SR-9A (26)
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Council Meeting: June 22, 1993
Santa Monica, California
JUN 2 2 1993
TO: Mayor and city council
FROM: city staff
SUBJECT: Program Guidelines for the Condominium Component of the
Tenant ownership Rights Charter Amendment (TORCA)
Shared Appreciation Loan Program
INTRODUCTION
This report transmits information and recommendations regarding
Program Guidelines for the condominium component of the Tenant
Ownership Rights Charter Amendment (TORCA) Shared Appreciation
Loan Program (Program Guidelines). The report recommends that
the City Council (1) approve the Program Guidelines; (2)
authorize the City Manager to negotiate and execute agreements
with local lenders to allow them to receive and process
applications for Shared Appreciation Loans on behalf of the City;
and (3) authorize the City Manager to utilize up to $1.17 million
of available TORCA conversion tax revenue for condominium loans
pursuant to the approved Program Guidelines.
BACKGROUND
The Tenant Ownership Rights Charter Amendment (TORCA) was adopted
at a Special Municipal Election June 5, 1984 and amended on
November 6, 1984, November 6, 1990, and June 7, 1992. The TORCA
requires that the city implement an ownership assistance program
for low and moderate income households purchasing their units as
either condominiums, community apartments, stock cooperatives,
cooperatives associations, or limited equity stock cooperatives
1
q-4
JUN 2 2 i993
under TORCA. On December 12, 1989, the City council approved the
Program Guidelines for the condominium component of the TORCA
Homeownership Assistance Program. The Loan Program Guidelines
provided for the city to make small market-rate loans and limited
appreciation loans to low income buyers (households whose income
does not exceed 80% of median income for Los Angeles County).
Under the Limited Appreciation Mortgage Program, the resale price
was restricted as a condition of the financing so that the unit
could appreciate by no more than 3% per year. In addition,
resale restrictions required that units for sale first be offered
to eligible purchasers referred by the city. Maximum loan
amounts were tied to the number of bedrooms in the unit, ranging
from $25,000 for a studio to $85,000 for a 3 bedroom.
This program was not successful, and only one loan was made under
the original program design. It appears that the major
deterrents to the use of this program were the low income
requirement for buyer eligibility and the limitation on
appreciation under the Shared Appreciation Loan Program. In
addition, the loan limits may have been insufficient to enable
persons of low income to qualify. Low income tenants may have
felt it was more beneficial to remain in their rent-controlled
unit than to utilize scarce savings to make a downpayment for a
unit with limited appreciation potential.
Proposition K, adopted in June 1992, amended the prior Charter
2
amendment and required that the City implement a program whereby
the city would receive a share of the appreciated value of the
unit at resale, and that the loan program funds be equally
allocated between low income households and moderate income
households.
DISCUSSION
Shared Appreciation Loan proqram Desiqn
The design of the proposed Shared Appreciation Loan Program is
based on: (1) the framework established by the TORCA Charter
Amendment; (2) comments on a draft of these Guidelines received
from lenders, converters, and the TORCA Committee; (3) a survey
of homeownership programs being operated by other localities in
California; and (4) additional policy considerations as described
below.
(1) Charter Amendment Framework for Assistance Program
The TORCA Charter Amendment establishes the scope of the Shared
Appreciation Loan Program. section 2009(a) of the Charter
Amendment requires that the proceeds of the conversion tax levied
on converted units be used to assist low and moderate income
households in purchasing their converted units. According to the
Charter Amendment the loans are subject to an affordable
repayment plan including interest, keyed to future income
increases and gains on sale. Upon resale of a unit the City
shall receive a percentage of the appreciated value of that unit.
3
The percentage received by The city shall not be less than the
percentage of the loan to the purchase price of the unit.
(2) Comments of Converters and Lenders
The city distributed a draft of these Program Guidelines in
December 1992 to various lenders and converters who have
expressed interest in the program. About ten lenders and
converters attended a meeting held in January 1993 to discuss the
program. Meetings were also held in May 1993 with the Planning &
Zoning Division TORCA committee that was established by the
Charter in 1992, and converters. The main comments received on
the program focused on eligibility requirements, approval of
capital improvements, speculation controls, hardship exemptions,
loan origination and various underwriting issues. Comments
received at the above mentioned meetings, as summarized in detail
in Attachment A, resulted in multiple changes to the draft
Guidelines.
(3) Survey of Other Homeownership proqrams
Homeownership assistance programs are currently being operated or
planned to be operated by many localities in California. staff
contacted a number of localities, primarily in Southern
California, to obtain information regarding program structure and
history. Information collected from these localities is charted
in Attachment B. While these programs bear some similarities to
the proposed Program Guidelines, they also differ in a variety of
ways. Most programs provide significantly lower maximum loans
than is proposed in these Guidelines. Also, none of the programs
4
were limited to condominium conversions.
(4) Additional policv considerations
In addition to the Charter Amendment framework, the following
policy considerations were used to develop the Program
Guidelines:
(a) the program should be flexible enough to meet the needs
of various segments of the target population;
(b) The program should make efficient use of tax dollars;
(c) The program should be understandable and acceptable to
borrowers and lenders;
(d) The program should attract eligible participants by
offering acceptable terms and a fair return on the
participant's equity;
(e) The program should not encourage speculation in TORCA
units;
(f) The program should not allow windfall profits to accrue
to owners;
(g) The program should be simple and efficient to
administer.
SUMMARY OF PROGRAM GUIDELINES
This section describes the major features of the proposed Program
Guidelines which are attached to this report as Attachment c.
Attachment D compares these features to those of the original
1989 program.
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The Shared Appreciation Loan program will provide second or third
trust deed loans to eligible borrowers purchasing their
converting units. An eligible borrower must be of low income
(80%) or moderate income (120%). Low and moderate income are
defined as 80% and 120% of the median gross income for Los
Angeles County, adjusted for family size as determined by the
Secretary of Housing and Urban Development. The eligible
borrower must reside in their unit in a building undergoing a
Tenant Participating Conversion (TPC) at the date of Planning
Commission approval of the TPC or at the date of City council
approval if the application is appealed.
The payment of principal and contingent interest (shared
appreciation) will be deferred until the earlier of twenty years
or the resale or transfer of the unit. Upon sale, transfer, or
maturity of the loan, the buyer will pay to the City the
principal amount of the loan, plus the contingent interest which
equals the percentage of the appreciation of the unit equal to
the proportion of the City/s loan to the original purchase price.
An additional 10 year term is available if the terms of the
original 20 year loan have been met and the borrower's income
does not exceed program income requirements.
In order to ensure that loans are made only to household which
truly need them, borrowers will be required to demonstrate that
they could not purchase their TORCA units without city financial
6
assistance. In addition, borrowers will be required to obtain
the maximum amount of private financing they can afford in order
to leverage the program funds as effectively as possible.
This program is designed to make homeownership affordable both to
buyers who can provide a downpayment but cannot qualify for a
loan large enough to buy the unit, and to buyers who can qualify
for a loan but do not have a sufficient downpayment.
Maximum loan amounts are as follows:
o Bedroom
1 Bedroom
2+ Bedroom
$50,000
$60,000
$75,000
As borrowers will be required to secure the maximum amount of
private financing which they can afford, staff anticipates that
these maximum loan amounts will not be required for every
household assisted by the program.
In addition to the share of the appreciation repaid to the City,
as described above, in order to deter speculation, in the event
that the unit is sold within three years of the date of purchase,
the borrower will be required to pay an additional portion of the
unit's appreciation. This amount shall be equal to 10% of the
appreciation in the event that the unit is sold within three
years, 20% of the appreciation in the event the unit is sold
within two years, and 30% of the appreciation in the event that
7
the unit is sold within one year of purchase. However, in no
circumstance shall the total amount due to the City under this
provision and under the standard share of appreciation exceed
100% of the appreciation of the unit.
Units purchased under this program may be resold by the buyer at
fair market value, and there shall be no further restrictions
resulting from the Shared Appreciation Loan Program after sale of
the unit and repayment of the loan.
ADMINISTRATION
Staff recommends that the city contract with private lenders to
accept and process loan applications under this program. This
will have the benefits of allowing better coordination between
lenders making first trust deed loans on the units, avoiding
unnecessary duplication in loan processing by private first trust
deed lenders and the CitYI and making use of the specialized
knowledge and experience of these private lenders. It is also
expected that this will allow loans to be processed and escrows
to close more rapidly than may be possible utilizing in-house
staff. This is especially important to ensure that buyers are
able to take advantage of the sizeable discounts often offered to
early buyers in TORCA projects.
While loan applications would be received and processed by
private lenders, these lenders would be required to submit the
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completed loan packages to the city staff for review. All loan
approvals or denials would be made by the City on the basis of
the package submitted by the lender.
FINANCIAL/BUDGETARY IMPACT
The TORCA Loan Program will be financed from funds reserved in
the TORCA fund balance for this purpose. As each loan is made,
the reserve will be reduced by the loan amount and an asset
account will be created on the balance sheet. As loans are
repaid, this procedure will be reversed. Funds repaid along with
the original loan due to property value appreciation will be
recorded as program income at the appropriate revenue account and
will be reserved for the development of affordable housing. Fees
paid to lenders for their loan underwriting services will be
charged to account 14-620-264-00000-5506-00000 and financed from
funds held in the TORCA Loan program Reserve.
RECOMMENDATIONS
It is recommended that the City Council:
(1) Approve the Program Guidelines for the condominium
component of the Tenant Ownership Rights Charter
Amendment Shared Appreciation Loan Program presented in
this report.
(2) Authorize the city Manager to negotiate and execute
agreements, as required, with lenders, for processing
of applications for this program.
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(3) Authorize the City Manager to utilize up to $1.17
million of available TORCA conversion tax revenue for
condominium loans pursuant to the approved Program
Guidelines.
Prepared by:
Jeff Mathieu, Director
Johanna Gullick, Senior Development Analyst
Housing Division, Resource Management Department
Attachments
A
B
C
o
Summary of Comments
Chart of Local Homeownership Programs
Proposed Program Guidelines
Comparison of Original and Revised Programs
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ATTACHMENT A: COMMENTS ON DRAFT GUIDELINES
The City distributed several earlier drafts of these guidelines
to various lenders, converters, and other persons who had
expressed interest in the program, and several meetings to
discuss the proposal. The following is a summary of written and
oral comments which were received by the City in response to the
proposed Guidelines.
1. Eliqibilitv: Originally, the Guidelines provided that in
order to be eligible to borrow under the Shared Appreciation
Program, applicants must have lived in their units for at least
six months prior to submittal of the conversion application.
Several commenters suggested that tenants should be able to
purchase a unit other than one in which they are currently
residing, and that all low and moderate income residents of the
City, or that participating tenants of all TORCA buildings in the
City, should be eligible for the program regardless of whether
they are currently occupying the unit they wish to purchase.
staff believes that the Charter allows program funds to be
used only to assist tenants living in the unit at the time of
loan application. The Guidelines have been revised to provide
that only Participating Tenants, as defined by the Charter
Amendment, are eligible. A participating tenant is defined as
any tenant residing in the building at the date of the approval
of the Tenant participating Conversion (TPC). council may
choose, to also allow persons who moved in at a later date to be
eligible far the loan program, so long as they occupy the unit at
the time of application for the loan.
2. Prohibition on rental: The Guidelines prohibit rental of
units purchased under this program. One comment suggested that
short-term rentals be allowed in various hardship circumstances.
staff believes that such a provision would be difficult to
administer, and could lead to abuse of the program. Further, rent
control protection for such tenants could prevent an owner from
terminating such a tenant except for good cause, and therefore
result in long-term rental of the unit, in conflict with the
objective of this program. Therefore, this provision of the
Guidelines has not been amended.
3. Approval of Capital Improvements: The Guidelines provide
that borrowers may make any improvements they wish; however, only
the value of those capital improvements which have received prior
written approval of the City under this program shall be excluded
in calculating appreciation. One comment suggested that, in lieu
of prior approval, documentation at time of sale based on
receipts should be sufficient. City staff believes that the
guidelines as drafted would allow the City to utilize receipts,
or other documentation as it believes appropriate, and that prior
approval will avoid disputes and misunderstandings about whether
work is allowed long after the work has been completed. Another
comment suggested that the value of capital improvements
performed by the Homeowners Association should be allowed, since
owners may be assessed for such improvements regardless of city
consent. The Program Guidelines have been revised to incorporate
such a provision.
4. Soeculation controls: The earlier draft Guidelines provided
that a 50% penalty for sale within five years, and 30% for sale
within three years. One commenter proposed that a 30% penalty
over three years should be utilized. Another proposed lower
penalties that would phase out over the five year period. The
Guidelines have been revised to provide for a 30% penalty which
is phased out over three years.
5. Interest Accruals: Several suggestions were made regarding
alternative loan terms. These suggested that the city loan
should accrue at interest rate, to be paid in addition to a
percentage of the appreciation. staff has analyzed the impact of
use of such an interest rate, and found that imposition of such
an interest rate, in addition to the sharing of appreciation,
would severely limit the amount of the equity the borrower
develops. This is particularly true at higher City loan amounts
necessary to enable low income households to purchase.
Therefore, staff has not recommended that a traditional interest
rate attach to the loan. The borrower must pay to the City as
contingent interest, a share of the appreciation of the unit
equal to the amount of the city loan divided by the original
purchase price, multiplied by the appreciation of the unit.
6. Loan Forqiveness: The earlier draft provided that the loan
would be forgiven if there was no sale within 30 years. One
comment suggested that the City should not forgive the loan, but
should receive back its investment so as to assist future
families. The loan forgiveness provision has been deleted, and
the term of the loan has been revised to a maximum of twenty
years, with one potential ten year extension.
7. Recertification of income: One comment suggested that the
city consider periodic recert1fication of income, to ensure that
persons whose incomes has risen do not continue to benefit.
Staff believes that a frequent recertification process would be
difficult to implement, would discourage potential borrowers, and
would be objectionable to institutional lenders. The revised
Guidelines provide for a loan term of up to twenty years, and
allow borrowers with incomes of no more than 120% of median
income to request a ten year extension of the term of their loan.
A recertification would be undertaken upon such a request. Staff
believes that this will help ensure that program benefits accrue
to eligible households, while not unduly discouraging borrowers
and lenders from participating in the program.
8. Loan Guarantees: Several persons suggested that the city
consider providing loan guarantees, instead of, or in addition to
~ its Shared Appreciation Loans, in order to further leverage its
funds. Staff believes that the city would be required to set
aside funds to back up any guarantee it made on a dollar for
dollar basis; therefore, this proposal would not allow the City
to assist more tenants, and has not been included in the
Guidelines.
9. Subcontract Loan Oriqination Services: Many participants in
the public comment process felt that the City is ill-suited to
receive and process loan applications in a timely manner to meet
escrow deadlines, and that the loan origination process should be
contracted to private lenders. city staff agrees that use of
private lenders to receive and package loan applications has many
benefits, and has recommended in this staff report that council
authorize the city Manager to enter into such agreements.
10. HomeownershiD education: Several comments were received
regarding the need for borrowers to receive homeownership
education. staff agrees that such education programs would be
very desirable. Since many first trust deed lenders already
operate such programs, staff proposes that the city contract with
such lenders to make their programs available to borrowers under
this program.
11. HardshiD Exemotions: Several comments were received which
suggested that hardship exemptions under the antispeculation
provisions and the due on sale provisions of the Program
Guidelines. A provision has been added to allow transfers for
change in marital status without requiring repayment of the loan.
A provision has also been added which requires the Director of
Resource Management to develop criteria for hardship waivers.
12. Assets: Two comments suggested that retirement funds and
other retirement "nest eggs" be excluded from assets. Another
comment opposed any general exclusion of "nest eggs" and
suggested the City investigate legitimacy of any large transfers
of cash. Staff agrees that restricted retirement funds should
not be considered as assets for the purpose of determining
ability to purchase, and has added in a provision to this effect.
Staff believes, however, that the investigation of cash transfers
is not an appropriate function for the city.
13. Appreciation: One comment suggested that closing costs
incurred by the Borrower in buying the unit be deducted when
calculating appreciation. This suggestion has been incorporated
into the Guidelines.
14. Appeals of fair market value: One comment suggested that
there should be a process whereby the borrower may appeal a
determination of fair market value, in cases of a maturing loan
or loan prepayment. A process for resolution of such disputes
has been added.
15. criteria for decisionmakina: One comment suggested that
criteria for decisionmaking by the City on a variety of topics
should be added to the Guidelines. staff feels that while such
criteria are valuable, in order to keep the Guidelines as brief
and easy to understand as possible, such criteria are best
incorporated into administrative handbooks rather than the
Program Guidelines. staff will develop such administrative
materials following Council approval of the Program Guidelines,
and will make the handbook available to interested persons.
16. Timina of applications: The original Draft Guidelines
provided that applications could be made subsequent to ORE
approval of the conversion. One comment suggested that this
would, in some cases, make it difficult for borrowers to take
advantage of "early bird" prices. The Guidelines have been
revised to allow application after the building has received
final map approval.
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5/11/93
TORCA HOMEOWNERSHIP ASSISfANCE PROGRAM:
SHARED APPRECIATION WAN PROGRAM
GUlDELINFS
The TORCA Homeownership Assistance Program was established by
the Tenant Ownership Rights Charter Amendment (TORCA) and amended
by Proposition K adopted in 1992, in order to assist low and
moderate income households purchasing their units as condominiums
under TORCA. Under the program, the City may make Shared
Appreciation Loans to persons living in apartments which are being
converted to condominiums who could not otherwise afford to
purchase their units.
The amount of the loan available from the City will depend on
your income and the size and price of the unit. No payments need
to be paid on the city loan until your unit is sold or otherwise
transferred, or there is a default on the loan. Upon sale or
transfer, the owner repays the loan and will share any increase in
the value of the property with the city, in proportion to the
amount of the City's investment.
Shared Appreciation Loan Program
Shared Appreciation Loans are intended to make homeownership
possible for buyers who
(1) have adequate incomes to support a mortgage, but do not
have the funds available to pay the necessary downpayment or
closing costs, or
(2) have lncomes which are too low to qualify for the mortgage
they would need for the unit being purchased.
The maximum loan amount will be based upon the applicant's
borrowing capacity, assets available for downpayment, and
the unit size. The loan amount shall be no more than is
necessary to enable a Borrower (1) obtaining maximum
affordable private financing, and (2) utilizing personal assets, to
purchase the Assisted Unit. In no case shall loans exceed 60%
of the purchase price. The following maximum amounts per unit size
also apply:
Studio or efficiency:
One Bedroom Unit
Two Bedroom or larger Unit
$50,000
$60,000
$75,000
1
The minimum loan is $5,000.
All loans will be available only to eligible borrowers
whose borrowing capacity is determined to be insufficient to
purchase their units on their own. All loans will be secured by
a Deed of Trust recorded against the Assisted Unit. The City's
Deed of Trust may be subordinated to a private lender's First Deed
of Trust and City approved seller financing.
EligibIlity Requirements
Borrowers:
Low and Moderate Income Households residing in a unit in
buildings undergoing Tenant Participating Conversions (TPC) at the
date of the approval by the Planning Commission of the Tenant-
participating Conversion Application, or by the City council if
application is appealed.
Borrowers may not currently own another residence. Members of
the Clty Council, perso~s employed by the City'S Resource
Management Division, city Manager's Office, city council, or family
members of such persons are not eligible to participate in the
program.
Maximum Low and Moderate Income levels per household
s~ze are currently as follows:
Household Size Maxim.um Annual Income
Low income Moderate Income
1 $27,484 $40,572
2 30,912 46,368
3 34,776 52,164
4' 38,640 57,960
5 41,345 62,017
6 44,050 66,074
7 46,754 70,132
8 42,459 74,189
Uses:
Acquisition (including downpayment assistance and eligible
closing costs) of the Borrower's unit in buildings undergoing a
Tenant Participating Conversion to condominium ownership.
El~gible closing costs include typical escrow and ti tle
insurance fees and reasonable financing fees for private loans.
/'
2
Costs of necessary repairs to the property, if any, may not be
paid from loan proceeds. All repairs required under the TORCA
approval or by lender must be completed prior to close of escrow
unless otherwise allowed under the Charter Amendment.
Loan Terms
Term: The term of a Shared Appreciation Loan will be a maximum of
twenty years, but no longer than the term of all other financing,
including seller financing and private institutional lender
financing. Upon request by the Borrower, the City may, at its sole
discretion, provide one ten year extension of the term of the loan
to borrowers whose income do not exceed 120% percent of the median
income one year prior to the date the loan matures.
Downpayment: The Borrower must make a downpayment equal to at
least five percent (5%) of the Assisted Unit's purchase price.
Repayment: The principal amount of the City's loan is due and
payable on the earlier of twenty years, or upon resale or other
transfer. In addition, the Borrower must pay to the City, as
contingent interest, a share of the appreciation of the unit equal
to the amount of the City loan divided by the Original Purchase
Prlce, multlplied by the Appreciation of the unit. Transfers to a
Borrower's spouse, transfer of title in conjunction with divorce,
and transfers of title by a Borrower's death to a surviving joint
tenant shall not be require repayment so long as the Borrower's
successor assumes the loan and all loan terms.
The principal amount of the City'S loan shall be due and payable
even in the event that there is no appreciation in the unit, or the
appreciation is negative.
Restrictions:
1. The Borrower shall occupy the Asslsted Unit as their primary
residence. A unit shall not be rented, or used
primarily for commercial purposes.
2. The Borrower shall not pledge the Assisted Unit as security
without the prior written consent of the City.
4. Uni ts shall be resold at no less than 95% of fair market
value. The Borrower shall provide an appraisal at time of
resale to document fair market value, if so required by the
city.
5. The Borrower may make any improvements to the Assisted Unit
they wish. However, only the value of documented,
permanent capital real estate or fixture improvements to the
property for which the Borrower received prior city approval
under this program shall be deducted from the Resale Price of
3
the Assisted Unit for the purpose of calculating appreciation.
The value of capital improvements shall be determined by the
city.
6. Loans are not assumable, except in cases of transfer to a
spouse or domestic partner, transfer to a spouse or former
spouse in conjunction with a divorce, or transfer of title by
a Borrower's death to a surviving joint tenant.
7. In order to deter speculation, in the event that the unit's
sold within three years of the date of purchase, Borrower will
be required to pay an addi tional portion of the uni t' s
appreciation. This amount shall be equal to 10% of the
appreciation in the event that the unit is sold within three
years, 20% of the appreciation in the event the unit is sold
within two years, and 30% of the appreciation in the event
that the unit is sold within one year of purchase. This amount
shall be in addition to the contingent interest due on the
loan. However, in no circumstance shall the total amount due
to the City as contingent interest and under this provision
exceed 100% of the appreciation of the unit.
The Director of the Resource Management Department shall
develop criteria under which the city may waive this provision
due to hardship.
U nderwnting Guidelines
Borrowers shall demonstrate that they do not have sufficient assets
available to purchase the unit without city financial assistance.
A Borrower shall be determined to be unable to acquire the unit
without City f1nancial assistance if:
1. the monthly cost for payment of principal, interest, taxes,
homeowner association fees and insurance of the combined
loans being obtained by the Borrower from a private
financial institution and/or the seller would exceed
twenty-eight (28%) of the household's gross monthly
income; and
2. the household's assets do not exceed the total of the
following:
(a) the amount necessary to pay the estimated closing
costs and downpayment for the unit to be purchased;
(b) the amount necessary to pay six (6) months of
the monthly housing costs (principal, interest,
taxes, insurance and homeowner association fees)
associated with the unit to be purchased; and
(c) five thousand dollars ($5,000).
4
These underwriting guidelines may be adjusted to conform with the
underwriting standards utilized by the private institutional
lender which is providing financing to a Borrower under this
Program.
Assets: For the purposes of the Program, "assets" means the value
of a household's savings and any equity in stocks, bonds, real
property, or other forms of capital investment. "Assets" does not
include items reasonably necessary for the personal use of the
household, such as personal effects, furniture, appliances,
automobiles, and real or personal property used in a business or
undertaking which is the primary source of livelihood for the
household. Assets also does not include the value of life
insurance, pensions, IRA accounts, or other retirement funds
(although income received from such sources may be considered as
income).
Loan to value ratio: The total amount of all loans secured by the
Assisted Unit, including the City's loan, shall not exceed 95% of
the appraised value of the Assisted Unit. An appraisal of the
Assisted unit shall be provided by the Borrower and shall be
subject to City approval. Wherever feasible, the city shall
utilize appraisals prepared by or for private lending institutions
providing financing for the Assisted Unit.
Creditworthiness: The City may, in its sole discretion, decline
an application for a loan where staff have reasonably determined
that the Borrower's income, employment history, or creditworthiness
1S not sufficient to ensure repayment of all proposed loans being
sought for the Assisted Unit.
senior Financing: The City reserves the right to review and
approve or disapprove the terms of all senior financing. If the
TORCA loan is to be subordinate to a variable payment or
adjustable rate loan, the Borrower must submit a schedule
showing the maximum possible increase in debt service per
year and the proposed means for meeting the debt service
requirements. Variable payment or adjustable rate loans shall
not be allowed unless the Borrower's ability to meet such
payments can be demonstrated to the satisfaction of the City.
Variable payment loans with negative amortization shall not be
allowed.
Price Test: The price of an Assisted Unit must be comparable to or
below the price of similar units in the same building. The
Borrower must take advantage of seller discounts whenever feasible.
Seller Financing: The ci ty shall review seller financing
proposals on an individual basis. The City reserves the right
to reject a loan application if staff reasonably determines that
the terms of the seller financing would adversely to the city's
interests.
5
Refinancing of Senior Financing: If the Borrower desires to
refinance the primary debt, or borrow any additional funds after
the initial purchase of the Assisted Unit, the city shall review
and approve the terms and conditions of the proposed loan and the
proposed use of the proceeds. The City reserves the right to
prohibit such refinancing if staff reasonably determine that it
will adversely affect the City's interests. In no case shall the
Borrower be allowed to increase the amount of total debt on the
Assisted Unit.
Prepayment of the city Loan: Borrowers may prepay the City loan at
any time. However, upon prepayment the Borrower must pay to the
city the principal and contingent interest, as well as any
applicable interest due under the anti-speculation provision of
these Guidelines.
DefinitIons
Appreciation: the Resale Price minus closing costs, real estate
commissions, and any other normal and customary costs incurred by
the Borrower in selling the Assisted Unit) minus the Original
Purchase Price of the unit and normal and customary closing
costs incurred by the Borrower in purchasing of the unit; m.inus the
value of any capital improvements for which the Borrower received
prior city approval under this Program.
Assisted Unit: A unit for which the city provides a City Loan.
Borrower: That person or persons who have title to and occupy the
Assisted Unit and enters into a Shared Appreciation Loan with the
CJ.ty.
city Loan: A loan made pursuant to TORCA Charter Amendment and
these guidelines, including any amendments made thereto.
Eligible Borrower: Low and Moderate Income Households residing in
a unit in building undergoing Tenant Participating Conversions
(TPCs) at the date of the approval by the planning commission of
the Tenant Participating Conversion Application, or by the City
council if application is appealed. Borrowers may not currently
own another residence. Members of the city council, persons
employed by the City's Resource Management Division, city Manager's
Office, City Council, or family members of such persons are not
eligible to participate in the program.
Low Income Household: Persons and families whose income does not
exceed eighty percent (BO%) of the median gross income for Los
Angeles County, adjusted for family size, as determined by the
Secretary of Housing and Urban Development and under section
B(f) (3) of the United state Housing act of 1937, as amended, or if
programs under Section B(f} (3) are terminated, eighty percent (Bot)
of the median gross income determined under the method used by the
Secretary prior to such termination.
6
Moderate Income Household: Persons and families whose income does
not exceed one hundred twenty percent (120%) of the median gross
income for Los Angeles County, adjusted for family size, as
determined by the Secretary of Housing and Urban Development and
under Section B(f) (3) of the United state Housing act of 19371 as
amended, or if programs under Section S(f) (3) are terminated, one
hundred twenty percent (120%) of the median gross income determined
under the method used by the Secretary prior to such termination.
original Purchase Price: The amount paid by the Borrower to
purchase the unit, not including fees such as title fees, escrow
fees, loan origination fees and other closing costs.
program: The Homeownership Assistance Program adopted by the
city pursuant to the TORCA Charter Amendment.
Resale Price: The amount for which the Assisted Unit is sold by
the Borrower. In the case of a matured loan or a loan prepayment
(where there has been no transfer or sale), the Resale Price shall
be equal to the appraised value of the property. To determine the
fair market value of the Property for this purpose, the City and
the Borrower shall endeavor to agree upon an Appraiser. If the
parties are unable to agree within ten (10) days the Lender shall
have an appraisal made by an Appraiser of its choice to establish
the fair market value. The Borrower may also, at Borrower's
expense, have an appraisal made by an Appraiser of the Borrower's
choice to establish the market value. If agreement cannot be
reached, the average of the two appraisals shall be deemed to be
the market value.
Tenant Participating
ownership implemented
city Charter.
Conversion: Any conversion to
under Section 2001 of the Santa
tenant
Monica
unit: Housing uni t being converted through the TORCA process
which is currently occupied by applicant and intended for
purchase as a condominium.
A!J!JhcatlOn Submittal and Review Procedures
Application Submittal and Review Process:
1. Eligible Borrowers may pick up an information packet at any
time before or during the processing of their building'S
Tenant Participating Conversion application. Housing
Division staff or a designated lender(s) will be available at
designated times to answer questions about the TORCA
Homeownership Assistance Program and application procedures.
staff or the designated lender will also explain how
Borrower eligibility and maximum potential private loan
amounts are estimated. However, City staff do not provide
legal or financial counseling and applicants are encouraged to
seek their own advisors regarding their decision to buy.
7
2. Applicants may submit applications for assistance only
after their building has received final map approval from
the city.
3. A complete application will include:
- Completed application form
- copy of Purchase Agreement
- Evidence of the building's TPC approval
- Verification of income (most recent W2 form
or acceptable verification from employer)
- Three previous years' federal and state income tax
returns
- A copy of the completed application to the private
lender (required after step 6 below)
4. Applications for city loans shall be submitted to private
lenders designated by the City, who will review the
application and package the loan request for approval by the
City. The lender shall request that the City provide the
lender with verification of the status of the Tenant
Participating Conversion application. City staff will provide
written verification of the status atter consultation with
the Planning and Zoning Division and the Department of Real
Estate.
5. Completed applications will be submitted by the designated
lender(s) to the City and will be considered on a first come
first served basis; however, city loan funds will be
allocated between low income Borrowers and moderate income
Borrowers as required by the City Charter.
6. If the Borrower is eligible to receive a TORCA loan, a
comml tment letter will be prepared by the Housing
Dlvision staff and reviewed and signed by the Director of
the Resource Management Department. The letter shall state
the maXlmum Program assistance amount reserved for the
Borrower, the length of time the funds will be reserved, and
a list of all additional conditions, documents and steps that
must be completed by the Borrower in order to close the
loan.
7. Upon fulflllment of all conditions I the lender designated by
the City shall prepare loan documents for execution.
8. The Director of the Resource Management Department shall
authorize release of the TORCA loan funds into the escrow
account established for the loan closing with instructions
for disbursement.
9.
All Borrowers shall be required to provide the City with title
insurance in a form and substance acceptable to the City and
shall name the City as additionally insured on hazard
insurance policies, which shall be in amounts
./
8
acceptable to the City.
Further Information
Further information regarding the City of Santa Monica's TORCA
Homeownership Assistance Program can be obtained by calling the
Housing Division of the Resource Management Department at (310)
458-8702.
9
Shared Appreciation LQ8n Program
Summary of Terms
MAXIMUM LOAN AMOUNT
Varies with Bedroom Size
o Bedroom
1 Bedroom
2 Bedroom or larger
$50,000
$60,000
$75,000
Cannot exceed 60 % of purchase price
LOAN TERM
Twenty years
INTEREST RATE
"Contingent Interest" equal
to proportional share of appreciation in
unit
PAYMENTS
Upon sale or default
SECURITY
Deed of Trust. May be subordinated.
DOWNP A YMENT
Minimum of 5 % of purchase price.
RESTRICTIONS
Unit must be primary residence.
Cannot be rented or used primarily for
business purposes.
If unit is sold within three years, City
receives a 10 - 30% of the appreciation in
addition to a proportional share of the
appreciation in the unit.
This summary describes the major features of this program. For a
full description of program requirements, please see the TORCA
Homeownership Assistance Program Guidelines. available from the
Housing Division, Resource Management Department, City of Santa
Monica, by calling 458-8702.
COMPARISON OF HOUSING COSTS
Example: 2 Bedroom Unit costing $150,000
Without Shared With Shared
Apprecation Mortgage Appreciation Mortgage
Downpayment $30,000 7,500
Bank Loan 120,000 68,100
City Loan 0 74,400
Monthly payment* $880 $500
* Assumes a thirty year loan at 8 % interest
EXAMPLE OF SHARED APPRECATION MORTGAGE
Assumptions
Family Income
Family Size
Property
Price
$30,000
4 persons
2 bedrooms
$150,000
Calculation of Affordable Mortgage
Family's monthly income
Affordable housing cost
Affordable payment
MaxImum mortgage, based on an 8 % interest rate and
a 30 year amortization
$2,500
700
500
$68,100
Sources of Funds for Purchase
Downpayment
Conventional loan (1 st Trust Deed)
CIty Shared ApprecIation Loan (2nd Trust Deed)
TOT AL FUNDS
$7,500
68,100
74.400
$150,000
City Share of Appreciation
Resale Price
Minus: Eligible SellIng Costs
Minus: Approved Capital Improvements
Minus: Original Purchase Price
Equals: Total Appreciation
TORCA Loan Amount
TORCA Loan/Original Purchase Price
"CONTINGENT INTEREST" due to City
Principal of TORCA Loan due to City
TOTAL AMOUNT DUE TO CITY ON SALE
$200,000
15,000
o
150.000
$35,000
$74,400
49.6%
$17,360
$74.400
$91,760
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ATTACBKENT liD"
COMPARZSON OF ORIGINAL AND REVISED PROGRAMS
ORIGINAL PROGRAM REVISED PROGRAM
Eligibility Low Income Low and Mod. Income
Consigning tenant Participating Tenant
Interest Rate None or Market Rate Contingent Interest
(Shared
Appreciation)
Loan Limit 0 bed: $25,000 0 bed: $50,000
1 bed: 50,000 1 bed: 60,000
2 bed: 75,000 2 bed: 75,000
3 bed: 85,000
Term 10 years - market rate 20 years
30 years - limited
appreciation
Resale Price Limited to 3% No restrictions
appreciation under one
component
Speculation 3 years, up to 75% of 3 years, up to 30%
control profits to City of profits to city
(in addition to
contingent interest)
Administration City staff Lender processes,
city approves