SR-9A (7)RI~g.HR•JP-I:PM:merlp.sj Santa Man~ca, California
Council Meeting: February 14, 1995
TO A2ayox and City Counci~ F~B ~~~~3
FROM. City St~ff ~E~ ~ ~ ~
STJBJECT: Request to Approve the Amended Guzdelines ar~.d
Pracedures for the Multifamily Earthquaks Repair Loan
( 2~ERL ) Frogram
Introductian
This repor~ requests the Ckty Cauncil review and approve the
proposed re~isions to the Program Guidelines ars.d Pracedures for the
r~ult~family Earthquake Repair Loan (MERLy Program and adapt a
budget for the $25,pd0,DQQ in F.rnergency Supplemental Community
Developrnental Block Grant (CDBG} allo~ation.
Backqround
In response to the devastation caused by the Northridge Earthquake
and ~he 1993 A~zdwest floads, the U.S. C~ngress enacted the
Emergen~~T Stzppl~mental Appropriat~cns Act of 1994, apprppriating
S54Q million in CDBG and HOME ~unding for bath d~sasters. Und~r
this Act, Santa Monica was a;~arded the following:
7.. April 4, 1994: $2,'740,000 ~.n CDBG funds for repair to Czty-
owned fac~~ities and prcperty damaged in the earthquake
(non-housing).
2. Apri~ 1, 1994: $2,027,QQ0 in HOME f~znds fcr hou~ing-related
repairs.
3. August 5, 1994: $6,361,000 in HOME funds f~r haus~ng-related
repairs from the President~al Contingency Fund.
4. November 3, 1994: $25,Q0~,000 in CDBG funds for repair and
reccns~ructian af damaged and vacated multi-~amily and
condamin~um properties. FEB ~ ~ ~'j
FEB i 4 199~
Add~ng thz hpusing-related alloca~1ons ~ogether (#2, 3, &~ above),
a total of $33,38$,00~ is available to assist property own~rs in
making repairs to multi-family and candom~n~um units, and tc a11ow
tenants displaced ~y the January 17, 1994 earthquake to return to
the~r homes. The C~ty ~~as successful ~n securing these funds based
on azguments that the typ~cal fundzng formulas of population and
pove~~y did not adec~zately address the damag~ sus~a~ned ~n Santa
M~naca.
Because the dama~e to the community was sa extens~ve and w~thout
r~gard to income, the City asked for and r~~eived a number of
a.mportant statutory and reg~latory waivers from the U.S. Departmen~
of Housing and Urban Development {HUD). HUD used the ~ustificaticn
that faiiure to waive its ncrmal requirements would impede di5~St~r
recovery by dzscourag3ng property own~rs fr~rn undertak~ng
rehabil3tation of disaster-damaged housing, thereby inhibit~n~
recovery efforts ~.esigned to address health and sa£ety problems.
Aegulat~ans waived include: those that requ~re CDBG f~nds to be
used to principal~y benef~t Iow- and moderate-in.come persons;
~hat a percentage of HOME pragram funds be set-a~ide fo~ Cornmunity
Hausing Develvpm~nt Organizations; and that inany of the Uniform
Re~ocat~cn Act requirements apply tc disaster-damaged buildings.
HUD has advised the Cit~r that it will be required to olaligate the
~unds wi~~z~.rz 24 months from ~he date of initial award, and to
expend those funds snrzthin 35 months. If events beyond the con.trol
af the City make the C~ty unable to meet ~ither of these dead~izi.es,
2
HUD may ~onsider an extenszon. Staff is concerned that i~ the
programs are npt utilized because the City has reimposed
restrictions waived by HUD, ~uch extensions are un~ikely, and
unused funds would be ~ecaptured by HUD.
These fund~ are a grant to the C~ty, and al~ future "program
income" from loan pay-bac3~ w~I~. remain with the City' s regular CDBG
pragram fax' re-u~e, gcverned by the same rules a~ other CDBG
prograrn income .
E~is~inq City Multi£am~ly Earthc~uake Repair Loaxi Prac{ram
In response to award af the HOME funds of $8,388,(}00 (#2 & 3
abave), a new program was developed by Staff and appraved by the
C1ty Co~.ncil on Septeir~ber 20, 1994. This pragram, ca].led the
Multifamily Earthquake Repair Loan Program tMERLP), v;as develcped
in accardance wi~h certain federal cqnstrain~s of the HOP+IE program,
and marketed ~o ~dentified o~mers af red- and yellow-tagged
buiJ.dings through maiJ.ings and a public meeti~ng. Following a poor
response, Staff made fa~law--up telephone calls t~ the owners of
111 buildings (including those with no building permit activityy,
resulting in 51 laan applica~~ons requested, but anly 15 returned
ta the Earthquake Loan off~ce (located at 512 C`alorado Avenue,
5uite 108-Ay. Those 15 loan app~ications will be processed under
the amended guidelines, which are to be eonsidered by Council this
evening
This outreach indicated the MERL Pr~gram proved unattractive to
3
i"
/
pr~perty oG,mers for ~he follo~ti=ing reasans :
1. HUD lim~ted the use af HOME grar~ts to dwell~.ng units
occupied by households whose 3ncame d~d not exceed 80% o~
the medi.an. LJnits occup~ed by hous~holds whose ~ncome
exceeded 8D~ ~;rere therefore not eligible for assistanee,
and praperty owners would need tc search for other funding
sources for thase units.
2. HOME funds Could not be us~d for units where returning tenants
vaere non-low-income households.
3. The program did not address the needs ot condominitim ow~ers,
wha were not e}.igibl~ under HOME, and did not qual~fy far F`F~rA
gran.ts to repai~ common areas.
4. The program d~d not addre~s the needs of thcse prcperti.es
damaged by ~he earthquake yet sti11 occupied, inciuding tho~e
~~aith potentiaily haaardous structural condit~.ons, where the
owners had no other recovery source~.
The City had ~he opportunity to re-examine the ZiERL Program with
HUD ~taff when it was awa~rded the $25,D~Q,000 in CDBG funds on
November 3, 1°94. Instead of restrzcting fund usage sol.ely to meet
the ~ow=/moderate-income benefit criter~a fcr use of these funds,
another criterion was appiied by HUD: urqent need. Th~ award
Ietter from HUD also granted a number of statutary and re~ulatory
wa~v~rs in order to faci~~tate use of the funds.
At the same time, Staff reques~ed of HTJD a one-time waiver of
incame target~ng for rental housing rehabilitated w~th the HOME
funds, allowing former tenants to return ta their hames regardless
ot the~r incorne. That request was approved by HUD on January 27,
4
199~, thereby enabling util~zation ct HGME monizs in acccrdance
w~th the City's locaX Earthquake Recovery Act (O~dinancE 1736?,
which provides en~itlement for displaced tenants to recccupy
damaged units.
In sum, HUD has allov~ed the City to des~gn ~ts cvm residential
recovery l.aan prcgram, based on ~he city's particular needs, as
lor~g as it camp~ie~ with CDBG regu~atians, as modified l~y waivers
granted by the Secre~ary of HUD.
RevisiOns to MERL Proqram - Citizen Participatzoz~
In an attempt ta invalve the citiz~nry ~n partic~pating in reclesign
of the MERL Program, num~raus public and C~ty Staff ineet~ngs vaere
held prior to this item coming to the Ci~y Council. Between
Dec~rnlaer 12 , 1994 and January 17 , 1995, several Ira.terdepartmen.tai
Earthquak~ Task Force team meetir~gs were held, with represEntatives
from the City Manager's office, Resou.rce Managemerit Department,
HousYr,.g Division, Rent Contral office, C~.ty Attorney'~ office, and
Plannzng & Commun.i~y DeveZapment.
~n addi~ion, there were numerous public Fneet~.ngs at which MERL was
discussed:
---January ~2, 1995: Housing Commiss~on m~etang.
---January 12, 199~: Rent Ccntrol Board meeting.
---January 17, 3.995: Special warkshop meeting of the Housing
C~mmissian, ~o~ned by two members cf the
Rent Control Board, sel~cted by the Board.
---January 26, 1995: Hous~ng Cornmission ~ecommend~ approval of
guzdelines ta Council.
---February 2, 1995: Rent Ccntrc]. Board meeting.
5
Th~se meetings were well-attend~d by var~ous "stakehold~rs",
includ~ng non-profit organizat~ons, developer interests, and a
nezghbarhood group. The pr~~ram summary ~vent th~ough a ser~es c~
a~terations in an attempt to be responsive ta variou~ interests.
The muiti-pronged abj ectives ~f ~he recaitunended program are to meet
~he urgent need tp repair damaged 11I13tS~ which w~uld allow
displaced tenants to return to their hames, e~iminate blighting
a.nfluenc~s, and prevent the Ioss of aff~rdable hous~.ng.
Discussian
The fcl~ou~ing discussion provides an averview of the proposed
amendments tv the MERL Program. Please a.lso refer to r"~.t~achment 3,
"Proposed Multifamily Earthquake Repa~r Loan Program" SLTMMARY
(chart) to facili~ate further rev~ev~.
A tc~a1 0~ four sub-programs have been developed under the MERL
PragraFn ~n an attempt ~o be resgans~ve to vary3ng needs and
objectives within th~ community. They ar~:
T Pre-Earthquake Owners
II Post-Earthquake Buyers*
III Qualif~ed Affordabl~ Housixa.g D~velopers
IV Condominium Owners and Associations
~n accordance with the Cit}r's Housing Tru~t Fund guidelines, all
Zaans for large pro~ects requiring more than $2.0 million in City
funding assistance will require City Council approval
~Includ~s Pre-Earth~ake ox*ners ~ith Loans Gr~ater than $3~,~~C;~ ~er u:.it 6
F~ll~wing is a b~ief description of ~ach pragram:
I. Pre-Earthquake Owners
This program is designed foz those who o~,~-ned mu.lti-fa~il.y housing
at the time of the disaster and are either ineligible far SBA
loans, or received an SBA loan insuff~cien~ t~ cover the necessary
repa~rs. In many c~f these cases, proper~y damage was extens~ve
en~ugh ~o displace a number of tenants. The maxzmum loan ~s $3a,aQa
per unit, althaugh the higher lirnits of Program II apply for 2- to
6- unit pro~ects Payment on th~ loans is deferred for 2 years to
allaw unats time to c4me on line, and far owners to reca~rer frorn
lost rental ~nco~te dur~ng vacancy Payments are amort~zed over 28
years. Affordab~lity r~strictions have been wa~.ved by HU3I~ , and do
not apply ta pre-earthquaks pragerty owners . As for rent in~reases,
the MAR adjustment with pass-throughs is amartize€i ~ver the
remain~ng 28-year ~erm of ~he loan., and there are no ne~ aperatin.g
income-based rent increases. As with all the programs in MERL,
*~rhere Davis-Bacon minimum construction vrages apply, 20~ of the
construction eost ~s fo~giuen after 2 years. Cexta~n predevelopment
costs may b~ a.nc~uded in the loan, ~„rith 50~ rezmbursement of
prev~ous expenses. Loans are due upan sale.
II. Pas~-Earthquake Buyers*
This program is primar~ly intended to assist those who acquire
damag~d proper~.~es from exist~ng owners who are either unv~ill~ng
or unable to camp~ete repairs cr reconstruc~ion. Tv facilita~e both
acqu~.sition and rehabil~tation, ~he program has maximum loari Iimits
*Tncludes PrrEarth~sa~s ~arer~ ,-~th Loans ~reG=~r ~Y.a~. $30.OOG p~r un~.*_ 7
ranging from $50,aoa to $80,QOQ per unit, depending on the n~mber
af bedrooms Pre-earthquake owne~s requ~r~ng loans lar~er than
$30,000 per unit may alsc participate ~n this p~agram. Loans carry
no interest, and there ar~ no payments for 2 years. Amo~tizatian
is based on a 28-year schedule; how~ver, loans are due in Z~ years
to generate zn~ome to the program for other CDBG-elig~ble
act~v~t~es. Under a 3Q-year deed restr~ct~an, 25~ o~ the un~ts
must be affordable to those with incomes less than ~0~ of inedian.
This would alsa result in deeper affordability for those units
reserved for maderate-~ncome hauseholds {1~0% of ined~an )~nder
the City's Earthquake Reccvery Act. These term~ were designed to
provide sufficient incentives to stimulate private investment,
*~Th~l~ deterring the potential for profiteering. Analysis of samF~e
prajects indicated tha~ the propas~d terms produce returns
con.s~stent with current interest rates , thus avaiding z•rinclfall
profits . Requiring 50$ of the 3a.n~ts to ~e set aside for Very Lo~~-
Income Households evould eliminate ~n.cem.tives offered by interest
subs1dy and discourage participatlon. The zero-interest and lang-
~er~a amort~.zation also min.imize the ~mpact of increased pass-
throughs ta return~ng tenants of rent-cantrolled buildings under
the Q-Petition process. Loans ar~ due on sale, and all repayments
are returned to ~he City as CDBG pragram income, whzch is sub~ect
to the normal Iowfmoderate-income restrici~~ons.
III. Qualified Affardable Hausing Develcpers
This program is intended to assast experienced affordable housing
developers ~n the rehabil~tation or acquisit~on and reconstruct~cn
8
of damaged prop~rties, in o~der to increase the supply cf units
ava~lable to la:nr-income households . All un~.ts would be reserved for
~hose with incomes less than 50~ af inedxan, under a 55-year deed
restrzct~on, with a one-t~me exception far returning tenants with
higher ~ncomes. Payment af the loan wauld be structured on a
residual receipts basis, and loans would carry no interest, except
vahere n.ecessary to qualify in tax credit applicat~ons. The maximum
loan limits have also been. increased to comp~nsate ~or low~r tax
credit allocation5 au~~arded to pro~ects funded ~hraugh the HOME
Program while return funds are unava~lable for the duration of the
55-year restrieticn.
IV. Candomin~um Owners and Associatipns
Loans are intended for cvndominium awners and assaciati~n~ tha~ are
w.ithaut s~fficient recovery resou~ces, Funds are provided under
terms simzlar tv thQSe of~ered to Pre-Earthquake ~Janers of rental
praperty. The loan limits would, however, lae ~he same as those
ava~~ab~e to Post-Earthquake Buyers, ta fac~l~tate reconstruct~on
of uni~s wher~ cther resaurces were insuff~cient.
Fundxng Allocat~ans:
The Housing Comm~ssion has recommended the following fundixig
levels:
Prog~am I Pre-Earthquake ~vmers: ~9,387,455
Progxam IT Post-Earthquake Buyers. ~8,612,545
Program 3II Affardable Housing: $9,545,500
Progx'am IV Candamin,~.um Loar~s: $2, 504, 004
9
Affozdable Housing w~ll be funded using all HOME avazlable funds,
less administrat~on and technical assistance cos~s (~7,545,5~D? and
$2,Q00,000 af addit~onal CDBG funds, for a tatal of $9,546,54~0.
A~l other programs wou~d utilize CDBG fund~ng. Al~ocations are
based on pro~ected demand, and funding may be ad~usted
administrat~vely by up ta 10~ between categcr~es, depend~ng on
actual applicat~cns rece3ved. Prflgress will be mcnitored, and
per~od~c reports wi11 b~ provided to ~he Hous~ng Cornan~ss~on and
the City Cauncil.
F~nancial/Budgetar~r Impact:
Funding for this program wauld be provided thro~gh the follov:~.ng
existing acco~.nts:
HOME April 1, 1994 allacatian {$2,027,000} --
Emergency Supplemental Grant-Loans:
Dir~Gt laans: $?,67r~,2~~ 2G-700--b45-OG000-4461-~OGQQ
~'~`~~~cai Assistanc2 2v2,7(~Q 20-7CG-695-00~~0-~"462-G~G~u^
A~ir~zstrativz C~~ts• ' ~4, 052 2C-7QQ-595-060:;~~-44b3-s~0ill+~.i
-'S:rA~ ~z, ~Z7, ~r~'
HOME August 5, 1994 allocatx.orx ($5, 36~, (IOCI) --
Presidential Contingency Fund:
~ire^~ loans: $5,87c,252 2:;-7Gu-~~~-G~~OOa-=~4;1-G~DOQG
Adm~nistraLive Costs: 484,;~?+ 20-700-b95-00000-4473-~OUGO
TOTAL: S6, 3b=,'~~i,~
The praposed al~.ocation of CDBG ~
should be budgeted as fall~v,FS.
y=rect ~....__ ..~~st a2~, ~uu", GGO
Technical ASS~S~~nC2• 600,Ov^~°
Admin.istraticn 1, 9~0. ~i~G
~~~~~: S2~,aoo,o~o
'smergency Supplemental Funding
~9-7CD-69~-~DC~u-~4E~-~~~~u0(exp.;
19-700-695-00000--44~2-0~00~(exp ;
19-700-b95-OOQ00-4483-OOOG•O;exp )
i9-b20-264-~GO~G-~~4~1-c~OQO(rev_;
10
Conelusi~n
The federal govsrnment responded t~ thz January 17, 1994
earthquake's tremendous damage an t=~o accasions, w~th $8,388,OQQ ~n
HOME funds, and most recent~y, with $25,QDO,Q00 in CDBG funds for
repa~r and reconstru~tian of da~naged and vacated multi-family and
candaminium properties in 5anta Manica, fcr a~atal of $33,388,000.
~A~h~le the ~arlaer HOME monies provsd ~oo restrictive under existing
HUD regulations to be e£fECt~vely ut~l~zed, the ~vaiver by HUI~ of
certain regulations for both px-ograms has allowed Santa Moni~a to
design guidelines and procedures for a local program that involves
significant citizen part~c~pation, and that Taill ~n turr~ be
responsive tc meeting the urgent need to expedite r~covery of
vacated and hazardaus mul~i-fam~ly structure~, a.nd allow
displaced tznants to return tc their homes, even srhile praviding f~r
af~ozdability companents within the program.
Timel.ine
The CDBG Statement of ~bject~.~e5 (applicatian) for the $25,040,aoa
was appravedlay the C~ty Council on January 24, 1995, and submitted
to HUD the week of January 30, ~995, for review and preparation af
~he legal agreement . Upan execution of the agreement between HUD and
the Czty, Staff v,rill be autharized to set up the cash management
system to disburse funds for earthquake repairs. All ~hauld be in
place in 3 months.
Upan Co~zncil approval of the amended Guidel.~nes and P~-acedures for
the MERL Program, Sta£f will undertake extens~ve market~ng of the
11
rev~sed pragram. We w~ll re~urn to the C~ty Counc~l with p~r~ad~c
reports ~n the progress made ~n implementing the MERL Program.
Current staff~ng at 512 Calorado Avenue conszsts of Sen~or
Administrative Analys"t and Support Staff. Administrative funds for
~his program are available from the HOME and CDBG p~ogram budgets.
Recommendatian
City S~aff zecommends that the City Council:
(1) ~pprove the Amended Guidelines and Procedures for the
Mult~fainily Earthquake Repa~r Lcan Pr~gram.
(2) Approve the funding d~stribution by proqram category
recommended by the Housing Commissian.
(3) Approve ~he budgeting of $25,000,00~ in Emergency
Supplemental CDBG funds.
Prepared by: Jeff Mathieu, Direct~r
Phyl~is MueZler, Housing and Redevelopment Manager
Timathy Elliott, Senior ~dministrative Analy~~
Department af Resource Management
HQUSing and Redevelopment Division
12
Attachment "A" 2'U9`95
Proposed Multifamily Earthquake Repair Loan Program
Summary
- - - -
I il !It kV
EC[GIBLE Pre-Earthquake Post Earthquake Buyers quahfied V Go~dominfum
B013ROWERS awners B Pre-Farinq~ie u ti~e = Affordable Housing Owners and
w„h bans ati~• S3Q ~.~' a"r ~evelopers Assaciat~ons
ELIGIBLE Ar~y ~amaged propeAy wdh $5,000 per unit fepair cost, or potenUally hazardous slructures wrth $1 .'s f E Q damage
PR~PEI~TIES For aoqwsition Red and Yellow Tagged propertaes only
ELI~'iIBLE Rehabddat~on RehabihtatEOn Acquisiiron ~ Rehabdilation Rehab~hla~on
USES Reconstruction Reconstrucfian ReconstrucLon Fteconstruciron
Refinanang Ref+nanang Acqui5ition
~ -- RefinanGng _
-
LOAN TERM _ 30 Years
55 years
10 years _____ 30 years __ _ f
_
_
U% 0 ~0 0% or ~°io
lNTEREST RATE5 App4tabie Fa~fer! Rares
~ (or HG1,4c rax creald prolgcts -
PAYMENT De-{ener! far 2 years trom note date, ama~zalion Residual rece~pts Deferred for 2 years
based on 28 years from note date. arr~ort~zed '
over 28 years
MIAXIMUM $30,Od0 Qer unit 0-1 6RMS $f~l7,OQU - 0-i BRMS $BO.UO~ Q-1 BRM5 $6D,~00
LOAN ( Fjgher 1-.^~ra avply 2 Bf2MS $70,000 2 BRMS $90,006 2 BRMS $70,u~0
for 2 B ~r~ aropec~s: 3 BRMS $80,d06 3 BRMS $100,U0Q 3 BRMS $80,~G0
AFFORQABILI7Y 25 9h of units must 700 °io of unils must j
RESTRICTIdNS be aFTordable be affordabfe ~
io !i H w~th Income fo FI H wdh Income !
< Pn=~ ns MP~1wr ~ f+~°M nf Man~an
Na Add~tianal Na ~RMS Ram No Adddional
Requrrements U $529 Reguirements
1 $6J5
2 $718
3 $82Q
~~ae t~^~e e~satnn,`-~r .~~.^ ~g
' 'eneMS w'+c arp no; aex ~r;c~~e
RESTRICFIQN - - - - -- -
PERIOU NA i 34 years 55 years NA
RENT INCREASES A+lAFt ad~usiment with pass-throughs over the amortEZa ~~ iVA ~ NA
t~on penod of the loan AcquisiUon-Reflnance exempt
(No NOI-based rent increases}
~ !
~N~on-R C pm~ects ttse liLf~ Annua! Ad~ustmen! Faclor ~__ ___ _ ti
FORGEVEidE55 _
2~% of construchon financing forgiyen after t.vo (2} years where ~avis-6acon min eonsfr wages apply i
PREDEI/EL~PMENT Ei3gible costs may be mcluded in secu'red ~ 1005+o finanang 5ecured loaris for ehgible
EXPENSES Predevelopment loan wdh 50°% reimbursement of ef~g~ble expenses 'costs w~th 5Q',~
oF prEVious expenses ; reim6ursement ot
;of prevwus expenses
SECTfON 8 Pruperty owners may hst vacanc~es with Housing Authonty ~ ~ NA
LOAN - ~ - ~ - -~~ Laans may be - - -
A55UMPTION Loans Due on Sale Assumed u~Eih C~iy I Loans flue on Sale
_l~~1F4Y8~ j
PROJECTE~ ~$.387,455' $8.fi12,545 "
$9.546.500"' - $2.500.G~3~J'""
AI..I.QCATIQN ~
"Allocations by category are based on pro~ected demand Funding may be ad~usted by up to 1 D°io according ta apphcations recewed
Attachment "B"
CITY OF SA'~ TA MaNiC ~
ML~LTIFAMILY EARTHQUAKE REPAIR L~A'~1 PROGRA~T
GUIDEL~iES ~ND PROCEDL RES
DRaFI'
Febniary 9, 1995
Con~n~
Inhvducfian ........................................................ 1
Prograrn Eligibility Guideli~es
E1i~~ble Properttes
Eligible Borro~~°ers
El~gible Casts
Rehab~~~tatfon Standards
Davts-Bacon Compl~ance
Loa~ Tetms and Regw~ements
Maximum Loan ~mount
Laan In#erest Rate
Loatt Term and Payments
Davis-Bacon Ad~ustment
Prepayment
Subordinahon and Sen~or Loans
Securrty
Default
Paints, Fees, and Charges
Other Federal Requiremen#s
........................................... 3
........................................... 5
Loan ~ffoidability Requi~ments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Terrn and Percen# of lintts Sub~ect to Affordab~lity Co~enant
Defin~tian of Affordab~Iitv
Cert~fication
Foreclasure
Termination
Loan Applica6an, Approval, Pmcessing and Funding Procedu~es . . . . . . . . . . . . . . . . . . 10
Applica~~on
Preparation of Loan Application
Loan Approva~
Loan Ciosing
~Tultifamil` Earthquake Repair Loan Program
Guidelines and Procedur~s
Introduction
In response to #he acute damage to the mult~-fa~n~ly housing stoc~C caused by
the I~orthrrdge Earthquake. the Ciry of Santa Monica has established the
Multifam~ly Earthquake Repair Loan (MERL} Prograrr~ The p~.upose of the
MERL Proeram is to prov~de funds to help fill the gap between awner need
and other available resources
Fund~ne for the program will be $7 5 millian, made ava~lable by the
Emergency St~pplert~ental r~ppropriations Act of I994 (Publ~c Law 103-211), to
be provided throu~h the H4ME Investment Parinersh~ps Act Pro~ram, tir~th
$22 5 mill~on from the Communrty Developanent B~ock Grant program
The MERL Prograrn ~as four program camponents
Program I Pre-Earthquake Owners
Pragram II Post-Earthquake Bu~lers
Pragram III Affardable EIousing Loans
Program IV Condom~nium Laans
Program requ~rernents for these corxiponents differ in ~everal respects,
including eligible uses, maximurn loan amounts, repayment requ~re~nents, and
affordability requ~rements Table 1 sumrrtarizes the differences between these
four programs
TABLE 1
SEE ATTACHi'IEnT "3"
'~i~itifamily Earthquake Repair Loan Progra~n
Program E~igibiliry Guidelines
Eli~i~e Prope~lies
Laca~ion:
Properties must be lacated wsxhin the Crt~ of Santa Mon~ca
Prope~y Size:
propert~es must be multi-fatml_y rental or condominiu~n housing; wtth at least t~vo unrts
Evidence of Ea~thquake Damage:
Acceptable pravf of earthauake damage must ~nclude evtdence of z~ther
Red- andlor Yellow-Tagged ~anits, flr
Green-Ta~ged units with average per-unit repair cast in excess of $5,oao, or
Green-Tag¢ed ~zn~ts defined as potentially hazardous structures under C~tv Ordinac~ce
Number1748_ and ~vhich have repair costs exceeding ~i 00 per sq~are foot of bui~d~ng area,
as def~ned by thz Earthquake Recovery Act (City Qrd~nance Number 1736)
Small Business Adminishadon {SBA) Eligibility:
If eligible for SBA assistance, properties must have received an SBA Dlsposit~on Letter
~ndicat~ng approvai or disapproval for an SBA Disa.ster Laan If the Borrower is approved for
an SBA D~saster Loan, the Borrower must also have appl~ed to th~ SBA for hazard
mitigation funds If ihe Borro~~er is approved for a.n SBA Disaster Loan, the 'vIERL Program
Laan can~at be used in piace of the SBA D~saster Laan. ar~c~ t~e SBA Loan shal~ be
cons~dered a~~ailable ta be applred ta the pro~ect cost The ?VIERL Proeram Laan can only be
used for elig~i~fe costs in excess of the amount of the SBA Disaster Loan
Eli~ible Borno~; e~s
El~gible applicants include owners and buyers of e~~~ible rental propern~, ~ncluding
nonprofit orgamza#ions, ~otnt ventures or partnershtps, and condominzum owners and
associations Appl~cants must cerrify that they are residmg ~n the United States lawfully
Eli~ible Costs
A PROGRi'~M I Pre-Earthquake O«~ners ILoans less tl~cu~ ~30,QOf1 per ~intti
PROGR~~VI I~' Condotnimum Loans
Basic eligible costs; except where noted, are limited to actual cash e~ended for
construction expenses related to the rehab~litat~on or recflnstruct~o~ of bu~ld~ngs damaged
bv #h~ Aiorthrtdge Earthquake, and for mitigatton of future earthguake hazards, taget~ier with
A•iultifamily Earth~ua~Ce Repair Loan Pragram 3
supple~nental rehabilrtation costs needed to meet U S Department of Housing and
Urban De~elopment (HUD) Housing Quality Standards Costs aiso inciude engineer~n~ reports
and ather requ~red professional serti~ces, constr~ction bonds and general contractor and
subcantractor payments, tncluding averhead, general condit~ons and prof~, and re~nancing
expenses necessary to make pro~ects financially feasible Except where mdycated,
preapplicati~n ex~aenses are only elrgibie on ~ 50% reimbursable basis Inel:ga~le act~v~ties
~ncIude {except where ~nd~cated) nonconstruction-related expenses. any Fee_ profit or
overhead #o the Borrov~-er or any part_y related to the Borrovwer, any noncash contr~hutaons,
~nd,ior ~nterest or fee an any loan
B PROGRA_~ II Post-Earthqualce Buyers
iand Pre-Farthquake Ox•ners with Inans greaier than ~30,000 per ~nrtj
Additional eligible costs include the acquis~t~on of red- and yellow-tagged bwldmgs only_
includzng reasonable financing fees, appraisal fees, and t~tle and escrow costs
C PROGRAM III Affordable Housmg Loans
All above eligible costs, ~~th the acidrtion of reasonable deveIoper fees appro~ ed by the Gity
Rehabilit~hon Standaids
At the t~me of funding, the ~i~ork plan for the units ~n the propertv must ~nciude removing a~l
defic~encies in the HiJD Housmg Quality Standards, which are the m~mmum standards for
qualjty of rehabil~tat~on For new construction, the «orkplan must compl~~ with c~rret~t
building cod~s and access~b~l~ty requirements
DaYis-Bacon Campliance
Pro~ec#s where HO'VIE funds are used to ass~st 12 ur~~ts or more, or ~rhere CommunitE~
Development Block Grant funds are used to ass~st eight {8) umts or more, requ~re the
payment of Dav~s-Bacon uages If applicabie, the payment of wages to laborers and
mechanics shall be at a rate not Iess than the mtntmurri wage spec~fied by the Secretary of
Labor in periodic wage determinattans Appi~cants should calculate their construction anc~
construct~on-related costs usmg the appropr~ate Davis-Bacon wage determinahon C~ty staff
u+~ll v~lork v~7#h applicatits to determit~e whether Dav1s-Bacan wage requjrements v4~11 appiy to
a particular praposed pra~ect
Where the propert~- is sub~ect to the prevarl~ng ~ua~e requirement, all ~ork performed under
the contract that ~s being permanently ~'inanced in part by the Loar- ~s sub~ect to the
requirement Repa,~r ~~vo~-~: perfor~nzd on the praperty~ under separate contract pnor to the date
of application and not permanently ~nanced with the Loan is not sub~ect to the requirement
For property sub~ect to Da~~s-Baeon. 20% of the ioan amount which is used for umt construc-
tion costs (~ e, for wh~ch Davis-Bacon wages must be paidj will be fargiv~n after two years
iV[uitifamil~ Earthquake Repair Loan Program 4
Loan Terms and Requirements
NTaximuin Loan Amount
A PI~OGRAM I Pre-Earthquake Owners /L~oans less tharr ~30,000 per i~ntti
The maximum amount of the Loan shall be detzrmined by the eligible cost of
rehab~l~tat~on, reconstructron, or refinanc~ng for the property, iess the arr~ount af
the SB~ Disaster L~an, less the amaunt of ~nsurarice proceeds {if any) Htgher loa.n
lim~ts of Prograrn II apply to properties with six ~6) or fewer rental units
B PROGRAM II Post-Earthquake Buyers
(und Pre-Earthquc~e Ofrners u~~th loans greater than 530,000 per unit~
The maximurn amount of the Loan shall be determined by tl~e lesser of 1) eli~ible casts for
acqais~f~on, rehabilitatjon, re~nancmg, or recons#ruction of the property, less the amaunt of
tlie SBA Disaster Loan, less the amount af insurance praceeds (~f any), and less Borrov4er
and Lender contributians, pr~~ate loans_ and ather a~~ailable funding, or 2) the number of
un~ts an the property multzplied by
SRO, Effic~ency; and One-bedroo~n units $6D,00~
Twa-bedroom untts $70,000
Three+-bedroom un~ts $84.Q00
C PROGRAII~4 III Affordable Housin~ Loa~s
The max~murr~ amount af the Loan shall be determ~ned by the Iesser of 1) el~g~b~e costs for
acc~uisition, rehabil~ta#~on, refinancing, or reconstruction of the propert_v, less Borrower and
Lender contr~b~tions and other available funding; or 2) the nuanber of units in the properry
multiph~d by
SRO, Ef#"fc~ency, and ~ne-bedroom ~~its $80,000
Two-bedroom units $40,000
Three+-bedroom units $100,000
D PROGRAM I~' Condorn~nium Loans
T~e maximum amoun# of the Loan shall he determined by the lesser of I} eligible costs ~or
rehabilitat~an, refinancing. or reconstrucnon af the property, ~ess the arnount of the SBA
Disaster Loan, less the araount of -nsurance proceeds (tf any), or 2) the number of unlts in
the propert_y multtpl~ed by
?~i~ih#'amily Earthquake Regair Loan Pragrarn 5
SRO, Efficiency, and One-bedroom un~ts $6Q,000
Tw~a-bedroom un~ts $70,000
Three+-bedraom un~ts $50,~00
~ny and all program loans in excess of $2 Q~nillion shall require C~ty Counal approval
Loan interest Rate
The intzrest rate for all programs is 0% (Vb'hen it ~s necessar~ to confor~n vvith federal Low
Ineome Housin~ Tax Cred~t Progratr- requirernents, a higher rate of interest may be charged )
Loan TeRn and Payments
~ PROG~~s t Pre-Earthyuake ~wners
ILoans tess than 530,000 per unrtj
The ~erm of the loan is 30 years For a grace periad. un~l the ~irst day of the rnonth two
years after the Loan Clos~ng, no per~odfc payment of pnnc~pal is required Thereafter_ regular
pr~ne~pal pay~menTs on a 28-year amortization schedule are requrred The outstan~ing principal
balance is duE upon sale or transfer of t~#le or a~~~nership ~nterest
B PRQGRAM II Post-Earthquake Bu_yers
~artd Pre-Em4hquake Ou-r~~rs i+~tth loans greater than S30,OD0 per~ uniti
Tertn of the loan ls l~ years For a grace penod, untii the first c~ay of the tnanth two years
after the Loan Glasing, no penod~c payment of principal ~s required Thereafter, regular
principal payrr~ents based on a 2$-year amoriizarion schedule are requ~red The outstandina
pr~ncipal balance is due upon sale or tfa~sfer of titte or o~.~nership interest
C PROGRAM ~II Affordable Housing Loans
The term of the loan is 55 years Payments shalI ~s deferred for no less than 2
years Begimm~g ~n year three, borrower shall make payr~tents of prtncipal from
res~c~uai rece~pts, if any, as approved by t~e Citv Residual receipts shall be d~£~ined
as the gross inconne of t~e Pro~ect, less payments for actual and reasonable operating
expenses (e~cludine depreciat~on), 1~55 a replacement reserve and an operat~ng
reserve as a~proved by ~he City, less debt serv~ce on non-Ciry laans appro~~ed by the
C~tv
The L~oan ~s assurnable upon sale of the property w~th prior appro~al of the Cit~, so long as
the new buyer assumes the Loan Affordabilrty Agreetnent and has not on other properties
been in vioIat~on of other City affardab~lity agreements. ardinances, oF codes, as determzned
by the City
Multifamily Earthqnake Repair Loan Program 6
D PRQGRt1~~ ~'I Condaminium Loans
Tha term of the loan ~s 30 years For a~race periad, until the ~rst day of the month two
}rears after the Loan Glosing, no per~odic payment of pr~ncapal is requ~rec3 Thereafter, regular
pnncipal payments on a 28-_yeax amort~zat~on schedule are required The outstanding pnncipal
balance is due upon sale or transfer of t~de or ovvnership mterest
Davis-Bacon Adjushnent
For properties receiving a Loan that ~s sub~ect to the prov~s~ons of Davis-Bacan wage
requ~rements, 20% of the amount of the loan applied to construction costs w~ll be
forg~ven on the second anniversary of the recard~ng of the loan
P~pa,yment
The Loan m~y be prepaid in part or i~ who~e at any t~me ~~~aut pe~alty Howe4°er;
the Affordabil~ty Cor-enant shall remain ~n place for the st~pulated t~me per~od
Subatdination and Seniar Loans
The Loar~ ma}~ be recorded ~unior to
a A~1 outstanding debts (~ncluding any ~nterest owed thereon but c~npa~d as of t~e
the closing date of the Loan} recorded pnor to January 17, 199-~, and
~ All debts needed to pro~~de funds for El~g~ble Cos#s, inc~uding SBA Disaster Loans
5uch debt is defined as Senior Debt The Loari may be re-subordinated ta refinancin~ of
Sen~ar Debt, or Debt which d~es not exceed the autstanding halance thereon (e g, no cash
out to Borrawer) Loans w~ll not be subordmated to outsta.ndin~ debt recordad after January
17. 1994 tnat rs ~ot needed to provtde funds far Eligible Rehabtlrtahon Costs
Secwit~~
Loans will be e~idenced b~ a promissor}- note and secured bv a deed of trust The loan as
nan-recourse
Default
The Loar~ Agreement will specify the events that w~ll eause the C~ty to declare the
Borrower ~n default These events will include breach of Affordability Covenants,
fa~lure to campiete the proposed rehab~litat~on, fa~lure to make agreed-upon loan
repayments, defa~lt under other debt upon the property, breach of equal opportunity
requirzinents; failure to ahide by preva.iIing wage requirernents (if required), failure to
Mnltifamily Earthquake Repair Loan Program 7
mainta~n appragriate insurance caverage, fa~lure to pay ta.xes, and bankrupcey,
dissolution or insolvency of the Borrower or general partner of the Borrower's corparafion or
parinersh~p If there ~s any default on the Loan, the interest rate shal~ b~ 2°fo aba~e the
preti~a~I~ng prime rate of interes# on the date of execution of the Loan Agreement
Points, Fees, and Char~es
The borrau~er w~ll be responsible far pa~ ment af ~11 escrow~, ntle, re~ardjng fees, at~d ather
charges m connection wi#h the loan No poir~ts or ongination fees will apply
~er Fede~ Requirement~
Borroc~ers must agree to comply w~th all appi~cable federal regularions, ~ncluding
en~~ironmental reguiat~ons, relocat~on requ~rements, lobbymg regulations, and other
federal requirements
Lvan Affondability Requirement~
Tema and Pencent of Units Subject to Affo~ability Covenant
A PRQGRA11~i I P~e-Earthqualce Owners
ILnans less than ,~30,0~~ per urrttj
No Add~tional Afforda~~iity Requ~rerrients
B PR~GRAM II Fost-Earthquake Buyers
(und Pre-Eat?hqrta~e ~-vnc'rs w•ath loans grcater thart S30,DOf1 per t~net/
Twenty-~ive percent {25%~ of tata[ unrts must be rentec~ to ~ousehalds wtth in.c~orne less than
or equal to 60°,'0 of the Las AngeIes area med~an mcome, ad~usted by household size, for a
m~nimurn of 3D _years Aetvming former tenants d~sp~aced by the earthquake and having
incorne zn excess of b0°o of rned~an rnay only reoccupy resmcted ~n~#s u~hen zxo other
umts ~n the bu~lding are ava.ilable Future ho~seholds must have incomes less than or equal
to 60°'0 0~ rnedian income The affordab~hty covenant shall rett~ain in place for 30 years
C PAOGRAM III Affordable Hous~n~ Loans
Except as noted, all umts must be rented to househoIds w~th ~ncome less than or equal to
60°0 of the Las Angeles area median income, ad~usted by household size Returning former
tenants who were displaced by the earthquakz may reoccupy the apartment units regardIess
of ~ncome Future households must have mcomes less than or equaI to 60% of ined~an
income T'he ~ffordabtl~ty Covenant shaIl have a#erm of 55 years
MultiFamil~~ Eai-thqua~Ce Repair Loan Program S
D PROGRAM VI ~
~o Addttional :~ffordability Requirements
Definition of Aff€~r~dability
Restncted rents for Programs II and III may not exceed 30°io of the monthly ~nc~me of a
household earning no more than 60% of inedian income In addit~on, rents may not exceed
the Max~mum Allawable Rent (M~R} allowed by the Rent Cantral Board, ~ncluding any rent
increase approved under an earthquake-related pent~on filed rv~th ~he Rent Control Board and
arnornzed oti~er 28 years Rent mcrease pass-throughs for assisted repair costs ~}ili not be
allowed, bas~d on Net Dperating Income Rents for non-rent-controlled units shall be indexed
#o the HUD Annua.} Ad~ustment Factor
T'hese rents and annual mcome l~mrts are currentl~~ as follvws, and are inereased by the C~ty
upon increases i~ the medtat~ tncome
H.H. SIZE INCOME BEDROOMS RENT
I persnn $17,650
2 persons $2U,154 ~ 5529
3 persons $22,700 1 $605
4 persons $Z5,200 2 $718
5 perso~s $27,200 3 $SZ0
5 persons $29,25U
7 persons $31,2~50
S persons ~33,250
*I ess allo«ans.es Ic~r tenant-paid utilities (Attachment I)
Cerhfication
f1 tenar~t is deemed qua~~fied for an affordable umt upon ~nit~al occupancy Existin~ tenants
shall not be displaced to meet AffordabiIity requirements, and borrowers must cort;piy with
pr~~~s~ons of the City's Earti~quake Recovery Act This act requires, in part, #hat o~ners
prov~de tenants whv are displaced frorn earthquake-damaged housing units and wha ~le
rec~uired not~ces a first nght to reoccupy the unrt For each untt proposed ta be ass~sted,
applicants must provide a cernficat~an of xncame from any tenant wha filed a val~d notice
~~th the Rent Cantrol Board af intent to return to the unit_ which dernonstrates that the
household is elig~bte for the program
lbiultifamil- Earthquake Repair Loan Program
9
Foreclvsure
In the event of foreclosure (or deed in lieu of foreclosure} and transfer to a netiv ~d
unrelated oi~vner, the Affordab~l~ty Covenant is terminated However, foreclosure by a
conven~~onal ~rst mortgage lender whose loan was made prior to Januar~= 17, 1994 w~ll not
terminate the A£fordab~iit_y Agreement if foreclosure results because the first mortgage loar~
was in de~ault (except where the default ~s pursuant to a forbearance agreement) on closing of
the Rehabil~tat~on Loan
Tern,ination
The Affordabil~ty Covenant shall surv~ve changes of ovvnership, except in the case of
Foreclosure set forth above
L~an Application, Approval, Processing and Funcling Procedures
~ipplica6on
To appl~ for the MEAL Program, a Borrawer must demanstrate that
a the pfoperty is lacated in the c~ty af Santa Manica
b the Borrower has a Federal ETnergency Management Agency (FEMA)
registrat~on number
c the property has been damaged by the earthquake Proof must cnclude evidence
of Re~- or Yellov~r-tagged unrts or qual~fied Green-~agged uni~s
d the property did not nave earthquake ~nsurance coverage, or ~f ~t d~d, the
Borrower has soug~t msurance praceeds and rece~ved notice of the amount of
settlement
e vv~ere el~gible, the Borrower has applied for and rece~ved a disposzrion letter
frorn the SBA Disaster Loan Program
f notv~nthstand~ng these efforts, the Borrower requrres additional funds to restore
the prope~-ty to habitab~i~ty
P~eparation af L.oan Appiication
The Borrower must pro~~de a copy of the SBA laan appl~cat~on and City of Sa.nta ~ionica
supple~nental application form A separate applica~on is requxred for each praperiy for which
'-~uitifam'rly Earthquake Repair L.Qaa Program lU
funds are needed {A property w~th inulnple structures but v~~th a smgle ~r~t mortgage is
cons~dered one property } The following ~nformat~on must be pro~nded
a Budget:
The proposed budget, ~~cludmg contractor's certificat~on as ta wh~ch ~tems are
needed to repa.~r earthqua.ke dama~e and ~.vh~ch are needed to meet the Housing
Quality S~andards
b Seruor I.oans:
In connect~on w~th the closing af the Loan, t~te Borrower w7I1 provide the Ciry
w~th evide~ce that
An attached casn flow pro~ection for the properly, ~n a farm acceptable to
standard regulatory and banking practices, demonstrates that tl~e property has
suf~cient mon~es for normal operations, and is reasonably certayn of operattons
w~thaut financial default or~ senior debt; based on reasonable assumpt~ons about
operaf~ans and market perform.ance
c Other Ccifificafions:
Gert~ficat~an from the Lender and the Barrow~er that
all Senior Debt holders have provided wrrtten consent to the
Rehabilitat~on Affordabii~ty Agreement, and
~~ if needed, forbearance l~as been prov~ded unt~i the expected completion
date of rehabilitat~an
d sBA nisposition Ixtt~r
An SB~i D~spos~tton Le#ter staring approval or disappraval rs required as part
of #he applicat~dn, or evidence that the pro~ect zs no~ eligyble far an SBA loan
Laan Approval
Upon rece~pt af the Applicanon, the City w~li rev~ew~ the Appl~e~at~on to
a deterrr~~ne that the min~mum program requjrements are met,
b ensure that estimated cos#s are reasonable_
c rev~ew the availab~lity of funds.
d determ~ne the extent to wh~ch the pro~ect conforms with established G~ty
~olicies and priorities,
e determme the feasibility of the pro~ect and the abtlity of the barrower to
comp~ete #he pro~ect
11~Iultifamilp Earthquake Repair Laan Pragram 11
Recomrr~endarions v~nll be made ta the Directar of the Resource ~Zanagecnent
Department regarding appraval ar disapproval of the applicat~on Upon
appro~~al, a commitme~t Ietter approving the appl-cat~an and informing the
borrower of condit~ons required for laan closmg will be issued
Loan Closin~
Pr~or to loan closing. the Borrower must prov~de the City with
a a capy of the Bu~lding Permit for the i~ork {for loans involv~ng rehal~alrtatto~
orrl}~}
b cornpleted Dar-~s-Ba.con form(sj, if appl~cahle Fa~lure to subm~t the form{s)
will result in automat~c termination of the Gommitrrient Upon eancel~ation, the
City will send a cancellation notic~ to the Barrower and the Lender
c written consent of all mortgage holders to proceed with the rehab~l~ta#ion work,
~f applicable
d a Cerri~cate of Insurance nam~ng the City as add~tionallv insured
Multifami~~~ Earthquake Repair Loan Pragram 12
~ttachment I
H~L'Si~G AUTHQRITY SECTIDN 8 PRGG~r~M
L.S. Department o£ Housin~ and Urban Development
SECTI~N 8 EXISTING HO~SiNG ~Y~T~wr~:YCE FOR
TE;Tr~'~T FUR'dISHED UTILITIES A1~FD OTHE~ SERVIC~S
Monthly Dollax Ailowances
SINGLF, 1 BR 2 BR 3 BR ~ BR
GAS $11 $19 $2Z $23 $25
t:~ay i:~clude but not iimited to heati.:~~, c:~ck~~5, dcraest~c hc~
~rater )
ELECTRIC~L- $Z4 $26 $33 $3~1 $40
(~ia~ i:.c?ude ~ut not l~:u~~ed to l~ghts, televis~cn, ~ef~~ge~at~r,
was;;e~ and a~p~~ances J
TrvnTyR~ SE'rvLFt~ G~R3~G^ ~54~ $41 ~541
APPLI~,NCiS
Stove $4 $~ $~# $~ $4
ReL"ge~ 3tor $4 $-~ $4 $4 $4