MEMORANDUM
TO: Mike Wildgen, City Manager
THRU: Victor Torres, Director, Neighborhood Resources
FROM: Margene K. Swarts, Community Development Manager
SUBJECT: Affordable Housing Partnership between the City and Tenants to Homeowners, Inc. – 130 Providence
DATE: May 11, 2004
The City purchased 130 Providence at a foreclosure sale in October, 2003 for $153,000. The property had previously been rehabilitated through the CDBG program and the owner subsequently defaulted on the primary loan. The City redeemed the property so as not to lose the investment in affordable housing. Staff arranged for the trash and debris to be removed from the house and the trees, shrubs, and brush were trimmed and removed. Gas and electric service has been restored. Cost incurred to date for the cleanup and utilities is $5,210.67. It is anticipated another $100 will be paid for gas and electric service through June. The structure is ready for rehabilitation and future sale.
With regard to property acquisition with CDBG funds, the City has multiple goals including recovery of funds expended to date, neighborhood stabilization through homeownership, and expanded affordable housing opportunities in the community for low and moderate-income persons or families. At this time, there are three basic options for disposition of this property:
1. The house could be sold on the open market for a minimum of $158,310.67, plus closing costs, which would include the purchase price and all cleanup and utility costs through June 30, 2004;
2. The house could be sold on the open market for a minimum of $158,310.67, and a covenant could be added to the contract requiring the purchaser to be and remain, the owner/occupant of the property; or
3. The house could be sold to Tenants to Homeowners, Inc. for $153,000, to be rehabilitated for sale to a first-time low or moderate-income homeowner, using a new concept in affordable housing known as the Lawrence Community Land Trust (LCLT).
If Option 1 is chosen, the City will recoup expenses to date, but the possibility that the property will remain affordable is unlikely, and owner/occupied, unknown. If Option 2 is chosen, expenses will be recouped, neighborhood stabilization through the homeownership component is likely, but the affordability factor is unknown and continued compliance with the homeownership component will require on-going monitoring by City staff, which is not desirable.
Option 3 will accomplish all the goals as noted above with only minimum assistance from the City after initial sale of the property to TTH. The City has partnered numerous times with Tenants to Homeowners, Inc. on various affordable housing projects. Alan Bowes, TTH Executive Director, has agreed that TTH would purchase the property from the City for $153,000, rehabilitate the structure, and sell it to a low or moderate-income first time homebuyer, using the concept of the LCLT.
With a community land trust, the LCLT would own the land and the buyers would purchase the improvements on the land and a 99-year lease, renewable for an additional 99 years, of the use of the land. This is called a ground use lease. The two-party contract between the land owner (LCLT) and the owner of the improvements protects the lessee’s interest in security, privacy, legacy, and equity, as well as enforcing the lessor’s interests in preserving the appropriate use, the structural integrity, and continuing affordability of the improvements on the land.
The LCLT retains an option to repurchase the improvements should the owners choose to sell. As owner of the land and owner of the repurchase option, LCLT has a continuing interest in what happens to the structure and the household who occupies it. The ground lease allows LCLT to step in and force repairs should the property owner allow the structure to become a hazard and/or to step in and cure a default thus forestalling foreclosure, should the property owner default on their mortgage. The LCLT remains a party to the contract thus safeguarding the structural security of the building and residential security of the occupants. Additionally, this concept preserves the affordability of the housing, one owner after another, into the future.
The 2004 appraised value of the property is $178,000. TTH and City staff believes the property can be rehabilitated and using the land trust concept, keep the property affordable. Staff has spoken to neighbors in the area who have two general concerns with allowing TTH to rehabilitate the structure for sale to a low or moderate-income first time homebuyer. One is that due to the cost of the house and necessary rehabilitation, the amount of mortgage the new owners would have to repay might render them “house poor” and they would be unable to maintain the property, resulting in either environmental blight or foreclosure. The second concern is that more subsidies will be added to this property beyond what has already been invested.
Staff believes the land trust concept has merit and is an excellent tool for preserving housing affordability in this community. Using this idea will preclude either one of the neighborhood concerns from happening because TTH will have the ability to step in and clean up or make repairs to the structure and/or forestall foreclosure, if necessary. Additionally, the resale price of the property is set by a formula included in the ground lease, which is designed to give the present low or moderate-income homebuyer a fair return on their investment, while providing future low or moderate-income homebuyers access to housing at an affordable price. This can allow the subsidy to be spread out over a longer period of time. This is good for the homeowner and also does not require the influx of additional subsidies on a regular basis to keep the property affordable.
Staff recommends approval of the sale of the property to TTH for the Lawrence Community Land Trust pilot program. This request meets a national objective of the CDBG program for aiding low and moderate-income persons and would provide additional affordable housing in the City of Lawrence. Additionally, it addresses neighborhood concerns with regard to neighborhood stabilization. If you should have further questions, please let me know.