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HomeMy WebLinkAboutAgenda 06-18-19 Item 8-v - Proposed Changes to the Long-Term Housing Affordability Policy ORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: June 18, 2019 Action Agenda Item No. 8-v SUBJECT: Proposed Changes to the Long-Term Housing Affordability Policy DEPARTMENT: Housing and Community Development ATTACHMENT(S): 1) Current Long-Term Housing Affordability Policy 2) Excerpted Federal Regulations for HOME Reporting Requirements INFORMATION CONTACT: Sherrill Hampton, Housing and Community Development Director, (919) 245-2490 PURPOSE: To approve changes to the Long-Term Housing Affordability Policy as it relates to reporting requirements for projects financed with HOME or other federal funds in order to bring about consistency with federal regulations and to incorporate those changes, if approved, into the FY2019-20 HOME Annual Action Plan and all future Annual Action Plans. BACKGROUND: On February 21, 2017, the BOCC approved changes to the 2000 Policy based on recent activity and input from the Affordable Housing providers. The County Attorney, based on BOCC action taken for the Greenfield Place Project, crafted an “Exceptions Section” of the Policy. However, the Exceptions Section and the overall Policy did not at the time address the associated reporting requirements as it relates to the HOME Program. The HOME regulations governing “periods of affordability” are contained in 24 CFR Part 92.252 and 92.254. For rental housing projects, see the chart below: Rental Housing Activity Minimum Period of Affordability in Years Rehabilitation or acquisition of existing housing per unit amount of HOME funds: Under $15,000 5 $15,000 to $40,000 10 Over $40,000 or rehabilitation involving refinancing 15 New construction or acquisition of newly constructed housing 20 For HOME projects involving homeownership activities, see the chart below: 1 Homeownership Assistance HOME Amount Per Unit Minimum Period of Affordability in Years Under $15,000 5 $15,000 to $40,000 10 Over $40,000 15 Presently there is an inconsistency between the Annual Action Plan and the Long-Term Housing Affordability Policy, as well as the lack of a mechanism for reporting that is not burdensome to community partners and/or developers receiving funding under Orange County HOME Consortium given the County’s Long-Term Housing Affordability Policy. The proposed changes include the following as a means to bring about consistency: 1.) Annual Action Plans should utilize the “shared net proceeds methodology” listed in the Long- term Housing Affordability Policy as it relates to recapture and homeownership activities, excluding transfers to income-eligible family members or other qualified buyers. However, for rental activities, recapture will be based upon the HOME investment in the project and whether or not the proposed buyer will maintain the affordability of the unit(s). 2.) As it relates to the Long-Term Housing Affordability Policy, it is requested that the following change be included as a “new Item V” as it relates to reporting requirements for projects and state the following: • “In the case of federally funded and/or other projects affected by this Policy, reporting requirements will run as follows: o Federal projects (rental activities) – meet the statutory federal requirements as stated in the preceding chart and once the federal requirements have been met, reports should be submitted in 10-year increments, as well as utilize “self- certification” on an annual basis by tenants and maintain those documents onsite in the intervening years, excluding initial lease-ups which require full documentation for eligibility determinations. All reporting shall cease in the 60th year except in the case of a refinance, substantial rehabilitation or transfer of ownership. If one of the aforementioned events occurs, reporting will continue or re-start for the remainder of the affordability period. o Federal projects (homeownership activities) – meet the statutory federal requirements in the preceding chart and once those have been met, reports should be submitted in 10-year increments with an annual verification of occupancy until the 40th year at such time all reporting will cease except in the case of a transfer of ownership. o For locally funded projects (substantial rehabilitation) – reporting shall be similar to the federal HOME requirements with reporting beginning at the completion of project and running for a 15-year term. All reporting will cease in year 15. o For locally funded projects (rental activities) – reporting shall mirror the requirements outlined in Sub-Bullet 1 above. o For locally funded projects (homeownership activities) – reporting shall mirror the requirements outline in Sub-Bullet 2 above. 2 (Note that while reporting requirements may cease per the proposed timetable outlined above, the Declaration of Restrictive Covenants and Deeds of Trust are still in effect and will serve to protect the County’s affordable housing inventory.) 3.) The current Item V will become Item VI and no changes to the language is proposed. FINANCIAL IMPACT: No negative financial impact is anticipated by the approving of these changes. SOCIAL JUSTICE IMPACT: The following Orange County Social Justice Goals are applicable to this item: • GOAL: FOSTER A COMMUNITY CULTURE THAT REJECTS OPPRESSION AND INEQUITY The fair treatment and meaningful involvement of all people regardless of race or color; religious or philosophical beliefs; sex, gender or sexual orientation; national origin or ethnic background; age; military service; disability; and familial, residential or economic status. • GOAL: ENSURE ECONOMIC SELF-SUFFICIENCY The creation and preservation of infrastructure, policies, programs and funding necessary for residents to provide shelter, food, clothing and medical care for themselves and their dependents. • GOAL: CREATE A SAFE COMMUNITY The reduction of risks from vehicle/traffic accidents, childhood and senior injuries, gang activity, substance abuse and domestic violence. RECOMMENDATION(S): The Manager recommends that the Board approve the changes to the Long-Term Housing Affordability Policy as outlined above. 3 4 LONG-TERM HOUSING AFFORDABILITY POLICY PURPOSE: This policy establishes the acceptable strategies for ensuring long-term affordability in all affordable housing programs supported by County financial resources. TARGET POPULATION: • Homeownership programs are targeted to families with incomes at or below 80% of the HUD published area median income. • Rental housing programs are targeted to families with incomes at or below 60% of the HUD published area median income. DEFINITIONS: 1. Affordable Housing-is defined as: a. Owner-occupied housing for families with incomes at or below 80% of the HUD published area median income and which the monthly housing costs (including PITI, HOA dues and required fees) do not exceed 30 percent of the gross monthly income of the purchaser(s), or b. Rental housing for families with incomes at or below 60% of the HUD published area median income and which the occupant pays no more than 30%ofgross income forall housing costs including utilities. 2. First-Time Homebuyer or Qualified Buyer - A First-Time Homebuyer for the purposes of this program is any low or moderate income household that has not owned a home within the past three (3) years including households living in manufactured housing not permanently affixed to a foundation, or owner-occupants of homes not feasible for renovation. The first-time homebuyer restriction may be waived after a home is available for sale for 90 days and the home may be sold to a Qualified Buyer, defined as a person who qualifies for affordable housing in accordance with this Policy. I. Impact Fee Reimbursement Program (last revised March 4, 1998.) A. Owner-Occupied Housing Any organization requesting impact fee reimbursement must certify in writing, that, for owner occupied housing, it will remain affordable to the anticipated beneficiary or beneficiaries for a period of a minimum of ninety-nine (99) years or longer depending upon the funding source. This requirement will be secured by a Declaration of Restrictive Covenants. B. Rental Housing 5 An organization requesting impact fee reimbursement for rental housing must certify that the property will remain affordable for ninety-nine (99) years. The rental housing certification must be secured by a Declaration of Restrictive Covenant requiring repayment to Orange County of the impact fee if the rental housing does not remain affordable during the period of affordability,which covenant will be further seemed by a note and deed of trust. Evidence must be provided that agency and/or program guidelines are in place to assure affordability compliance. H. Land Trust Model The Land Trust model utilizes a non-profit, community based organization known as a Community Home Trust ("CHT") whose purpose is to acquire land and make it available to individual families and others, such as cooperatives, through a long-term lease for a term up to 99 years. The leaseholders or homebuyers do not hold title to the land -the title is retained by the CHT. The CHT conveys a leasehold interest in the land and improvements to the homebuyers (lessees). The benefits of this model include the ability of the CHT to retain the affordability of the home over successive generations of home buyers. The land lease gives the CHT the first option to purchase the home, when and if it is sold, at an affordable price set by a resale formula. The resale formula gives homeowners a fair return for their investment, while keeping the price of the housing affordable for future residents. III. New and Existing First-Time Homebuyer Programs A. Period of Affordability All properties supported by County financial resources for the purpose of facilitating homeownership must be sold to households at or below 80% of area median income for a minimum of ninety-nine (99)years from the date of initial assistance. Subsequent resales are allowable to households earning up to 115%of area median income. B. Right of First Refusal A right of first refusal or right to purchase is accomplished by means of a Declaration of Restrictive Covenants on the property purchased by the first-time homebuyer. Any assignment, sale, transfer, conveyance, or other disposition of the Property or any part thereof whether voluntarily or involuntarily or by operation of law ('Transfer") shall not be effective unless and until the below-described procedure is followed. If the original homebuyer or any subsequent qualified homebuyer ('Buyer") contemplates a Transfer to an unqualified buyer, Buyer shall send to Orange County and/or the sponsoring non-profit organization, not less than 90 days prior to the contemplated closing date of the Transfer, a 'Notice of Intent to Sell." This Notice of Intent to Sell shall be accompanied by a copy of a completed, fully executed bona fide offer to purchase the Property on the then current North Carolina Bar Association "Offer to Purchase and Contract" form. If Orange County and/or the sponsoring non- profit organizations elects to exercise its said right of refusal, it shall notify the Buyer 6 of its election to purchase within 30 days of its receipt of the Notice and shall purchase the Property or portion thereof within 90 days of the receipt of the 'Notice of Intent to Sell." As between the County and the sponsoring non-profit organization, if both wish to and have the means to exercise the right of first refusal, the sponsoring non-profit organization shall have priority. If neither Orange County nor the sponsoring non-profit organization advises the Buyer in a timely fashion of its intent to purchase the Property, then the Buyer shall be free to transfer the property in accordance with the Equity Sharing subsection of this policy. C. Equity Sharing All financial contributions provided by the County will be provided as a deferred second loan secured by a forty (40) year Deed of Trust and Promissory Note, forgivable at the end of 40 years. This Deed of Trust and Promissory Note shall constitute a lien on the Property; subordinate only to private construction financing or permanent first mortgage financing. The 99 year period of affordability for each individual housing unit will be secured by a declaration of restrictive covenants that will incorporate a right of first refusal that may be exercised by a sponsoring non-profit organization and/or Orange County. This declaration of restrictive covenants will be further secured by a deed of trust. The non-profit organization and/or the County as applicable retains full responsibility for compliance with the affordability requirement for assisted units throughout the term of affordability, unless affordability restrictions are terminated due to the sale of the Property to a non-qualified buyer. If the buyer no longer uses the Property as a principal residence or is unable to continue ownership, then the buyer must sell, transfer, or otherwise dispose of their interest in the Property only to a qualified homebuyer, i.e., a low-income household, one whose combined income does not exceed 80% of the area median household income by family size, as determined by theU.S.Department ofHousing and Urban Development at the time of the transfer,to use as their principal residence. However, if the property is sold during the term of affordability to a non-qualified homebuyer to be used as their principal residence,the net sales proceeds (sales price less: 1) selling cost, 2) the unpaid principal amount of the original first mortgage and 3) the unpaid principal amount of the initial County contribution and any other initial government contribution secured by a deferred payment promissory note and deed of trust) or "equity" will be divided 50/50 by the seller of the Property and the County. If the initial County contribution does not have to be repaid because the sale occurs more than forty years after the County contribution is made, then the seller of the Property and the County will divide the entire equity realized from the sale. Any proceeds from the recapture of funds under this provision will be used to 7 facilitate the acquisition, construction, and/or rehabilitation of housing for the purposes of promoting affordable housing. IV. Exceptions A. The Board of Commissioners may reduce the required ninety-nine (99) year affordability restriction to forty (40)years when: i. The County's total financial contribution to the project is less than fifteen percent (15%)of the total project cost; or ii. The developer agrees to and develops at least thirty-five percent (35%)of the project units as affordable units. B. The Board of Commissioners may authorize the cancellation of restrictive covenants upon a determination that: i. A structure is in a state of disrepair such that the estimated cost to repair the structure exceeds one hundred percent (100%) of the value of the structure; and ii. Redevelopment of the property is cost prohibitive; and iii. Sale of the property is substantially unlikely to occur if the restrictive covenants are not cancelled. C. The Board of Commissioners authorizes the County Manager to approve removal of properties from the affordable housing inventory in accordance with the April 21, 2015 Interlocal Agreement for the Community Home Trust. D. In the event an application for exception does not meet all of the required elements to grant an exception pursuant to IV A — D above the Board of Commissioners may examine each application individually and ascertain whether the circumstances justify the granting of an exception. In such event the Board of Commissioners may grant an exception upon making findings of fact setting out all the relevant factors that reasonably and equitably justify such exception to this policy. V. Policy Review This policy will be reviewed by County staff and officials within two (2) years of the original approval date to ensure continued congruency with local affordable housing programs. Effective Date: April 3,2000 Revised: June 6,2000 Revised: February 21, 2017 8 92.252 Qualification as affordable housing: Rental housing. The HOME-assisted units in a rental housing rp oject must be occupied by households that are eligible as low- income families and must meet the requirements of this section to qualify as affordable housing. If the housing is not occupied by eligible tenants within six months following the date of project completion, HUD will require the participating jurisdiction to submit marketing information and, if appropriate, submit a marketing plan. HUD will require the participating jurisdiction to repay HOME funds invested in any housing unit that has not been rented to eligible tenants 18 months after the date of project completion. The affordability requirements also apply to the HOME- assisted non-owner-occupied units in single-family housing purchased with HOME funds in accordance with § 92.254. The tenant must have a written lease that complies with 92.253. (a)Rent limitation. HUD provides the following maximum HOME rent limits. The rent limits apply to the rent plus the utilities or the utility allowance. The maximum HOME rents (High HOME Rents) are the lesser of: (1) The fair market rent for existing housing for comparable units in the area as established by HUD under 24 CFR 888.111; or (2)A rent that does not exceed 30 percent of the adjusted income of a family whose annual income equals 65 percent of the median income for the area, as determined by HUD, with adjustments for number of bedrooms in the unit. The HOME rent limits provided by HUD will include average occupancy per unit and adjusted income assumptions. (b)Additional rent limitations (Low HOME Rents). The participating jurisdiction may designate (in its written agreement with the rp oject owner) more than the minimum HOME units in a rental housing rp olect, regardless of rp oject size, to have Low HOME Rents that meet the requirements of this paragraph (b). In rental rp oiects with five or more HOME-assisted rental units, at least 20 percent of the HOME-assisted units must be occupied by very low-income families and meet one of the following rent requirements: (1) The rent does not exceed 30 percent of the annual income of a family whose income equals 50 percent of the median income for the area, as determined by HUD, with adjustments for smaller and larger families. HUD provides the HOME rent limits which include average occupancy per unit and adjusted income assumptions. However, if the rent determined under this paragraph is higher than the applicable rent under paragraph (a) of this section, then the maximum rent for units under this paragraph is that calculated under paragraph (a) of this section. (2) The rent does not exceed 30 percent of the family's adjusted income. If the unit receives Federal or State rp olect-based rental subsidy and the very low-income family pays as a contribution toward rent not more than 30 percent of the family's adjusted income, then the maximum rent(i.e., tenant contribution plus rp o'ect-based rental subsidy) is the rent allowable under the Federal or State rp oject-based rental subsidy program. (c)Additional rent limitations for SRO projects. (1) For SRO units that have both sanitary and food preparation facilities, the maximum HOME rent is based on the zero-bedroom fair market rent. The rp oject must meet the requirements of paragraphs (a) and (b) of this section. (2) For SRO units that have no sanitary or food preparation facilities or only one of the two, the maximum HOME rent is based on 75 percent of the zero-bedroom fair market rent. The rp oject is not required to have low HOME rents in accordance with paragraph (b)(1) or (2) of this section, but must meet the occupancy requirements of paragraph (b) of this section. (d)lnitial rent schedule and utility allowances. 9 (1) The participating jurisdiction must establish maximum monthly allowances for utilities and services (excluding telephone) and update the allowances annually. The participating jurisdiction must use the HUD Utility Schedule Model or otherwise determine the utility allowance for the rp oject based on the type of utilities used at the rp oject. (2) The participating jurisdiction must review and approve rents proposed by the owner for units, subject to the maximum rent limitations in paragraphs (a) or (b) of this section. For all units subject to the maximum rent limitations in paragraphs (a) or(b) of this section for which the tenant is paying utilities and services, the participating jurisdiction must ensure that the rents do not exceed the maximum rent minus the monthly allowances for utilities and services. (e)Periods of affordability. The HOME-assisted units must meet the affordability requirements for not less than the applicable period specified in the following table, beginning after project completion. (1) The affordability requirements: (i) Apply without regard to the term of any loan or mortgage, repayment of the HOME investment, or the transfer of ownership; (ii) Must be imposed by a deed restriction, a covenant running with the land, an agreement restricting the use of the property, or other mechanisms approved by HUD and must give the participating jurisdiction the right to require specific performance (except that the participating jurisdiction may provide that the affordability restrictions may terminate upon foreclosure or transfer in lieu of foreclosure); and (iii) Must be recorded in accordance with State recordation laws. (2) The participating jurisdiction may use purchase options, rights of first refusal or other preemptive rights to purchase the housing before foreclosure or deed in lieu of foreclosure in order to preserve affordability. (3) The affordability restrictions shall be revived according to the original terms if, during the original affordability period, the owner of record before the foreclosure, or deed in lieu of foreclosure, or any entity that includes the former owner or those with whom the former owner has or had family or business ties, obtains an ownership interest in the rp oject or property. (4) The termination of the restrictions on the rp oject does not terminate the participating jurisdiction's repayment obligation under& 92.503(b). Minimum period of Rental housing . Rehabilitation or acquisition of existing housing per unit amount of 5 HOME funds: Under$15,000 $15,000 to $40,000 10 10 Over $40,000 or rehabilitation involving refinancing 15 or acquisition of newt constructed housing 20 New constructionq y g (f)Subsequent rents during the affordability period. (1) The maximum HOME rent limits are recalculated on a periodic basis after HUD determines fair market rents and median incomes. HUD then provides the new maximum HOME rent limits to participating jurisdictions. Regardless of changes in fair market rents and in median income over time, the HOME rents fora rp oject are not required to be lower than the HOME rent limits for the rp oject in effect at the time of rp oiect commitment. (2) The participating jurisdiction must provide rp oject owners with information on updated HOME rent limits so that rents may be adjusted (not to exceed the maximum HOME rent limits in paragraph ff)1( ) of this section) in accordance with the written agreement between the participating jurisdiction and the owner. Owners must annually provide the participating jurisdiction with information on rents and occupancy of HOME-assisted units to demonstrate compliance with this section. The participating *urisdiction must review rents for compliance and approve or disapprove them every year. (3) Any increase in rents for HOME-assisted units is subject to the provisions of outstanding leases, and in any event, the owner must provide tenants of those units not less than 30 days prior written notice before implementing any increase in rents. (g)Adjustment of HOME rent limits for an existing project. (1) Changes in fair market rents and in median income over time should be sufficient to maintain the financial viability of a rp oject within the HOME rent limits in this section. (2) HUD may adjust the HOME rent limits fora rp oject, only if HUD finds that an adjustment is necessary to support the continued financial viability of the rp oject and only by an amount that HUD determines is necessary to maintain continued financial viability of the rp olect. HUD expects that this authority will be used sparingly. (h)Tenant income. The income of each tenant must be determined initially in accordance with 92.203(a)(1)(i). In addition, each year during the period of affordability the rp olect owner must re- examine each tenant's annual income in accordance with one of the options in § 92.203 selected by the participating jurisdiction. An owner of a multifamily rp olect with an affordability period of 10 years or more who re-examines tenant's annual income through a statement and certification in accordance with § 92.203(a)(1)(ii), must examine the income of each tenant, in accordance with§ 92.203(a)(1)(i), every sixth year of the affordability period. Otherwise, an owner who accepts the tenant's statement and certification in accordance with § 92.203(a)(1)(ii) is not required to examine the income of tenants in multifamily or single-family rp ojects unless there is evidence that the tenant's written statement failed to completely and accurately state information about the family's size or income. (!)Over-income tenants. (1) HOME-assisted units continue to qualify as affordable housing despite a temporary noncompliance caused by increases in the incomes of existing tenants if actions satisfactory to HUD are being taken to ensure that all vacancies are filled in accordance with this section until the noncompliance is corrected. 11 (2) Tenants who no longer qualify as low-income families must pay as rent the lesser of the amount payable by the tenant under State or local law or 30 percent of the family's adjusted income, except that tenants of HOME-assisted units that have been allocated low-income housinq tax credits by a housing credit agency pursuant to section 42 of the Internal Revenue Code of 1986 (26 U.S.C. 42) must pay rent governed by section 42. In addition, in rp ojects in which the Home units are designated as floating pursuant to paragraph (j) of this section, tenants who no longer qualify as low- income are not required to pay as rent an amount that exceeds the market rent for comparable, unassisted units in the neighborhood. (j)Fixed and floating HOME units. Ina rp oject containing HOME-assisted and other units, the participating jurisdiction may designate fixed or floating HOME units. This designation must be made at the time of rp oject commitment in the written agreement between the participating jurisdiction and the owner, and the HOME units must be identified not later than the time of initial unit occupancy. Fixed units remain the same throughout the period of affordability. Floating units are changed to maintain conformity with the requirements of this section during the period of affordability so that the total number of housing units meeting the requirements of this section remains the same, and each substituted unit is comparable in terms of size, features, and number of bedrooms to the originally designated HOME-assisted unit. (k)Tenant selection. The tenants must be selected in accordance with 92.253(d). (I)Ongoing responsibilities. The participating jurisdiction's responsibilities for on-site inspections and financial oversight of rental rp ojects are set forth in § 92.504(d). [61 FR 48750, Sept. 16, 1996, as amended at 62 FR 28929, May 28, 1997; 62 FR 44840, Aug. 22, 1997; 78 FR 44672, July 24, 20131 § 92.254 qualification as affordable housing: Homeownership. (a)Acquisition with or without rehabilitation.Housing that is for acquisition by a family must meet the affordability requirements of this paragraph (a). (1)The housing must be single family housing. (2)The housing must be modest housing as follows: (i) In the case of acquisition of newly constructed housing or standard housing, the housing has a purchase price for the type of single family housing that does not exceed 95 percent of the median purchase price for the area, as described in paragraph (a)(2)(iii) of this section. (ii) In the case of acquisition with rehabilitation, the housing has an estimated value after rehabilitation that does not exceed 95 percent of the median purchase price for the area, described in paragraph (a)(2)(iii) of this section. (iii) If a participating jurisdiction intends to use HOME funds for homebuyer assistance or for the rehabilitation of owner-occupied single-family properties,the participating jurisdiction must use the HOME affordable homeownership limits provided by HUD for newly constructed housing and for existing housing. HUD will provide limits for affordable newly constructed housing based on 95 percent of the median purchase price for the area using Federal Housing Administration (FHA) single family mortgage program data for newly constructed housing, with a minimum limit based on 95 percent of 12 the U.S. median purchase price for new construction for nonmetropolitan areas. HUD will provide limits for affordable existing housing based on 95 percent of the median purchase price for the area using Federal FHA single family mortgage program data for existing housing data and other appropriate data that are available nation-wide for sales of existing housing, with a minimum limit based on 95 percent of the state-wide nonmetropolitan area median purchase price using this data. In lieu of the limits provided by HUD, the participating jurisdiction may determine 95 percent of the median area purchase price for single family housing in the jurisdiction annually, as follows.The participating jurisdiction must set forth the price for different types of single family housing for the jurisdiction.The participating jurisdiction may determine separate limits for existing housing and newly constructed housing. For housing located outside of metropolitan areas, a State may aggregate sales data from more than one county, if the counties are contiguous and similarly situated.The following information must be included in the annual action plan of the Consolidated Plan submitted to HUD for review and updated in each action plan. (A)The 95 percent of median area purchase price must be established in accordance with a market analysis that ensured that a sufficient number of recent housing sales are included in the survey. (B) Sales must cover the requisite number of months based on volume: For 500 or more sales per month, a one- month reporting period; for 250 through 499 sales per month, a 2-month reporting period; for less than 250 sales per month, at least a 3-month reporting period.The data must be listed in ascending order of sales price. (C) The address of the listed properties must include the location within the participating jurisdiction. Lot, square, and subdivision data may be substituted for the street address. (D)The housing sales data must reflect all, or nearly all, of the one-family house sales in the entire participating jurisdiction. (E)To determine the median, take the middle sale on the list if an odd number of sales, and if an even number,take the higher of the middle numbers and consider it the median.After identifying the median sales price,the amount should be multiplied by 0.95 to determine the 95 percent of the median area purchase price. (3)The housing must be acquired by a homebuyer whose family qualifies as a low-income family, and the housing must be the principal residence of the family throughout the period described in paragraph (a)(4) of this section. If there is no ratified sales contract with an eligible homebuyer for the housing within 9 months of the date of completion of construction or rehabilitation,the housing must be rented to an eligible tenant in accordance with § 92.252. In determining the income eligibility of the family,the participating jurisdiction must include the income of all persons living in the housing.The homebuyer must receive housing counseling. (4)Periods of affordability.The HOME-assisted housing must meet the affordability requirements for not less than the applicable period specified in the following table, beginning after project completion.The per unit amount of HOME funds and the affordability period that they trigger are described more fully in paragraphs (a)(5)(i) (resale) and (ii) (recapture) of this section. 13 Under$15,000 5 $15,000 to $40,000 10 Over$40,000 15 (5)Resale and recapture.The participating jurisdiction must establish the resale or recapture requirements that comply with the standards of this section and set forth the requirements in its consolidated plan. HUD must determine that they are appropriate and must specifically approve them in writing. (i)Resale. Resale requirements must ensure, if the housing does not continue to be the principal residence of the family for the duration of the period of affordability that the housing is made available for subsequent purchase only to a buyer whose family qualifies as a low-income family and will use the property as the family's principal residence.The resale requirement must also ensure that the price at resale provides the original HOME-assisted owner a fair return on investment(including the homeowner's investment and any capital improvement) and ensure that the housing will remain affordable to a reasonable range of low- income homebuyers.The participating jurisdiction must specifically define "fair return on investment" and "affordability to a reasonable range of low-income homebuyers," and specifically address how it will make the housing affordable to a low-income homebuyer in the event that the resale price necessary to provide fair return is not affordable to the subsequent buyer.The period of affordability is based on the total amount of HOME funds invested in the housing. (A) Except as provided in paragraph (a)(5)(i)(B) of this section, deed restrictions, covenants running with the land, or other similar mechanisms must be used as the mechanism to impose the resale requirements.The affordability restrictions may terminate upon occurrence of any of the following termination events:foreclosure,transfer in lieu of foreclosure or assignment of an FHA insured mortgage to HUD.The participating jurisdiction may use purchase options, rights of first refusal or other preemptive rights to purchase the housing before foreclosure to preserve affordability.The affordability restrictions shall be revived according to the original terms if, during the original affordability period,the owner of record before the termination event, obtains an ownership interest in the housing. (B) Certain housing may be presumed to meet the resale restrictions (i.e.,the housing will be available and affordable to a reasonable range of low-income homebuyers; a low-income homebuyer will occupy the housing as the family's principal residence; and the original owner will be afforded a fair return on investment) during the period of affordability without the imposition of enforcement mechanisms by the participating jurisdiction.The presumption must be based upon a market analysis of the neighborhood in which the housing is located.The market analysis must include an evaluation of the location and characteristics of the housing and residents in the neighborhood (e.g., sale prices, age and amenities of the housing stock, incomes of residents, percentage of owner-occupants) in relation to housing and incomes in the housing market area.An analysis of the current and projected incomes of 14 neighborhood residents for an average period of affordability for homebuyers in the neighborhood must support the conclusion that a reasonable range of low-income families will continue to qualify for mortgage financing. For example, an analysis shows that the housing is modestly priced within the housing market area and that families with incomes of 65%to 80%of area median can afford monthly payments under average FHA terms without other government assistance and housing will remain affordable at least during the next five to seven years compared to other housing in the market area; the size and amenities of the housing are modest and substantial rehabilitation will not significantly increase the market value; the neighborhood has housing that is not currently owned by the occupants, but the participating jurisdiction is encouraging homeownership in the neighborhood by providing homeownership assistance and by making improvements to the streets, sidewalks, and other public facilities and services. If a participating jurisdiction in preparing a neighborhood revitalization strategy under§ 91.215(e)(2) of its consolidated plan or Empowerment Zone or Enterprise Community application under 24 CFR part 597 has incorporated the type of market data described above,that submission may serve as the required analysis under this section. If the participating jurisdiction continues to provide homeownership assistance for housing in the neighborhood, it must periodically update the market analysis to verify the original presumption of continued affordability. (ii)Recapture. Recapture provisions must ensure that the participating jurisdiction recoups all or a portion of the HOME assistance to the homebuyers, if the housing does not continue to be the principal residence of the family for the duration of the period of affordability.The participating jurisdiction may structure its recapture provisions based on its program design and market conditions.The period of affordability is based upon the total amount of HOME funds subject to recapture described in paragraph (a)(5)(ii)(A)(5) of this section. Recapture provisions may permit the subsequent homebuyer to assume the HOME assistance (subject to the HOME requirements for the remainder of the period of affordability) if the subsequent homebuyer is low-income, and no additional HOME assistance is provided. (A)The following options for recapture requirements are acceptable to HUD.The participating jurisdiction may adopt, modify or develop its own recapture requirements for HUD approval. In establishing its recapture requirements,the participating jurisdiction is subject to the limitation that when the recapture requirement is triggered by a sale (voluntary or involuntary) of the housing unit,the amount recaptured cannot exceed the net proceeds, if any.The net proceeds are the sales price minus superior loan repayment(other than HOME funds) and any closing costs. (1)Recapture entire amount.The participating jurisdiction may recapture the entire amount of the HOME investment from the homeowner. (2)Reduction during affordability period. The participating jurisdiction may reduce the HOME investment amount to be recaptured on a prorata basis for the time the homeowner has owned and occupied the housing measured against the required affordability period. (3)Shared net proceeds. If the net proceeds are not sufficient to recapture the full HOME investment (or a reduced amount as provided for in paragraph (a)(5)(ii)(A)(2) of this section) plus enable the homeowner to recover the amount of the homeowner's downpayment and any capital improvement investment made by the owner since purchase,the participating jurisdiction may share the net proceeds.The net proceeds are the sales price minus loan repayment (other than HOME funds) and 15 closing costs.The net proceeds may be divided proportionally as set forth in the following mathematical formulas: HOMEinvestment x Net proceeds = HOME amount to be recaptured HOME i nvestment+homeowner investment homeowner investment x Net proceeds =amount to homeowner HOME investment +homeowner investment (4)Owner investment returned first.The participating jurisdiction may permit the homebuyer to recover the homebuyer's entire investment (downpayment and capital improvements made by the owner since purchase) before recapturing the HOME investment. (5)Amount subject to recapture.The HOME investment that is subject to recapture is based on the amount of HOME assistance that enabled the homebuyer to buy the dwelling unit.This includes any HOME assistance that reduced the purchase price from fair market value to an affordable price, but excludes the amount between the cost of producing the unit and the market value of the property (i.e., the development subsidy).The recaptured funds must be used to carry out HOME-eligible activities in accordance with the requirements of this part. If the HOME assistance is only used for the development subsidy and therefore not subject to recapture,the resale option must be used. (6)Special considerations for single-family properties with more than one unit. If the HOME funds are only used to assist a low-income homebuyer to acquire one unit in single-family housing containing more than one unit and the assisted unit will be the principal residence of the homebuyer, the affordability requirements of this section apply only to the assisted unit. If HOME funds are also used to assist the low-income homebuyer to acquire one or more of the rental units in the single-family housing, the affordability requirements of§ 92.252 apply to assisted rental units, except that the participating jurisdiction may impose resale or recapture restrictions on all assisted units (owner-occupied and rental units) in the single family housing. If resale restrictions are used,the affordability requirements on all assisted units continue for the period of affordability. If recapture restrictions are used, the affordability requirements on the assisted rental units may be terminated, at the discretion of the participating jurisdiction, upon recapture of the HOME investment. (If HOME funds are used to assist only the rental units in such a property then the requirements of§ 92.252 would apply and the owner-occupied unit would not be subject to the income targeting or affordability provisions of§ 92.254.) (7)Lease-purchase.HOME funds may used to assist homebuyers through lease-purchase programs for existing housing and for housing to be constructed.The housing must be purchased by a homebuyer within 36 months of signing the lease'purchase agreement.The homebuyer must qualify as a low- income family at the time the lease-purchase agreement is signed. If HOME funds are used to acquire housing that will be resold to a homebuyer through a lease-purchase program,the HOME affordability requirements for rental housing in § 92.252 shall apply if the housing is not transferred to a homebuyer within forty-two months after project completion. (8)Contract to purchase. If HOME funds are used to assist a homebuyer who has entered into a contract to purchase housing to be constructed,the homebuyer must qualify as a low-income family at the time the contract is signed. (9)Preserving affordability of housing that was previously assisted with HOME funds. 16 (i)To preserve the affordability of HOME-assisted housing a participating jurisdiction may use additional HOME funds for the following costs: (A)The cost to acquire the housing through a purchase option, right of first refusal, or other preemptive right before foreclosure, or at the foreclosure sale. (The foreclosure costs to acquire housing with a HOME loan in default are eligible. However, HOME funds may not be used to repay a loan made with HOME funds.) (B)The cost to undertake any necessary rehabilitation for the housing acquired. (C)The cost of owning/holding the housing pending resale to another homebuyer. (D)The cost to assist another homebuyer in purchasing the housing. (ii) When a participating jurisdiction uses HOME funds to preserve the affordability of such housing,the additional investment must be treated as an amendment to the original project.The housing must be sold to a new eligible homebuyer in accordance with the requirements of§ 92.254(a) within a reasonable period of time. (iii)The total amount of the original and additional HOME assistance may not exceed the maximum per unit subsidy amount established under§ 92.250. Alternatively to charging the cost to the HOME program under§ 92.206,the participating jurisdiction may charge the cost to the HOME program under § 92.207 as a reasonable administrative cost of its HOME program, so that the additional HOME funds for the housing are not subject to the maximum per-unit subsidy amount.To the extent administrative funds are used,they may be reimbursed, in whole or in part, when the housing is sold to a new eligible homebuyer. (b)Rehabilitation not involving acquisition.Housing that is currently owned by a family qualifies as affordable housing only if: (1)The estimated value of the property, after rehabilitation, does not exceed 95 percent of the median purchase price for the area, described in paragraph (a)(2)(iii) of this section; and (2)The housing is the principal residence of an owner whose family qualifies as a low-income family at the time HOME funds are committed to the housing. In determining the income eligibility of the family, the participating jurisdiction must include the income of all persons living in the housing. (c)Ownership interest.The ownership in the housing assisted under this section must meet the definition of"homeownership" in § 92.2, except that housing that is rehabilitated pursuant to paragraph (b) of this section may also include inherited property with multiple owners, life estates, living trusts and beneficiary deeds under the following conditions.The participating jurisdiction has the right to establish the terms of assistance. (1)Inherited property. Inherited property with multiple owners: Housing for which title has been passed to several individuals by inheritance, but not all heirs reside in the housing, sharing ownership with other nonresident heirs. (The occupant of the housing has a divided ownership interest.)The participating jurisdiction may assist the owner-occupant if the occupant is low-income, occupies the housing as his or her principal residence, and pays all the costs associated with ownership and maintenance of the housing (e.g., mortgage, taxes, insurance, utilities). 17 (2)Life estate. The person who has the life estate has the right to live in the housing for the remainder of his or her life and does not pay rent.The participating jurisdiction may assist the person holding the life estate if the person is low-income and occupies the housing as his or her principal residence. (3)Inter vivos trust, also known as a living trust. A living trust is created during the lifetime of a person.A living trust is created when the owner of property conveys his or her property to a trust for his or her own benefit or for that of a third party(the beneficiaries).The trust holds legal title and the beneficiary holds equitable title.The person may name him or herself as the beneficiary.The trustee is under a fiduciary responsibility to hold and manage the trust assets for the beneficiary.The participating jurisdiction may assist if all beneficiaries of the trust qualify as a low-income family and occupy the property as their principal residence (except that contingent beneficiaries,who receive no benefit from the trust nor have any control over the trust assets until the beneficiary is deceased, need not be low- income).The trust must be valid and enforceable and ensure that each beneficiary has the legal right to occupy the property for the remainder of his or her life. (4)Beneficiary deed. A beneficiary deed conveys an interest in real property, including any debt secured by a lien on real property, to a grantee beneficiary designated by the owner and that expressly states that the deed is effective on the death of the owner. Upon the death of the owner, the grantee beneficiary receives ownership in the property, subject to all conveyances, assignments, contracts, mortgages, deeds of trust, liens, security pledges, and other encumbrances made by the owner or to which the owner was subject during the owner's lifetime.The participating jurisdiction may assist if the owner qualifies as low-income and the owner occupies the property as his or her principal residence. (d)New construction without acquisition. Newly constructed housing that is built on property currently owned by a family which will occupy the housing upon completion, qualifies as affordable housing if it meets the requirements under paragraph (a) of this section. (e)Providing homeownership assistance through lenders. Subject to the requirements of this paragraph (e),the participating jurisdiction may provide homeownership assistance through for-profit or nonprofit lending institutions that provide the first mortgage loan to a low-income family. (1)The homeownership assistance may be provided only as specified in a written agreement between the participating jurisdiction and the lender.The written agreement must specify the forms and amounts of homeownership assistance that the participating jurisdiction authorizes the lender to provide to families and any conditions that apply to the provision of such homeownership assistance. (2) Before the lender provides any homeownership assistance to a family,the participating jurisdiction must verify that the family is low-income and must inspect the housing for compliance with the property standards in § 92.251. (3) No fees (e.g., origination fees or points) may be charged to a family for the HOME homeownership assistance provided pursuant to this paragraph (e), and the participating jurisdiction must determine that the fees and other amounts charged to the family by the lender for the first mortgage financing are reasonable. Reasonable administrative costs may be charged to the HOME program as a project cost. If the participating jurisdiction requires lenders to pay a fee to participate in the HOME program, the fee is program income to the HOME program. 18 (4) If the nonprofit lender is a subrecipient or contractor that is receiving HOME assistance to determine that the family is eligible for homeownership assistance, but the participating jurisdiction or another entity is making the assistance to the homebuyer(e.g., signing the documents for the loan or the grant), the requirements of paragraphs (e)(2) and (3) of this section are applicable. (f)Homebuyer program policies.The participating jurisdiction must have and follow written policies for: (1) Underwriting standards for homeownership assistance that evaluate housing debt and overall debt of the family, the appropriateness of the amount of assistance, monthly expenses of the family, assets available to acquire the housing, and financial resources to sustain homeownership; (2) Responsible lending, and (3) Refinancing loans to which HOME loans are subordinated to ensure that the terms of the new loan are reasonable. [61 FR 48750,Sept. 16, 1996, as amended at 67 FR 61756, Oct. 1, 2002; 68 FR 10161, Mar. 4, 2003; 69 FR 16766, Mar. 30, 2004; 69 FR 68052, Nov. 22, 2004; 72 FR 16685, Apr.4, 2007; 78 FR 44674,July 24, 2013]