SR-11-A (21)
\l D ~r O{) \
13:LB:mmm
CIty CouncIl Meetlng: 9/25/84
Santa Mon1ca, Callforn1a
TO:
Mayor and City Council
II-~
sep 2 5 l!U
OCT 2 3 1984
FROM:
CIty Staff
SUBJECT:
Implementat10n of Tenant Ownersh1p RIghts Charter
Amendment (TORCA)
INTRODUCTION
ThIS report presents background for staff recommendat1ons for
certaIn TORCA adminlstrat1ve processIng procedures; presents, for
Informat1on and comment only, a draft of a HousIng ASsIstance
Program Wh1Cr. 1S called for 1n the Charter Amendment; and
requests CounCIl author1zat1on of budget and posit1ons for the
remainder of tr.e fIscal year.
BACKGROUND
On June 26, 1984 the CIty Council authorized a trree month staff
planning perIod and budget of $56,900 for implementatIon of the
Tenant Ownersh1p RIghts Charter Amendment. Th1S planning process
was to Include determInatIon of adminIstrative respons1b1l1tles;
design of application processing forms and procedures; analYSIS
of data management needs; coord1natlon with other reVIew
agenCIes; development of publiC information mater1als; and deSIgn
of a hOUSIng assistance program. All of these ObjectIves have
been accomplIshed.
II-A
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SEP 2 5 1.
OCT 2 3 ,.,
The admInIstratIve design approach taken by staff ras been to
Incorporate, to the degree possIble, the requIrements of TORCA
into the City's eXIstIng organizatIonal structure and procedures
related to SubdIVISIon Map Act processlng and housIng actlvltles.
To that end, the Planning and ZonIng DIVIsion of the CommunIty
and EconomIC Development Department has been charged wltr
processIng responsibIlItIes In preparatIon for the PlannIng
CommissIon legislative reVIew WhICh IS spelled out In the
legIslation. The HousIng DIVISIon of the CommunIty and EconomIC
Development Department WIll be assIgned responsIbilIty for
managing the HousIng Assistance program. The City Manager's
Office and Director of Community and EconomIC Development will
retaIn theIr admInIstratIve oversIght roles.
Due to the hIgh degree of speCIfICIty contaIned In the Charter
amendment, forms and procedures (wItr very mInor exceptIons) are
based speclflcally on the prOVISIons of the legislatIon.
APPLICATION PROCESSING
On August 23, 1984, a package of draft materIals was prOVIded to
the Council, Interested members of the publIC and the press wrlcr
detailed the administrative procedures proposed for processIng
TORCA applIcatIons. After receIVIng comments from varIOUS
partIes, applIcation forms and public Information materials were
reVIsed and made available to the publIC on September 4, 1984.
To date, over 100 applicatIon forms have been distributed by
Plannlng staff. One completed applIcation has been filed.
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Staff 15 aware of only four outstandIng Items of concern to
certaIn reVIewers regardIng the admlo1stratlve processing
procedures aod are presentIng background for staff posItIon:
1) PrefIllng appointment
2) Bootleg unIts
3) NotIcing reqUIrements for PlannIng Commission
hearings
4) TechnIcal ASsIstance for low and moderate Income
Property Owners and Tenants
1) The need for and ,~egIslatlv~ approprIateness of the
reqUIrement for a prefI1Ing appOIntment has been raIsed by
some reVIewers.
In developing admInistratIve procedures for any CIty
proceSSIng functIon, It IS Incumbent upon staff to deVIse the
clearest process pOSSIble to avoid unnecessary confusIon for
anyone Involved In or affected by a partIcular proJect.
Staff does not belIeve that there IS less work Involved In
processing TORCA conversion appllcatlons because TORCA
reqUIrements as well as the SubdIVIsIon Map Act reqUIrements
(WIth the exception of local condltIons) are both involved.
Due to the reqUIrement for the City to notify tenants WIthin
5 days of the acceptance for filIng of a TORCA applicatIon,
staff belIeves It IS Important to Insure that the applicatIon
IS complete before It IS accepted by CIty staff. It IS
Important to note that unless withdrawn by the applIcant,
once an appl~cation IS accepted for fIlIng, ~t must be
processed through to tre Planning Comm~ssion level, even If
It IS found to be Incomplete.
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The request to accept applIcatIons by appo1ntment 1S intended
to allow suff1c1ent t1me to ver1fy basic 1nformat1on
regard1ng the sUbJect bU1lding as well as to enable qual1ty
reV1ew by staff w1th the applIcant present. In the few days
before an appl1cant's appolntment, staff can verify basic
characterist1cs about the bUIldIng and research bUIldIng and
zon1ng code statutes Wh1Ch may be appl1cable. In that way,
the CIty WIll not be placed in the posltlon of possibly
hav1ng to notIfy tenants of appllcation subm1ttal and then
reVIse that not1f1catlon within a few days due to Incomplete
or defect1ve informat1on.
There 15 a guarantee of contact by tre staff w1trln 5 days of
the request for aPPOIntment. The appl1catlon, if complete,
can then be accepted for fIl1ng the day 1t IS received, WhICh
IS In conformance WIth ArtIcle XX. ThlS reqUIrement for a
fIlIng appointment was developed 1n consultation WIth the
Clty Attorney. It should be noted that this reqUlrement 1S
actually less strIngent than the current tImIng allowed for
CIty staff receIpt and acceptance of subdIviSIon appllcat10ns
WhICh is 15 days, and much less strIngent than the State's
Permit StreamlinIng Act WhICh grants up to 30 days to
determIne whether a development applicatIon is complete.
F1nally, 1t should be p01nted out that the fIrst fIlIng
appolntment on September 14, 1984 worked out very well for
everyone Involved.
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2) POlICY for HandlIng Bootleg UnIts
The legislation IS Intended to allow any tenant in a
particIpatIng converSIon the opportunity to purchase theIr
unIt. The City IS oblIgated to Insure that un1ts offered for
sale meet at least basic health and safety standards and,
opt1mally, are In complIance WIth bUIldIng and zon1ng codes
in effect at the time of constructIon.
Once the CIty becomes aware of the existence of a bootleg
unIt, It cannot be Ignored In the conversion process. The
proposed POlICY, whicr IS conSIstent WIth present practice,
IS as follows:
A bootleg unit must be counted in tre calculations for tenant
converSIon approval. The unIt WIll be requIred to meet
bUIldIng and zonIng codes as of the date of orIg1nal buildIng
constructIon as well as meet basic healtr and safety
standards as prOVIded for in ArtIcle XX.
Because any deCISIon regardIng removal of rental bootleg
units from the hOUSIng stock IS vested w1th the Rent Control
Board, we feel that the approach outlIned here represents the
most reasonable Interpretation available to the CIty in
admInistering the provisions of ArtIcle XX.
In the event that a landlord feels that brInging a bootleg
unIt up to code standards presents an undue economIC
hardshIp, there appear to be several avenues of recourse.
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One, 1S to retain the unlt 1n original ownership. Another
optlon lS to apply to the Planning Comm1ssion for a variance.
A thIrd would be to sell the un1t to a homeowner assOclatlon
as part of the common area WhlCh could then cont1nue to be a
rental unit.
There would be no alternatlve to tr.e requirement that a unIt
meet baS1C health and safety standards. In addltion, It
should be noted that the Clty Attorney has opined that under
no clrcumstances can a bootleg un1t In an R-1 Zone be
converted.
3) 300' RadIUS NotIce Req~lrem~nt for Plann~~g Commlsslon
HearIng
There are fIve baslc standards of deCIsion-making prOVIded
for in the leglslation -- the Charter amendment itself, the
zonIng and bUIldIng code at the t1me of bUIldlng
constructlon; health and safety standards; the general plan
and zonIng code when not specifIcally overrIdden by TORCA;
and State law.
Current State law reqUIres trat notice be provided to
property owners w1thIn a 300' radIUS of a proposed
subdIVISIon whenever that proposed proJect WIll constitute a
"substantIal or slgniflcant deprIvation" of theIr property
rIghts. In order to preserve the rIghts of adjacent property
owners and tenants, and to be cons1stent WIth current CIty
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practIcest staff recommends that the 300' radIUS notice for
TORCA hearings be requIred.
4) Low and Moderate Income Tenant and Landlord CounsellIng
CIty staff routInely provIde aSsIstance to landlords and
tenants regarding the specIfIcs of Charter amendment
provisIons as well as wIth regard to procedural Issues.
Howevert staff IS not in a pOSItion to counsel Individual
landlords or tenants about the advIsabIlity of theIr
IndIVIdual partIcIpatIon In a partIcular converSIon proJect.
To this endt staff has CIrculated a Request for Proposals
soliCItIng a non-profIt organIzation to undertake this role
for low and moderate income tenants and landlords. Responses
are due on September 27t 1984 and a recommendation as to a
serVIce provider WIll be made to CounCIl after that tIme.
AFFORDABLE LOAN PROGRAM
1) IntroductIon
The Tenant OwnershIp RIghts Charter Amendment requires that
the CIty create an ownershIp aSSIstance program for low and
moderate income households to be funded by a tax leVIed on
units that are converted to condomInium oWnerShIp. In a June
26 staff report to Councilt staff IndIcated that they would
research varIOUS subsidy options and present ItS
recommendatIons to CounCIl. The following descrIbes the
general format of the proposed SUbSIdy program and outlInes
key issues In ItS formulatIon.
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2) Program Outline
Working wIth housIng fInance consultants, staff has drafted a
proposed assistance program. The program would prOVIde
deferred loans to help low and moderate income households
purchase their unIts as condomIniums or cooperatIves. The
amount a houserold can borrow from the C1ty would be geared
to Income such that the amount of subsidy decreases as the
household's Income Increases. Predeveloprnent loans would
also be avaIlable to promote the development of limited
eqUIty cooperatIves. A detaIled descrIptIon of the proposed
program deSIgn IS attached as Exhibit A.
The general outlIne of the draft program and key provisIons
are outlIned below. GIven the time requlred to process a
converSIon applIcatIon and the tImIng of loan applIcatIons
acceptance WIthIn this tlmeframe, staff does not antICIpate
receIvIng loan applIcations or makIng any loans for twenty
four to thIrty SIX months.
In the InterIm, Staff requests an addItIonal two months to
reVIew the proposed program WIth hOUSIng prOfeSSIonals
experIenced In low and moderate income ownershIp programs and
to further analyze the fundIng requirements of the program
before returnIng to CounCIl with a final recommendatIon. In
the meantIme, Council comments and suggestions are inVIted.
3) Key DeCIsions
a) The Housing DiVISIon WIll have prlmary responsiblllty
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for managIng the Affordable Loan Program IncludIng
processIng applIcat1ons, provIding publIC InformatIon,
answerIng questions about the program and applIcation
process and coordInation with other City departments.
b) Applicants will be requIred to secure the maximum
conventional fInanCing that they can afford before the
City Will commIt to aSSIst In fundIng the purchase of
theIr unit. ThIS prOVIdes the most effICIent use of
avaIlable funds and ensures that prospectIve applIcants
conSIder theIr abIlity to meet the responSIbIlItIes and
oblIgatIons of home ownershIp before requestIng
aSSistance from the CIty. The CIty WIll work WIth
applIcants and lenders to resolve questIons WhIch could
effect the applIcants' borrOWIng capac1ty. Loan
approval would be timed to coinCIde WIt~ the
avaIlabilIty of the unit for purchase.
c) ASSIstance WIll be prOVIded in the form of deferred
loans. Deferred loans meet the legIslatIve requirement
that the City "assist Low and Moderate Income Households
in Tenant PartIcipatIng Conversions to purchase or
improve theIr units subject to an affordable repayment
plan includIng interest". Interest will be charged on
the loans but WIll be accrued and deferred. Repayment
of prlncipal and lnterest WIll not be reqUIred untIl the
unIt IS sold or the borrower's 1ncome rIses above 100%
of the County median.
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d) In add1tion to the deferred loans for the purchase of
units, predevelopment loans wIll be avaIlable to
self-sponsored lImIted equIty cooperatIves or theIr
non-prof1t sponsors. These loans can be used to secure
a long term opt1on on the property, prepare a finanCIng
plan and loan applIcatIon, and hIre legal counsel to
prepare the necessary documents. A predevelopment loan
component helps, In part, to meet the legIslative
requirement that limited eqUIty cooperatives receIve
prIorIty fundIng as well as a substantIal portIon of the
available funds In the f1rst two years of the program.
e) Although not requIred by the legislation, staff
recommends that resale loan conditIons be placed on all
units assisted through the houslng program. Two
examples of common resale controls follow: 1) MInImum
holdIng perIod: For a perlod of three years from the
date of purchase the borrower IS constrained from
sellIng the unit except to another elIgIble borrower
(low/moderate 1ncome houserold); and 2) Shared
AppreCIatIon Mortgage (SAM): A lending Instrument in
WhICh the lender shares, In proportion to their
Investment, in any appreCIation on the unit when the
borrower sells. Other control optlons will be explored
over the next two months to meet the legIslatlve intent
of contInued availabIlity of housing for low and
moderate income CItIzens.
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4) Proposed StaffIng
As dIscussed earlIer In the report, staff recommends that
implementation of the hOUSIng aSSIstance component of TORCA,
Including hirIng of staff, be postponed untIl sales activity
commences. Staff needs and other program costs WIll be based
on estimates of workload and past experience of the
Department of CommunIty and Economic Development w1th
processIng other types of funding applications. When the
program becomes operatIonal It is antIcipated that one Sr.
AdmInIstratIve Analyst POSItIon WIll be requested on a
"lImIted apPOIntment" basis. ExperIence in hOUSIng fInance,
housing assistance programs and loan underwriting WIll be
sought. A one half tIme Staff Assistant will also be
requIred.
In the interIm, additional consultant services will be
requIred to further refine the deSign of the loan program,
develop operatIng procedures, and prepare applIcatIon forms
and InstructIons.
5) Other Issues: HOUSIng Program FundIng
TOReA states that the subsidy program and Its admInIstration
is to be funded through the converSIon tax revenue. At this
time It is difficult to estImate either the annual tax
revenue or the SUbsidy demand. CollectIon of the converSIon
tax and requests for loans WIll for the most part occur
simultaneously, but the amount of revenue and the amount of
loan demand may not be matched for any partICUlar period. If
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a bUIlding wIth primarIly mIddle or upper Income tenants
converts, the CIty w1ll receIve revenue WIth no demand for
loans. If a bU1ld1ng with pr1mar1ly low and moderate Income
tenants converts, the C1ty will receIve slightly less revenue
wIth substantIal demand for loan funds. If the two bUIldIngs
convert SImultaneously, the revenue and SUbsidy demand may be
matched. Over t1me, revenue and loan expend1tures must
balance but because the actual tImIng of the flOw of funds 1S
uncertal~, the program may experience temporary shortfalls
and surpluses. Staff recommends that for a period of SIX
months the program be funded by current converS10n revenue
w1th the possibility of temporary shortfalls occurr1ng rather
than request1ng In1t1al capItalIzation from CIty reserves.
At the end of this per10d, staff WIll evaluate whether a
"line of credit" IS needed to smooth cashflow and program
operatIon and, if so, the appropriate amount.
BUDGET AND STAFFING
1) InItIal PlannIng PerIod
To date, the CounCIl has authorized a $56,900 loan to a newly
established TORCA fund. This was to cover 3 montrs of staff
start-up t1me. It appears that approximately $37,400 of thIS
amount WIll be spent or oblIgated at the end of the three
montr plannIng period and all of the obJect1ves as outl1ned
on page one of thIS report accomplIshed. This loan WIll
eventually be offset by TORCA applIcation processIng fees and
proceeds from the Tenant-PartiCIpatIng Convers1on Tax for
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those portIon of costs Wh1Ch are related to housing program
adm1nistrat1on.
2) Future Needs
It 1S now necessary to provIde funding for the rema1ning nIne
months of th1S fIscal year. Due to the uncertainty of
applIcatIon workload, an Incremental ImplementatIon approach
1S recommended. In thIS way, 1ncreases and reduct10ns can be
made as we gaIn more experIence with program volume. For
initIal plannIng purposes, It IS assumed that staff will
receIve twenty app11cations 1n fIscal year 1984-85. Based on
the CIty'S prior experIence WIth condominIum converSIons, an
average of thIrteen units per application are prOJected.
It is recommended that the follOWIng addlt10ns and amendments
be made to the InItIal allocatIon for TORCA administrative
costs:
a) UtIlIze remaining estImated $19,500 from Inlt1al $56,900
allocatIon to offset ongOIng administratIve, clerical and
supply costs over the next few months.
b) AuthorIze an addItional loan of $43,088 to cover
remaln1ng prog~am costs untIl the end of the fiscal year.
It IS reCommended that the loan be made from the Cap1tal
Improvements Fund; at an Interest rate based on return on
CIty 1nvestments and to be payable when program revenues
are available.
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c) AuthorIze a "limIted appOIntment" position of Associate
Planner to handle applicatIon proceSSIng needs in the
PlannIng and ZonIng DIVISIon. ThIS category of
apPOIntment requires reassessment of the need for the
POSItIon at six month Intervals. It also allows payment
of benefIts SO that an approprIately sk1lled lndlvldual
can be attracted to a pOSSIbly short term positIon.
d) It is antiCIpated that thIS allocatIon wIll be suffIcient
for the remaInder of the fiscal year. However, 1f
further adjustments are necessary, they can be addressed
durIng the mId-year reVIew.
e) A budget summary of future antICIpated expenses IS
prOVIded below:
Through June 30
Permanent Employees (100)
19,935
OvertIme (149)
1 ,000
Temp. Employees (150)
7,500
Healtr & Dental
RetIrement
2,753
4,200
SupplIes & Expenses (231)
Legal AdvertiSIng (254)
3,000
3,700
PrInted Forms (411)
3,500
15,000
ProfeSSIonal SerVIces (506)
(HOUSIng Program DeSIgn & ApplicatIon
Processing & AdmInIstration Needs)
FurnIture (809)
2,000
$62,588
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ThIS budget request IS consIdered mInImal and covers only
PlannIng DIvIsion expe~ses and some admInIstrative costs.
A budget for the housing aSSIstance program w111 be
presented In the 1985-86 recommended budget.
f) There are some Important caveats to be remembered In
attemptIng to analyze the proJected costs and revenues of
thIS program over time:
1) Presently, program revenues are limIted to a $500 fee
per applIcatIon. An Increase In the fee to $500 per
unIt IS proposed on the November ballot. It IS still
not clear whether the program will be self-sustainIng
in the long run.
2) Revenues from the particIpating conversion tax are not
expected to begIn flOWIng for approXImately two year.
This should not be a problem as staff does not
recommend ImplementatIon of the hOUSIng program unt11
at least the 1985-86 budget year.
3) The fIrst year costs for the program should not be
considered representatIve of future costs. Staff has
made and will contInue to make every effort to
integrate TORCA workload WIth eX1stIng staff
responsIbIlitIes but It IS clear that there IS an
additional workload factor Involved. However, the
approach presented here WIll allow flexibIlIty In
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devotIng resources to the program based on applIcatIon
volume.
RECOMMENDATIONS
It IS respectfully recommended that the Council:
1) RevIew and concur, as necessary, wlth staff positlons on
admlnlstratlve proceSSIng matters;
2) Concur wltr the budget approach outlined in thIS report and
authorize a $43,088 loan from the Capital Improvement Fund to
the TORCA Fund to be expended for application proceSSIng,
adminIstrative and supplles costs; and
3) AuthorIze a "Llmlted ApPOIntment" Associate Planner POSItIon
In the Planning and ZonIng DIvision to handle appllcatIon
processing.
Prepared by: Lynne C. Barrette
Deputy City Manager
Rusty Fllnton
ASSIstant to the D1rector of C/ED
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EXHIBI~ 8
DRAFT
-
TENANT OWNERSHIP RIGHTS CHARTER AMENDMENT
AFFORDABLE LOAN PROGRAM DESIGN
Introduction
The Tenant Ownership RIghts Charter Amendment (TORCA)
the City of Santa Monica provides for collection of
Participating ConversIon Tax on bUIldings
converSIon to condomIniu~ or cooperatIve ownership.
of the tax may be used:
adopted in
a Tenant-
undergoing
The proceeds
- to assist Low and Moderate IncoMe Households to purchase or
Improve theIr units with affordable repayment plans;
- to provIde priority
cooperatives, including the
of the proceeds for the
provided to such proJects;
assistance for liMited equIty
reqUIrement that a substantial amount
first two years of the program be
- to assist Middle Income Households, but only If the needs of
Low and Moderate Income Households have been met and only In an
anount not to exceed 1/6 of the program proceeds;
- to pay the costs of adminIsterIng the Subsidy Program.
Program Policies and Priorities
The TORCA Affordable Loan Program IS inte~ded to offer the
opportunity of home ownership to low and moderate income
households participating in Tenant Participating ConverSIons.
The program does not create new affordable housinQ; it simply
changes the tenure of reSIdents of existIng units. _ I~ addition~
while the program will make ownership possible for many
households who could not afford to own without it, the program is
not designed or Intended to promote ownershIp fo~ all low and
moderate income households. Although there is unanimous
agreement among housing profeSSIonals on the need to provlde
affordable housing to low and moderate income households the~e is
less agreement concerning the benefIts of ownership for these
income groups. Many ownership programs have faIled because they
place too great an economic burden on the financial resources of
the people they were intended to serve. ThIS program is designed
to avoid this problem by providing loans with affordable
repayment schedules.
Sections
general
2009 and
purpose of
2010 of the TORCA legislation
the subsidy program. The
outline
following
the
1
section provldes admlnistrative gUldelines to implement the
Intent of the legIslation.
General Policies:
- The subsidles should be used for development
equity cooperatives and to provide affordable
opportunitIes for low/moderate lncome households. The
should not be used as a general stimulus to converSIon
of lImited
ownership
SubsIdIes
activity.
- All applicants will be required to seek
affordable conventional financing so as to obtain the
benefit from the available subsidy funds.
maximum
maXimum
Eligibility: To be eligible for program benefits applicants
must be:
- Santa Monica residents with Incomes below 80% of the
medIan for Los Angeles County; and
- Low and moderate income households forming limited equity
cooperatIves, or
Low/moderate income households in other Tenant
ParticipatIng Conversions that are near cOMpletion of the
converSlon process.
PrIorities:
- Households formIng lImited eqUIty cooperatIves.
- ApplicatIons which request smaller subsidies for lower priced
unlts (I.e. unlts that are closest In affordabillty to the
applicant) WIll receIve priority. Loan requests will be ranked
by percent of purchase prIce requested from the loan program With
the lowest percentage requests receIVIng priority.
When all other crIteria are equal requests will be funded on
a first come (completed applicatIon) first served baSIS.
- As more funds are available 1n the subsldy fund
program experience allows)priorlties may be expanded to
broader income guidelines and greater per unIt subsidies.
and as
include
The Loan Program
All applicants will be required to seek private finanCIng before
applying for a subsidy. The reqUIrements of conventional
fInancing are rigorous and many low and moderate incone borrowers
~ay be unable to qualify for the full amount needed to purchase
theIr unIt. The TORCA subsidy program is designed to fill thIS
gap. The subsidy program will initially have three components:
loans for low/moderate income households partIcipatIng in
cndominium conversions; loans for lImited equity cooperatives or
prospective members; and predevelopment revolVing loans for
limited eqUIty cooperatlves.
2
~ Deferred Payment Loans for Low/Mod Income Households in
Tenant-PartIcipating Conversions
Deferred loans are designed to aSSIst the purchaser who has
borrowed the maximum that they can afford and still does not have
enough money to purchase the unIt. The purchaser will be able to
borrow the additIonal funds needed under a TOR~ loan prograh'
that requi res ~o_eur!,"en t _ payment of prine i pal -or interest.
Interest will be chargea at the private -bank Tate but wIll be
accrued and deferred until the borrower can afford to make
payments on the loan (income rises above 100% of median) or the
unIt is sold.
Loan Terms and Conditions
Allowable Uses: Loans will be aval1able to low and moderate
income households for acquisItIon and rehabIlitation to winimum
housIng quality standards of any unIt In a Tenant-PartIcipating
ConversIon.
Interest: Deferred loans will be made at a rate of interest equal
to the interest rate of fixed mortgages offered by conventIonal
lenders at the ti~e of recordation of the conventIonal loan,
though the interest WIll be accrued and deferred.
Security: Loans will be made as recorded mortgages or notes,
secured by the real property involved. They may be subordInated
to eXIstIng or new debt at the dIscretIon of the City.
Origination: The City will qualIfy borrowers for deferred loans,
reVIew applIcations and make the loans.
Servicing: SerVicing WIll not be required until the loans are to
be repaId. When repayment IS req~lred the borrower's first
mortgage lenaer will be asked to service the loans for a fee to
be pald by the City.
Repay~ent: No payments toward prinCIpal or interest WIll
reqUired for the deferred loans untIl the property 15 sold or
borrowers 1ncome goes annvp 100% of median, at WhICh tl~e a
for payment of principal and interest will be
developed WhICh is afforOiable to the borrower.
be
the
olan
Transfer rights: Deferred payment loans may only be assu~ed with
City approval by eliglble borrowers (low/moderate lucome housenolos):
~ Deferred Loans for Limited Equity Cooperatives
The loan type and purposes are the same as for the
Program descrIbed above. Loans to Limited Equity
WIll be made as blanket (entIre cooperative)
(indIVIdual) loans.
loan
Cooperatives
or share
3
Loan Terms and Conditions
Allowable Uses:
mInimum housing
cooperatives.
Acquisition and rehabilItatIon (up to
quality standards) of unIts in limited
program
equIty
All other terms and conditions are the same as Low and Moderate
Income Installment and Deferred Loan program requirements.
~ Predevelopment Revolving Loans for Limited Equity Cooperatives
The planning and development of a limited equity cooperative can
take from six months to two years. During that time the co-op
sponsor must provide or purchase professional services to prepare
legal documents, identify finanCIng options and assist with
meeting local and state land use regulatIons. The forming co-op
must also optIon the property. ProJects wIth low and moderate
Income households forming limIted equIty cooperatives rarely have
the capital necessary to finance these predevelopment costs.
Loan Terms and ConditIons
EligIble Borrowers: Non-profIt cooperative development sponsors
and self sponsored cooperatives.
Allowable Uses: To purchase long term optIons (18 - 24 months) on
proposed co-op converSIon properties; to pay fees and expenses of
TPC, ORE, and co-op formatIon.
A~ount: The City will provide up to $50,000 on a 2 to 1 matchIng
basis funds raised from the cooperative membershIp (Qe~bership
would have to raise $25,000 to receIve $50,000 from the City). At
least 50% of the members of the co-op must contribute equitable
amounts to the co-op match.
Terms: Payable without interest upon approval of the TPC and/or
formation of the co-op. If the cooperatIve conversion fails to
proceed all non-expended funds up to the maXImum prOVIded by the
City shall be repaId to the City. If insufflcient funds remain
the note WIll be forgiven.
Security: Note slgned by all partiCIpating co-op members.
Loan Limits
The loan program was created to aSSIst low and moderate income
tenants to purchase affordable housing not to stimulate
conversion activity or to otherWIse influence the housing market.
Therefore the subsidy design must include limits on the size of
loans and the cost of the units purchased. The follOWIng loan
maXImums are based on a analysis of the expected gap between the
market prIce of the unIts and the borrowing capacity of moderate
income households. The allowable loan a~ount wlll be determined
by a t\vO <>_~p p:r:ocess_.
4
Step 1. Price test: The price of a unit for WhICh a TORCA loan
is requested Must be comparable wIth other similar unIts in the
saMe building.
Step 2. The maximum size of deferred loan will be 15 -45% of the
purchase price of a unit based on income up to a maximum of
$2~,000 per unit for the Low Mod Loan Program and $25,000 for the
Limited Equity Cooperative Loan Program and the purchaser must
make a minimun downpaYMent based on the following schedule:
Income
less than 50% of median
50-60% of median
60-70% of median
70-80% of median
Percent
MaxImum
TORCA loans
45%
35%
25%
15%
of Purchase
Minlmum
Downpayment
5%
6%
8%
10%
Price
Minimum
Conventional
50%
59%
67%
75%
Loan
Loan Restrictions
To meet the purpose of prOVIdIng affordable ownership
opportunltles to low and woderate inco~e people the City should
place restrIctions on the loans whIch lImIt the timing and
extent to which borrowers may profit from the deferred loan
program. Two forms of loan restrIctions whIch would be
appropriate for thIs program are resale controls and shared
appreciation mortgages (SANs).
Resale controls place restrictIons on the sale of the property.
Borrowers participatIng in the TORCA deferred loan program should
be restricted from selllng their unIts to anyone but a qualifIed
buyer (low/moderate income) for a period of three years from the
date of purchase of the unit. As unIts are expected to sell to
tenants at a slight discount this will prevent tenants fron
speculating in the market by USIng the deferred loan program to
buy their unit only to resell at a higher price. In addItion
borrowers should be required to occupy the unIt as their primary
reSIdence.
In a shared appreciation mortgage the lender (in this case the
City) shares, in proportion to theIr Investment, in any
apprecIation on the unIt when the borrower deCIdes to sell. For
example If the deferred loan was 20% of the purchase price and
the borrower had not made any payments on the deferred loan, the
City would receive 20% of any appreciation that had occurred.
WhIle SAMs do not maintaln housing prIces affordable to low and
moderate income households they do provide other benefits. SAMs
assure repayment of the deferred loan regardless of the borrowers
debt payment capacity. Because SAMs do not restrict the prlce
WhICh a borrower can sell theIr unIt for they do not discourage
owners from maintaining or improving their units the way other
5
resale controls will.
the deferred loan plus
City csn use to assist
purchase their units.
Finally, at the time of sale repayment of
apprecIation will provide funds which the
other low and moderate Income tenants to
Application Procedure and Timeline
Prospective borrowers may pick up application materials at any
time during the processing of their TPC application. Staff will
be available by appOintment to answer questions regarding the
subsidy program. Actual application submittal should occur at the
same time the application IS submItted to conventional lender.
The CIty will not make the actual loan commltment until
conventional lenders loan COi:lmltment has been received.
There will be a two step application review process. Applications
WIll be reviewed upon receipt for program mInimum reqUIrements
and applicants will be notified withIn 5 days. Those that meet
program minimum reqUIrements will be ranked based on competitIve
criteria for final lendIng decisions. The reviews will be based
on TORCA assistance requirements and wIll rely on the
conventIonal lenders assessment of debt carrying capaCIty and
property value. Loan decisions will be made on a ~onthly baSIS.
It is assumed that a set amount of funds will be allocated for
each funding perIod. That allocation WIll be re-evaluated if
there IS a group of loans that are not funded over a nunber of
fundIng cycles.
Administration
The loan program will be adminIstered by the HOUSIng DiVISIon
within the Department of Community and Economic Development.
Administrative functions include: preparation of subsidy progra~
informatIon and applicatIon materials, distribution of these
materIals, receipt and reView of applIcations, management of
subsidy funds, annual reporting to the City Council and program
design revision if necessary. HOUSIng DiVision staff WIll
arrange for a private lender to serVIce loans after they have
been made.
As required by Section 2011 of TORCA a proposal for assistIng
middle Income tenants to purchase their unIts will be developed
and presented to Council for review and approval by January 1985.
Program Enhancement
There are a number of other steps that the City can take to
increase the overall benefIt provided with a set a~ount of
available subSidy funds. By increasing the amount that can be
borrowed privately the CIty can reduce the amount of subsidy
required. Some of the actions WhICh will help to increase the
amount that purchasers can borrow are:
6
Work with lenders to inc
Santa MonIca housing market and
When necessary use priva
prIvate loans at higher loan to
Work with lenders to explore
secondary mortgage market.
If sufficIent loan volume i
mortagage revenue bond.
se their understandIng of the
oaden underwrIting criterIa
mortgage insurance to allow
lue ratIOS.
heir participatIon in natIonal
avallable sponsor a tax-exenpt
7
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Mayor Ed:
move on?
Any other dIScuSSIon on thIS Item before we
CIty Attorney: I was Just gOIng to suggest that I meant to
say multI-family dIstrIcts, cause we prevIously have gIven an
opInIon that bootlegs In the R-1 zone can not be lawfully
converted.
Mayor Ed:
please.
Any other dISCUSSIon on thIS item? Next Item
END OF ITEM 11-A
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TRANSCRIPT OF PORTION OF MINUTES OF CITY COUNCIL MEETING HELD
OCTOBER 23, 1984
ITEM 11-A: STATUS REPORT ON IMPLEMENTATION OF ARTICLE XX, TENANT
OWNERSHIP RIGHTS CHARTER AMENDMENT (TORCA), AND RECOMMENDATION TO
APPROVE STAFF POSITION AND PROGRAM FUNDS THROUGH JUNE 1985.
(Staff report was presented and 1S omItted from transcript)
DISCUSSIon was held.
(PublIC HearIng was held and is omItted from transcrIpt)
Cm Zane:
I thInk the, I concur with the staff's
posItIon about the fIlIng and the conference tIme, I thInk that
is a reasonable pos I t Ion and I don 1 t qu 1 te under stand why fIve
days IS thought to be such a sIgnIfIcant impos1tIon of the
process. My concern IS that the Council gIve dIrectIon to staff
about thIS loan prIming Issue and I guess I'd lIke to move that
the Counel1 dIrect the staff to come back WI th proposals that
would prOVIde a commlttment of CIty funds on a loan basIs to this
loan program for the purpose of allOWIng the loan program to
begIn as early as the earlIest conversIons, In fact mIght begin.
That IS a motion.
MPT Press:
Second.
em Reed:
Well, Mr. Jallll Just stated a little earlIer
that the staff belIeved that the affordable loan program
parameters were not yet in fInal form, and that they contInue to
need work and we, I have raised a couple of questIons about them,
I am not prepared to vote any funds at all to go lnto thIS loan
- 1 -
program untIl I see all of the requIrements and regulatIons In
theIr fInal form.
City Manager: SInce we 1ntend to come back before you on the
program refInements, we'll slmply receive d1rect1on to also
recommend some fundIng sources.
Mayor Edward s: Maybe gI v e us an est lrnate of what you are
talking about too.
em EpsteIn: I would lIke to amend thIS, I thInk the
approprIate tIme lIne for consIderIng any fundIng would be in
connection W1 th the next fIscal year budget. That In fact, we
are almost, we are In a per10d of transItIon, the budget process
WIll begIn In January, even If applIcatIons are approved, the
tenants WIll have two years In WhIch to purchase, I think
allocat1ng some funds In next years budget, assuming we are not
faced wi th the J arv 1 s problem, IS the approprl ate thing. So I
would propose that as the amendment In terms of the tImIng. I
thInk to rush to provIde addItIonal funds at thlS pOInt is
unnecessary and at thIS pOInt IS premature.
Mayor Ed: I don't thInk Mr. Zane meant to Just go and
drop the money now, he IS askIng for a report.
em Epste1n: The report 1S fine, but I thIok It should be
at a practIcal matter In the budget.
- 2 -
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Mayor Ed:
That IS probably gOlng to be the practIcal way
It is going to happen anyway, but I thlnk a report gIVIng the
estImate of the amount, how to go about settIng up the loan fund,
and all that, perhaps the wordIng was IS that he wants them, you
can explaIn for yourself.
em Zane:
That sounds correct, I am not saYIng, well
John give us the money, I am saYIng, If we want to prIme the
pump, what are your recommendatIons about that, how would we
structure It? where would we get the funds? how much would It be?
when would you suggest we do it? I want the issue delIberated on
by staff WIth, and the CounCIl IndIcate ItS Interest In It,
regardless If the Council IS not commItting Itself to it untIl It
sees the parameters.
Mayor Ed:
......Cto Epsteln) IS that satIsfactory to
you,.... so you'll WIthdraw your amendment? Okay. All in favor
of Mr. Zane's motion say aye.
~A~roved by VOIce vote 6-1 (Reed opposed)
em EpsteIn: I would move Items 2 and 3 WIth the
understandIng that at least for now the lImIted appOIntment
should be an "as needed" pOSItIon rather than a permanent staff
posltlon and that the funds WIll only be expended based upon
total number of applIcatIons as Justifled.
Cm Zane:
Second.
~
- 3 -
~he motion was approved by unan'mou. roll call vote 7-0
CO~ber EpsteIn dIscussed bootleg unIts but due to
/~~
the l}JV'"
dId not turn on hIS mIcrophonef the tape IS inaudIble.
A
thIS portIon of tape lS attached.
CIty Attorney:
(~n response to Epstein's comments) I Just am
gOIng to pOlnt out, an addItIonal vehicle to explore dealIng with
the zonIng problems of bootleg unIts because the Health and
Safety ones are more technical and can be overcome. In additIon
to the varIance processf I thInk the Planning staff could look
atf In our new zoning ordInance, a recognltlon of the rent
controlled status of these U~lts and essentially legalIze them 1n
the new zonIng ord1nance and therefore you would be able to avo1d
the problems that Mr. Baker was concerned about, about complYIng
wIth zonIng for those existIng unIts that meet Health and Safety
standards.
Cm Reed:
I'm not sure you would want to do it that way,
unless you glve a lot of thought to the fact that bootleg un~ts
eXIst and are rented In the R-l zone and the Land Use Element you
have got language In there that says, no way, shape or form are
you permIttIng second units in the R-l zone and it seems to me If
we adopted your suggest10n about putting some blanket language In
the zonIng ordInances, we then run up agalnst the problem of
treatIng bootleg un1ts 1n one zone differently from In another
zone and there are a faIr number of them In the SIngle famIly
zone and I don't thInk we should give them blanket approval.
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i/70
11-A: tENANT CW~n::RSHI? RIGHTS CHARTER AMENDMENT: Presented was a
staff ~eport presenting background for recommepdatlons for
certaln TORCA admInlstrative processing procedures and requestlng
Cou~cll approval of budget proposals apd personnel posltiops for
the remaInder of the flscal year. DIScusslon was held. James
Baker and Paul DeSantis spoke In regard to areas of oppositIon.
Coupcilmember Zane moved to dlrect staff to report wlth proposals
that would provide a commltment of Clty fupds OP a loan basis to
a loan prImlPg program for the purpose of alloWIng the loan
program to begin as early as the earlIest converSIons. Second by
Mayor Pro Tempore Press. DISCUssiol" was held. The motIon was
approved by the followlng vote:
Council Vote:
AffIrmative:
Councilmembers
Jennings, Press,
Edwards
Conn,
Zane
Epstein,
and Mayor
NegatIve:
Councilmember Reed
CouPcIlmember EpsteIn moved to appro,e sectIoPs two and three of
the staff recommendatlo~~ -as amended, thereby cOl"curring with the
budget approach outlined l~ the staff report; authorlZlng a
$ 43,088 loan from the Capi tal Improvement Fund to the Tenant
Ow~ershop RIghts Charter Amendment Furd to be expended for
appll ca t 10n process i r!g, adl'lin i strati ve afld suppl ies costs; a'1d
authorizlng an as-l""eeded lILlml ted Appolntment" Asociate Planfler
;Josition Ifl the PlanPl~g al"ld ZarIng Dlvislon to handle
8.;>pllcatlon p"'ocess:!..ng, rather than a perm3"1ent staf: pesl tion,
----.!'ul'd s__ o~;Ll __~0 De e~p~rld ed Qaseci ~ J.l.PO~ the to tal _ r:'lmbe'" ') f
applIcations as justIfied. Second by Councllmember Zane. The
motlon was approved by the followi~g vote:
Council Vote: Unanimously approved 7-0
Discussion was held.
CITY COU~CIL MINUTES
OCTOBER 26, ~
1'1 tY