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HomeMy WebLinkAboutRDA 02 SALE OF RESTRICTED HSG UNIT 05-01-07 MEETING DATE: MAY 1, 2007 T0: WILLIAM A. HUSTON, EXECUTIVE DIRECTOR FROM: CHRISTINE A. SHINGLETON, ASSISTANT CITY MANAGER SUBJECT: TUSTIN GROVE-SALE OF RESTRICTED AFFORDABLE HOUSING UNIT SUMMARY: A Request to sell a Restricted Affordable Housing Unit at 14870 Dancy Court in Tustin Grove . RECOMMENDATION: It is recommended that the Agency: 1. Authorize the City Manager and/or Assistant City Manager to have the Agency Exercise its Purchase Option at 14870 Dancy Court in Tustin Grove and authorize the Agency staff to buy the unit directly from the seller based on the formula contained in the Purchase Option, including authorization to market, and resell the unit and impose new affordability restrictions on any new purchaser, as recommended by the City Attorney. The action includes authorization for the City Manager and/or Assistant City Managerto execute any necessary documents and to take all actions necessary including the execution of all related documents and instruments. 2. Appropriate $ 280,000 from un-appropriated fund balances in the South Central Housing Set-Aside Fund for marketing and acquisition expenses. FISCAL IM PACT: It is expected that the Agency's purchase price for the unit at 14870 Dancy Court will be approximately $254,932, and additional brokerage and closing costs would result in total acquistion costs being approximately $280,000. Agency staff believes that these costs can be completely recoverable from the sale of the unit to another Moderate Income Household. Page 2 BACKGROUND: The owners of 14870 Dancy Court in the Tustin Grove development need to sell their home due to an employment relocation. The Tustin Grove affordability documents were really the first that were originally prepared by the City Attorney's office and do not currently comply with the Agency's obligations to protect the affordability of the units sold to affordable households for the required 45 year requirements under Redevelopment Law. I n reviewing the Deed of Trust and the Resale Restriction Agreement and Option to Purchase, Agency staff has found that there are three options available to the Agency: (1} The owner can sell the house at an affordable housing cost for amoderate- income household with the new owner assuming the affordability restrictions for the remainder of the affordability period which ends in 2015. The current estimated affordable housing cost is $389,000. At this time, the Agency does not maintain a waiting list of individuals interested in purchasing resale affordable units. Therefore, the sale of the house to another moderate-income homebuyer could take a considerable amount of time which the homeowner does not have due to the fact that he must report to his new job effective July 2007. (2} The owner can sell the unit at market price and pay the Agency 5% of the earned equity. Equity is defined as the difference between the sales price at the time that the current owner enters into a contract with a potential purchaser and the sum of (1) the down payment originally paid (2) normal and reasonable loans fees paid when originally purchasing the house, and (3}the outstanding balance of any mortgage loans. Example: Original down payment $4,600 Loan fees paid/closing costs $3,500 Outstanding loan balance $150,000 Sub-Total $158,100 2007 contracted sales price $520,000 Difference $361,900 5% of $361,900 $18,095 Amount due to Agency upon sale of unit $18,095 If the property owner is granted permission to sell using the 5% option, the Agency will lose an affordable unit and would be required to replace it with another moderate- incomeunit within three years under California Redevelopment Law. 3. Under Section 7 of the Resale Restriction Agreement and Option to Purchase, the Agency or "its designee" has the option to purchase the unit. The purchase price Page 3 shall be fixed at the lower of two methods (1) the fair market value which is estimated at $520,000, or (2) the original purchase price adjusted by the percentage increase of the Consumer Price Index for All Urban Consumers (CPU-U), All Items for the Los Angeles, Anaheim, Riverside County Area as published periodically by the United States Department of Labor, Bureau and Statistics from the date originally purchased and the date the Agency received the Notice of Intent to Sell. Example: Original Purchase Price December 1997 $164,155 CPI-U December 1997 61.20 CPI-U March 2007 216.50 Difference 55.30 Original Purchase Price $164,155 55.30 % of original purchase price $90,777 Adjusted purchase price - 2007 $254,932 The A enc must notify the owner that the Purchase Option is being exercised within 30 9 Y days of receipt of the notice of intent to sell. Summary: There are a total of three options available: 1. Require homeowner to sell the unit to another moderate-income household at an estimated affordable housing cost of $389,000. Using this method, the affordable restrictions would remain on the property until July 15, 2015. 2. Allow the owner to sell the house at market price and pay the Agency shared equity of approximately $18,000. Using this method, the affordability restrictions are forgiven on receipt of the equity share. 3. Exercise the Purchase Option and buy the unit directly from the seller for approximately $254,900. Using this method, the Agency would resell the unit and impose new affordability restrictions for the 45 year requirement under California Redevelopment Law. Based on discussions with the City Attorney's office and City Manager, it is recommended that the Agency exercise Option 3 as discussed above. The Agency's replacement cost of this affordable unit would be far greater than exercising the Agency's option to purchase the unit and then reselling the unit. Christine A. Shingleton Assistant City Manage