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HomeMy WebLinkAbout08 AFFORDABLE HOUSING DEFAULT REVOLVING FUND• _ ~~ ; ~ AGENDA REPORT Ree eweld. m 8 ,tr Finance Director MEETING DATE: FEBRUARY 1, 2011 TO: HONORABLE MAYOR AND COUNCIL MEMBERS VIA: DAVID C. BIGGS, CITY MANAGER FROM: CHRISTINE A. SHINGLETON, ASSISTANT CITY MANAGER SUBJECT: AFFORDABLE HOUSING DEFAULT REVOLVING FUND FOR CITY AND AGENCY AFFORDABLE HOUSING UNITS AT RISK OF FORECLOSURE SUMMARY City Council and Tustin Community Redevelopment Agency ("Agency") approval is requested to establish an Affordable Housing Default Revolving Fund to be funded by Agency Low and Moderate Income housing funds in order to cure homeowner defaults under the City and Agency's Affordable Housing Program. RECOMMENDATION It is recommended that: The City Council and Tustin Community Redevelopment Agency delegate to the Executive Director and City Manager, as applicable, and Assistant City Manager, subject to review and approval of the City Attorney, the responsibility for determining whether to exercise the City and/or Agency's Right of Redemption and Option to purchase each affordable housing unit for which the City or Agency determines a homeowner has defaulted under either City or Agency Affordable Housing Agreements, where it is necessary for the City and/or Agency to initiate actions required to cure a homeowner's default under the Affordable Housing Agreements. The Executive Director and City Manager, as applicable, or Assistant City Manager are also authorized to execute any required documents, as may be necessary. 2. The City Council and Agency approve a Cooperative Agreement between the parties authorizing the creation of an Affordable Housing Default Revolving Fund to permit the exercise of redemption and reimbursement rights and/or option to purchase rights under Affordable Housing Agreements for Tustin Affordable Housing Units at risk of foreclosure. Agenda Report February 1, 2011 Page 2 3. The Tustin Community Redevelopment Agency appropriate as part of the FY 2010-11 Budget the following un-appropriated funds in the Low and Moderate Income Housing Fund: Five Hundred Thousand Dollars ($500,000) from the South Central Low and Moderate Income Housing Fund (553); Two Hundred Fifty Thousand Dollars ($250,000) from the Town Center Low and Moderate Income Housing Fund (559), and; Five Hundred Thousand Dollars ($500,000) from the MCAS Tustin Low and Moderate Income Housing Fund (556). Appropriated funds shall be transferred into a newly created Revolving Default Loan Fund (100-00-00-2700). FISCAL IMPACT The Agency is required to utilize funds deposited in its Low and Moderate Income Housing Fund to increase, maintain and preserve the community's supply of affordable housing. Adequate balances exist in the Low and Moderate Income Fund. The Agency will provide a quarterly report to the Council identifying either redemption and reimbursement and/or option to purchase expenses associated with each affordable housing unit for which the City or Agency determines a default under its Affordable Housing Agreements, where the Agency is required to initiate actions and incur financial expenses to cure a homeowner's default. The Affordable Housing Default Revolving Fund will be initially funded in a total amount of One Million Two Hundred Fifty Thousand Dollars ($1,250,000) from un- appropriated balances in the Town Center, South Central and MCAS Tustin Low and Moderate Income Funds. BACKGROUND California Community Redevelopment Law ("CRL") Section 33413(a) requires that whenever a dwelling unit housing a low to moderate income household is subject to a written agreement or where financial assistance has been provided by the Agency is destroyed or removed from the low and moderate income housing market as part of a redevelopment project, the Agency shall be required to replace the dwelling unit with a replacement dwelling unit within four years which has an equal or greater number of bedrooms as those removed at affordable housing costs within the jurisdiction of the Agency. The City of Tustin has over three hundred affordable housing units subject to a written agreement and would be required to replace any units lost as a result of a foreclosure action. Given the expected cost of acquiring new housing, the costs associated with any exercise of the City's option rights will be far less than the cost of acquiring and replacing a unit lost to the affordable housing supply. The Agency is experiencing an increase in the number of Notices of Default it is receiving for City of Tustin affordable housing units. While many homeowners within the Affordable Housing Program are able to work out a mortgage modification with their banks, the Agency has been recently required to step in and pursue its options to cure defaults under Agenda Report February 1, 2011 Page 3 our Affordable Housing Program. For example, at the City Council and Agency meeting on December 7, 2010, City Council and Agency authorized staff to exercise the City's right of redemption and/or option to purchase a City of Tustin affordable housing unit at risk of foreclosure. This is one of four affordable housing units the Agency has received Notices of Default for in the last year. City and/or Agency Affordable Housing Units are subject to recorded Affordable Housing Covenants ("Covenant"), recorded Affordable Housing Option Agreements ("Option"), and unrecorded Reimbursement Agreements ("Reimbursement") (collectively, "Agreements"). Pursuant to the foregoing Agreements, the City has two (2) alternatives available to preserve the Covenant and protect its financial interest in an Affordable Housing unit: 1. Right of Redemption and Reimbursement. The Agreements grant the City a right of redemption upon Notice of Default under the City's first lien. The Agreements authorize the City to make payment to a lender to cure the default thereby preventing foreclosure sale and transfer. Thereafter, the Homeowner is obligated to reimburse the City for the payment made to the lender within thirty (30) days of written demand from the City to the Homeowner. The Reimbursement is secured by the second lien. Consequently, in the event that the Homeowner fails to make the reimbursement payment, the City would have the right to foreclose on the second lien and subsequently take title to the Property. The City must exercise this right at least five (5) business days prior to the date of the foreclosure sale. The foreclosure sale may be set as early as twenty (20) days after the expiration of the statutory default period, which is three months or ninety (90) days from the recordation date of the Notice of Default. 2. Option to Purchase. The Agreements also grant the City an option to purchase the property upon the occurrence of a default. Receipt of the Notice of Default from the first lien constitutes a default. The City must send written notice to the Homeowner of its election to exercise the Option. The Homeowner would have the right to cure and revoke the City's exercise of the Option by paying the lender the full amount due. The Option price the City would need to pay for the property is the "Affordable Housing Cost of the Unit" depending on income level as defined in the Covenant and the California Health and Safety Code. Upon exercise of the Option, the City must open an escrow within five (5) days of the exercise notice and deposit the second lien and related Affordable Housing Promissory Note, the cancellation of which shall serve as payment of the portion of the purchase price. If the amount owed under the second lien exceeds the Option price, the City could exercise the Option without paying the homeowner anything. However, in order to avoid foreclosure under the Agenda Report February 1, 2011 Page 4 first lien, the City would need to pay off all amounts due under the first lien, including all accumulated interest and penalties. The City may pursue the Option at any time prior to the foreclosure sale of the Property. When the City receives a Notice of Default for an affordable housing unit, the City contacts the lender to identify if a mortgage modification is being negotiated and continues to follow up with the lender until receiving written notification of a resolution. In addition, a Notice of Right of Redemption is sent to the lender and to other parties associated with lender's lien as well as the homeowner, ensuring the preservation of the City's rights. Should the lender proceed with the foreclosure action, the City needs to be prepared to exercise the steps identified under redemption and reimbursement rights or option to purchase rights contained in the City's Affordable Housing Agreements. To facilitate timely response by the City and Agency in the exercise of its rights under its Affordable Housing Agreements in the event of a homeowner default, City Council and Agency approval is requested to delegate to staff and the City Attorney's office the ability to exercise either its redemption and reimbursement rights or its option to purchase the unit, as may be necessary to protect an affordable housing unit and to authorize the City Manager and/or Assistant City Manager to execute any required documents, as may be necessary. Authority is also being sought to establish an Affordable Housing Default Cure Revolving Fund for disbursement of any expenses necessary to cure a homeowner default and to ensure a unit is not lost to foreclosure. If a unit is purchased by the City or Agency, the City or Agency will immediately list the affordable unit for sale. Any unit sale proceeds will replenish the Affordable Housing Default Cure Revolving Fund. A Cooperative Agreement between the City and Agency to implement the Affordable Housing Default Revolving Fund is also attached for Council review and approval. Approved for Forwarding By: ;, ristine A. Shingleton Assistant City Manage --~ ~~~ David C. Biggs, City Manager A COOPERATIVE AGREEMENT BETWEEN THE TUSTIN COMMUNITY REDEVELOPMENT AGENCY AND CITY OF TUSTIN APPROVING THE ESTABLISHMENT OF AN AFFORDABLE HOUSING DEFAULT CURE REVOLVING FUND TO PURCHASE CITY OF TUSTIN AFFORDABLE HOUSING UNITS AT RISK OF FORECLOSURE AND AUTHORIZING THE CITY ATTORNEY AND CITY MANAGER TO EXECUTE ANY REQUIRED DOCUMENTS AS MAY BE NECESSARY IN THE PURCHASE OF AT-RISK UNITS This COOPERATIVE AGREEMENT (the "Agreement") is entered into this 1st day of February, 2011, by and between the City of Tustin (the "City") and the Tustin Community Redevelopment Agency ("Agency') (collectively, the "Parties"), with reference to the following facts: Recitals A. California Community Redevelopment Law ("CRL") Section 33413(a) requires that whenever a dwelling unit that houses a low to moderate income household and which is subject to a written agreement or with respect to which financial assistance has been provided by the Agency is destroyed or removed from the low and moderate income housing market as part of a redevelopment project, the Agency shall be required to replace the dwelling unit within four years with a replacement dwelling unit which has an equal or greater number of bedrooms at affordable housing costs within the jurisdiction of the Agency; B. The City and Agency have over three hundred (300) affordable housing units subject to written Affordability Agreements, and the Agency would be required to replace any units lost as a result of a foreclosure action; C. The City and Agency are experiencing an increase in the number of Notices of Default they are receiving for City of Tustin Affordable Housing Units; D. To date, the majority of the homeowners have been able work out a mortgage modification with their bank, although resolution often occurs towards the end of the deadline; 748541.1 E. City and/or Agency affordable housing units are subject to recorded Affordable Housing Covenants, recorded Affordable Housing Option Agreements and unrecorded Reimbursement Agreements (collectively, "Affordability Agreements"); and F. Pursuant to the Affordability Agreements, the remedies available to the City/Agency to preserve a unit as an affordable housing unit and to protect its financial interest in the event an owner default on the first mortgage include (i) the right to cure the default and seek reimbursement from the owner (the "redemption and reimbursement right") and (ii) the right to purchase the property at a defined "Affordable Housing Cost" (the "option to purchase right"); and G. The costs associated with any exercise of the City's redemption and reimbursement and/or option to purchase rights to cure the homeowner default under the Affordable Housing Program will be far less than the cost of acquiring and replacing a unit lost to the affordable housing supply; H. In order to maintain the flexibility to respond quickly in the foreclosure process in the event of a homeowner default under its Affordable Housing Agreements with the City or Agency, it is necessary to establish an Affordable Housing Default Revolving Fund and authorize the City Manager and/or Assistant City Manager, subject to review and approval of the City Attorney, to take the necessary actions, as each situation requires, to exercise the City or Agency's right of redemption and reimbursement or option to purchase the unit(s) in default under the City and/or Agency's Affordable Housing Programs and at risk of loss to the Affordable Housing Program. G. The Agency has previously adopted resolutions for the MCAS Tustin, Town Center, and South Central Project Areas finding that the expenditure of monies from the Low and Moderate Income Housing Funds outside of each project area will benefit each redevelopment project area. Specifically, Resolution No. RDA 03-10, adopted by the Agency on June 2, 2003 for the MCAS Tustin Project Area, and Resolution Nos. RDA 05- 01 and RDA 05-02, adopted by the Agency on March 21, 2005 for the Town Center and South Central Redevelopment Project Areas, respectively, each state that such monies will be used to provide low and moderate income housing at an affordable housing cost to persons of low and moderate income and support findings which have determined that the use of Housing Set Aside Funds outside of the designated Redevelopment Project Areas and throughout the City are of direct benefit to the Project Areas. H. By approving and entering into this Agreement, the Agency has approved the pledge of net available tax increment from the Project Areas to pay for the initial establishment of the Affordable Housing Default Revolving Fund. Net available tax -2- 748541.1 increment is defined as tax increment, net of existing debt service payments, and other existing contractual obligations of the Agency or any lawful successor of the Agency ~nl~to any of the powers and rights of the Agency pursuant to any applicable constitutional provisions, statute or other provision of law now existing or adopted in the future. I. The obligations of the Agency under this Agreement shall constitute an indebtedness of the Agency for purposes of carrying out the Redevelopment Plan for the Project Areas. NOW THEREFORE, the Parties hereto do mutually agree as follows: Section 1. The recitals above are an integral part of this Agreement and set forth the intentions of the Parties and the premises on which the parties have decided to enter into this Agreement and are incorporated into the terms and conditions of this Agreement. Section 2. The Agency agrees to appropriate and deposit un-appropriated Low and Moderate Income Housing Funds into a trust account identified as the Affordable Housing Default Revolving Fund Account to be managed by the City in an initial amount equal to One Million Two Hundred Fifty Thousand Dollars ($1,250,000) for the purpose of the City and/or Agency exercising its right of redemption and reimbursement or option to purchase, when necessary, affordable housing units in default under the City and/or Agency's Affordable Housing Agreements and at risk of foreclosure. On occasion, the Agency may elect to appropriate and deposit additional un-appropriated Low and Moderate Income Funds into the Affordable Housing Default Revolving Fund Account. In the event that the City exercises its option to purchase any affordable housing unit, the proceeds of any resale of said unit shall be deposited back into the Default Cure Revolving Fund to reimburse the fund for incurred expenses and to provide resources for any potential subsequent future affordable housing units in default. Section 3. The Agency Executive Director and City Manager, as applicable, and/or Assistant City Manager, subject to review and approval of the City Attorney/Agency Counsel, are authorized to pursue the City's or Agency's exercise of its right of redemption and reimbursement and/or option to purchase City and/or Agency affordable housing units in default under the City and/or Agency's Affordable Housing Agreements and at risk of foreclosure as they may determine necessary on acase-by-case basis. The City Manager and Agency Executive Director, or the Assistant City Manager, are authorized to execute all required documents, as applicable and as may be necessary, in exercising the City or Agency's rights for cure of defaults under Affordable Housing Agreements. Section 4. The City and Agency shall provide the City Council and Redevelopment Agency with a quarterly report, detailing any default activity within the City's Affordable Housing Program and identifying costs associated with curing any potential defaults, including any costs associated with the City and/or Agency exercising its rights of redemption or reimbursement or its option to purchase affordable housing units in default and at risk of foreclosure under the City's or Agency's Affordable Housing -3- 748541.1 Agreements, accompanied by evidence reasonably satisfactory to the Agency's Executive Director and City Manager. Section 5. The City shall accept any funds appropriated by the Agency pursuant to this Agreement and shall devote those funds to the Affordable Housing Default Revolving Fund Account and shall (i) disburse said funds when requested by the City Manager and /or Assistant City Manager for the cost of curing defaults under the City and/or Agency's Affordable Housing Agreements, and (ii) replenish the funds from any resale proceeds from affordable units purchased by the City and/or Agency as a result of the City and/or Agency's exercise of its default rights under Affordable Housing Agreements as may be directed by the Agency's Executive Director and City Manager,or Assistant City Manager. Section 6. Entire Agreement. Waivers and Amendments. This Agreement integrates all of the terms and conditions mentioned herein or incidental hereto, and constitutes the entire understanding and agreement of the Parties. All waivers of the provisions of this Agreement and all amendments to this Agreement must be in writing and signed by the authorized representative of the parties. Section 7. Severability. If any term, provision, covenant or condition of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the provisions shall continue in full force and effect unless the rights and obligations of the Parties have been materially altered or abridged by such invalidation, voiding or unenforceability. Section 8. Binding on Successors. This Agreement shall be binding on and shall inure to the benefit of all successors and assigns of the parties, whether by agreement or operation of law. Section 9. Term. This Agreement shall remain in effect as long as the City and/or Agency have active Affordable Housing Agreements in place. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first set forth above. TUSTIN COMMUNITY REDEVELOPMENT AGENCY "AGENCY" By: Jerry Amante Chairman <Additional Signatures Follow> -4- 74854 L l ATTEST: By: Pam Stoker City Clerk APPROVED AS TO FORM: By: Agency and City Attorney CITY OF TUSTIN "CITY" By: Jerry Amante, Mayor -5- 748541.1