, the City would have lost the deed restrictions that wer e obtained from the original developer at the time of construction, which provide for the long-ter m affordability of the unit . However, based on the Council's direction, City staff was able to mov e forward with the property acquisition . Escrow closed on Tuesday, June 16, 2009 and the Cit y now holds title to the unit . Property Acquisition Cos t The property was purchased for a total of $309,225 plus $885 .74 for closing costs, including th e escrow fee, taxes and HOA dues . The unit will be sold at the same price, $309,225 to an eligible , moderate-income household . Closing costs for the sale are expected to be similar and will b e recovered through rental income on the unit until it is resold . Once the unit is resold, the 17.a Packet Pg. 196 Attachment: a - City of San Luis Obispo 2009 Purchase of Affordable Unit (1474 : Allocation of Affordable Housing Funds to Purchase 867 3591 Sacramento Drive, Unit #53 Page 2 proceeds from the sale, and all rental income derived in the interim, will be returned to th e Affordable Housing Fund . The entire process is expected to be cost neutral . Why Step in to Prevent Foreclosure? Staff recommended that the City Council take action to prevent foreclosure of the unit for thre e reasons : (1)With each day the previous owners incurred more debt against the home because the y were not able to make payments ; (2) if the unit had sold at the bank sale, the City would have los t the affordable unit ; and (3) there is a willing buyer who has agreed to occupy the home on a rental basis until able to complete the purchase . Next Steps – 90-Day Rental Agreement and Resal e Now that the City owns the home, staff has prepared a rental agreement with a household tha t hopes to move forward and purchase the unit . The household has been certified as a moderate - income household, and has been pre-qualified for a loan . Under new Fannie Mae guidelines, th e resale of the home will take a minimum of 90 days . As discussed above, City staff expects th e rental income from the unit to cover all of the costs associated with temporary ownership of th e home . Affordable Housing Fund Statu s The current balance of the Affordable Housing Fund is $4,440,100 . The City Council ha s approved commitments of $2,801,414, leaving a balance of $1,636,686 available to allocate t o new projects . There is one pending proposal for $1 million from ROEM Corporation, which i s expected to be considered by the City Council in late July or early August . If the ROEM proposal is approved, the net available for new programs would be $638,686 . The purchase price for the home was $309,225 and there was an additional $885 .74 charged fo r closing costs . Another escrow will be opened when the home is sold, and staff expects th e closing costs from the sale to be less than $2,000. Staff is requesting that the Council allocate a maximum of $325,000 to the property to cover unexpected costs, such as maintenance items tha t may arise while the City owns the home . City staff expects to recoup the sales price of $309,225 in a three to six month timeframe throug h resale of the unit . Once the unit is sold, the proceeds from the sale and all rental income from the property will be returned to the Affordable Housing Fund . The entire process is expected to b e cost neutral . FISCAL IMPACT The recommended allocation would be paid out of the Affordable Housing Fund, which consist s of in-lieu fees collected under the City's Inclusionary Housing Ordinance . The fund may only be used for projects that create or support affordable housing within the City of San Luis Obispo . The project will have no impact on the General Fund . 17.a Packet Pg. 197 Attachment: a - City of San Luis Obispo 2009 Purchase of Affordable Unit (1474 : Allocation of Affordable Housing Funds to Purchase 867 2016 AFFORDABLE HOUSING STANDARDS (Effective May 25, 2016) Purpose These standards apply to all development projects within the City. They set maximum rental costs or sales prices based on income level and dwelling size and are used by developers, citizens, housing groups, City staff and commissions, and housing agencies. The Community Development Director implements the standards. Besides defining the often misunderstood term "affordable housing", the standards promote the construction of housing which meets residents' needs and help explain the City's housing requirements. In addition, the City uses these standards to determine if housing projects are "affordable" and qualify for density bonuses, financial assistance or other types of incentives. For more information about these standards, call the City’s Community Development Department at (805) 781 -7170. The City requires new development projects to provide affordable housing for extremely-low, very-low, low, or moderate income households by: 1) building affordable housing in conjunction with new residential or commercial development, or 2) by paying an “in -lieu fee” to support the development of affordable housing citywide, or 3) by contributing real property, including land or existing dwellings, to be used as affordable housing, or 4) by a combination of these methods. To help offset costs of providing affordable housing, the City has adopted Affordable Housing Incentives (San Luis Obispo Municipal Code Chapter 17.90). State and local law allows residential density bonuses and certain other incentives in return for developers agreeing to construct affordable housing. Additional information on incentives is available from the Community Development Department. How the Standards Are Determined These standards are prepared by the Community Development Department and are updated annually to show income limits for the City and County of San Luis Obispo as published by the State Department of Housing and Community Development (HCD). These limits are shown in Table 1. By law, the upper income limit for “extremely-low income” households is 30 percent of the median County income; the upper income limit for "very-low income" households is 50 percent of the median County income; the upper limit for "lower income" households is 80 percent of the median County income; and the upper limit for "moderate- income" households is 120 percent of the median County income. Households with More Than Eight Persons For all income groups, the income limits for households larger than eight persons are determined as follows: For each person in excess of eight, add eight percent of the four- person income limit to the eight-person income limit and round the sum to the nearest $50. For example, the nine-person very-low income limit is 0.08 X $38,550 = $3,084; then $3,084 + $50,900 = $53,984 rounded to $54,000. 17.b Packet Pg. 198 Attachment: b - 2016 City of San Luis Obispo Affordable Housing Standards (1474 : Allocation of Affordable Housing Funds to Purchase 867 2016 Affordable Housing Standards 2 TABLE 1: 2016 ANNUAL INCOME LIMITS ($) INCOME GROUP NUMBER OF PERSONS IN HOUSEHOLD 1 2 3 4 5 6 7 8 EXTREMELY LOW 16,250 18,550 20,850 24,300 28,440 32,580 36,730 40,890 VERY LOW 27,000 30,850 34,700 38,550 41,650 44,750 47,850 50,900 LOW 43,200 49,400 55,550 61,700 66,650 71,600 76,550 81,450 MEDIAN 53,950 61,700 69,400 77,100 83,250 89,450 95,600 101,750 MODERATE 64,750 74,000 83,250 92,500 99,900 107,300 114,700 122,100 Updated May 2016, from CA State Department of Housing and Community Development (HCD) Official Income Limits. How to Determine Affordable Rents or Sales Prices To determine affordable rents or sales prices, follow these three steps: 1) find the “income group” in Table 1, based on the number of persons in the household and their gross annual household income; 2) determine the number of bedrooms in the dwelling to be bought, rented or sold; and 3) Use Table 2 to find the maximum affordable rent or sales price based on the income group and number of bedrooms. When the number of persons in the household is not known, the City's affordability standards for both rent and sales prices can assume the following household sizes corresponding to the number of bedrooms in the dwelling:  Studio unit: use the income limit for a one-person household.  One-bedroom unit: use the income limit for a two-person household.  Two-bedroom unit: use the income limit for a three-person household.  Three-bedroom unit: use the average income limit for a four-five person household  Four-bedroom unit: use the income limit for a six-person household Affordable Rent Limits The maximum monthly rents to qualify as affordable housing are listed in Table 2. For example, the maximum monthly rent cost for a two-bedroom dwelling which is affordable to a lower-income household can be found in Table 2 by reading across the row labeled “Lo wer, Maximum Monthly Rent” and then finding $1,041 under the column heading “2-Bedroom.” Rent limits are based on formulas set by State law (H&S Code 50053) and are computed as shown on Page 3 of these Standards. 17.b Packet Pg. 199 Attachment: b - 2016 City of San Luis Obispo Affordable Housing Standards (1474 : Allocation of Affordable Housing Funds to Purchase 867 2016 Affordable Housing Standards 3 TABLE 2: 2016 RENT/SALES AFFORDABILITY STANDARDS INCOME GROUP TENURE DWELLING Maximum STUDIO 1-BDRM 2-BDRM 3-BDRM 4-BDRM EXTREMELY LOW Monthly Rent $405 $463 $521 $601 $671 Sales Price $48,750 $55,650 $62,550 $79,100 $97,750 VERY LOW Monthly Rent $674 $771 $868 $1,002 $1,118 Sales Price $81,000 $92,550 $104,100 $120,300 $134,250 LOWER Monthly Rent $809 $926 $1,041 $1,203 $1,342 Sales Price $129,600 $148,200 $166,650 $192,525 $214,800 MODERATE Monthly Rent $1,124 $1,285 $1,446 $1,670 $1,864 Sales Price $226,625 $259,000 $291,375 $336,700 $375,550 Calculation of Affordable Rents  For extremely-low income households: Affordable monthly rents shall not exceed 30% of 30% of the annual median County household income for the number of persons expected to reside in the unit, divided by 12, and adjusted for household/unit size.  For very-low income households: Affordable monthly rents shall not exceed 30% of 50% of the annual median County household income for the number of persons expected to reside in the unit, divided by 12, and adjusted for household/unit size.  For lower-income households: Affordable monthly rents shall not exceed 30% of 60% of annual median County household income divided by 12, and adjusted for household/unit size.  For moderate-income households: Affordable monthly rents shall not exceed 25% of 100% of the annual median County household income divided by 12, and adjusted for household/unit size. Affordable Sales Prices The maximum sales prices for affordable housing are based on a formula that accounts for what a typical extremely-low income, very-low income, low-income or moderate-income household can afford to pay for housing, following established guidelines. Sales price limits are determined by multiplying the annual income limit of the income group, adjusted for household size, by 3 for extremely-low, very-low and lower income households, and by 3.5 for moderate income households, rounded to the nearest $25. For example, the calculation of maximum sales price for a 2-bedroom dwelling is computed as shown on Page 4 of these Standards. 17.b Packet Pg. 200 Attachment: b - 2016 City of San Luis Obispo Affordable Housing Standards (1474 : Allocation of Affordable Housing Funds to Purchase 867 2016 Affordable Housing Standards 4 Calculation of Affordable Sales Prices  3 X $55,550 = $166,650 for a three-person, lower-income household; and  3.5 X $83,250 = $291,375 for a three-person, moderate-income household. Long-term Affordability Rental housing affordability is maintained through recorded agreements (Affordable Housing Agreement) between a property owner and the City, the Housing Authority of the City of San Luis Obispo, or another housing provider approved by the City. These agreements shall specify: a) the maximum rents based on the same formula which established initial rent levels as a condition of City approval, or other formula approved by City; b) the term for which rental units must remain affordable; and c) terms under which affordability is maintained after sale or transfer of the property. The City’s current terms as specified in the Housing Element are the maximum allowed by State law; 45 years for ownership units and 55 years for rentals. For purposes of determining affordability requirements, Single Room Occupancy (SRO) units shall be treated as one-bedroom dwellings. There are two different approaches to maintaining long-term affordability which require signing an Affordable Housing Agreement: 1) the property owner agrees to maintain the designated dwelling unit as affordable for at least 45/55 years; or 2) the property owner agrees to participate in a “shared equity purchase program” as described in the City’s Inclusionary Housing Requirement. The decision on which approach to use is up to the developer, except where state or federal standards applying to a given project require specific affordability periods. Under the long-term affordability program, the housing must remain affordable for at least 45/55 years from the original date of sale or rental. Affordability terms are secured by an affordable housing agreement, promissory note and deed of trust, recorded on the property prior to or concurrent with the initial occupancy (for rental units) or sale of the property. The promissory note is based on the monetary difference between the property’s initial capped purchase price and its fair market value outside of the program. The note is an "affordability loan" or “silent second” payable to the City. The loan accrues interest at a rate set by the City. Repayment of the affordability loan is waived as long as affordability requirements are met. For-sale properties must be owner-occupied, and may be sold or otherwise transferred only to eligible buyers and at prices deemed affordable under these standards. Upon resale, the City, its Housing Authority, or a non-profit agency approved by the City, retains the first right of refusal to purchase affordable properties at their then current appraised value. Under the equity-share program, the buyer of an affordable dwelling enters into an agreement with the city guaranteeing affordability for at least 6 years after the initial date of sale. Upon resale of the property, the agreement ensures that the City’s equity share returns to the City for use in other affordable housing developments. The City’s equity share is based on the difference between the property’s market value and the actual price paid by the homeowner, divided by the market value; or the amount of subsidy provided by the city, divided by the property’s market value. Affordable units sold before the sixth year are subject to an additional “Equity Recapture Fee” ranging from 25 to 100 percent of the property’s equity. For more information, refer to the Inclusionary Housing Requirements, Ch. 17.91 of the San Luis Obispo Municipal Code. 17.b Packet Pg. 201 Attachment: b - 2016 City of San Luis Obispo Affordable Housing Standards (1474 : Allocation of Affordable Housing Funds to Purchase 867 City of San Luis ObispoFiscal Status of Affordable Housing FundSeptember 26, 2016 - Point in Time StatusRevenues, Expenditures and Changes in Fund BalanceExpendituresFiscal YearIn-Lieu Fees Interest RentsBEGIN funds reimbursement BEGIN reuse funds* BEGIN City matching funds*TotalBeginning Ending2000-01193,700 8,200 201,900 201,900 2001-02464,900 20,000 484,900 201,900 686,800 2002-03747,800 28,300 776,100 (215,000) 686,800 1,247,900 2003-0460,500 8,500 69,000 (30,000) 1,247,900 1,286,900 2004-05323,300 32,500 355,800 (30,000) 1,286,900 1,612,700 2005-061,863,700 68,500 1,932,200 1,612,700 3,544,900 2006-07627,200 160,500 787,700 (530,000) 3,544,900 3,802,600 2007-08682,400 155,600 838,000 (630,000) 3,802,600 4,010,600 2008-09465,700 199,700 1,400 666,800 (892,500) 4,010,600 3,784,900 2009-10(21,300) 32,600 9,000 270,000 290,300 (3,407,600) 3,784,900 667,600 2010‐11 332,800 16,000 3,900 30,000 382,700 (39,800) 667,600 1,010,500 2011-12 848,800 21,900 870,700 (112,700) 1,010,500 1,768,500 2012-13182,700 700 183,400 (30,000) 1,768,500 1,921,900 2013-14777,300 12,700 100,955 117,8571,008,812 (47,000) 1,921,900 2,883,712 2014-15 159,602 9,193 86,430   93,121   348,346 (697,000) 2,883,712 2,535,058 2015-16 625,506 34,414 659,920 (636,978) 2,535,058 2,558,000 2016-17290,000 290,000 2,558,000 2,848,000 Cumulative Total8,624,608 809,307 14,300 300,000 187,385 210,978 10,146,578 (7,298,578) 2,848,000 Commitments Not Yet FundedCommitment to the General Fund Transfer(52,000)Commitment for Iron Works Affordable Housing(920,000)Commitment for Habitat for Humanity 240 Highland(35,000)Commitment to SLO County Housing Trust Fund(30,000)Commitment to remaining BEGIN Downpayment Assistance Loans(239,228)Total Avilable for New Progams as of September 26, 20161,571,772RevenuesFund Balance17.c Packet Pg. 202 Attachment: c - Affordable Housing Fund Status as of 09-26-2016 (1474 : Allocation of Affordable Housing Funds to Purchase 867 Humbert) Page intentionally left blank.