CC 2012-11-13_08.e. Affordable Housing Unit at 266 Aspen StreetMEMORANDUM
TO: CITY COUNCIL
FROM: STEVEN ADAMS, CITY MANAGER~
SUBJECT: CONSIDERATION OF A RESOLUTION AUTHORIZING THE CITY
MANAGER TO AMEND LOAN DOCUMENTS RELATED TO THE
AFFORDABLE HOUSING UNIT AT 266 ASPEN STREET
DATE: NOVEMBER 13, 2012
RECOMMENDATION:
It is recommended the City Council adopt a Resolution authorizing the City Manager to
amend the interest rate set forth in the promissory note and other changes to
documents as necessary related to the affordable housing unit at 266 Aspen Street.
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
The existing promissory note requires the property owner to pay the City $30,000 with
interest at an annual rate of 6% if the unit is sold and converted to an unrestricted
market rate unit prior to 2032. The total principal and interest due to the City is
estimated to be approximately $48,000, which would be deposited in the Affordable
Housing In Lieu Fee Fund if paid. It is estimated that the proposed action will reduce
this amount to approximately $39,000. However, if the property is foreclosed by the
lender, the City will likely receive none of the principal and interest. Therefore, the
proposed action will likely help ensure receipt of $30,000 to $39,000 that may otherwise
be lost.
The proposed action will result in additional administrative and legal staff time.
However, it will likely be less time than would be involved if the property is subject to a
foreclosure.
BACKGROUND:
Parcel 2 of Parcel Map No. AG 95-068 was created in 1995 as part of a density bonus
approved by the City that required the developer to commit the unit to affordable
housing for a minimum of 30 years, secured by a deed restriction. In 2002, the property
was sold, and the City Council approved a modification to the affordable housing deed
restriction to enable the qualified family to secure a loan by enabling conversion of the
property to market rate in the event of a foreclosure. In 2004, the City Council
authorized the City Manager to amend the Subordination Agreement so the property
owner could refinance the mortgage in order to expand and improve the home.
Item 8.e. - Page 1
CITY COUNCIL
CONSIDERATION OF A RESOLUTION AUTHORIZING THE CITY MANAGER TO
AMEND LOAN REQUIREMENTS RELATED TO THE AFFORDABLE HOUSING UNIT
AT 266 ASPEN STREET
NOVEMBER 13, 2012
PAGE2
Beginning in 2009, the City Council adopted a Resolution authorizing the City Manager
to amend affordable housing agreements in order to prevent foreclosures and loss of
deed restricted affordable units when it is verified that the seller will experience a
financial loss from a sale under the provisions of the agreement. These measures were
proposed in order to address the current housing market conditions.
ANALYSIS OF ISSUES:
This was the first single-family deed restricted affordable housing unit in the City. As a
result, the terms of the affordable housing agreement are different than those approved
for all the other affordable housing units in the City. For other existing agreements, the
property owner is required to pay the City an amount calculated by a formula set forth in
the agreement, which is based upon the difference between the market price and
affordable price at the time the unit is sold if they are converted to market rate.
Therefore, the City does not receive any revenue when the units are sold and converted
to market rate units when the market price is less than the restricted affordable price.
Since this unit includes a loan with interest secured by the promissory note, the City is
owed the amount whether or not the owner is able to sell the unit for an amount more
than the outstanding balance of their mortgage. As a result, it creates a potential
incentive for foreclosure. Under a foreclosure, the loan to the City would probably not
be repaid. In addition, the interest rate is high when compared to recent interest rates
and the decline of housing prices.
Other provisions were approved to avoid foreclosures with regard to other existing deed
restricted units. This action does not create a precedent since no other unit has an
agreement with interest provisions.
ALTERNATIVES:
The following alternatives are provided for the City Council's consideration:
-Authorize the City Manager to amend the interest rate set forth in the promissory
note and other changes to documents as necessary related to the affordable
housing unit at 266 Aspen Street;
Do not authorize the City Manager to make any changes to the loan
requirements;
Provide direction to staff.
ADVANTAGES:
The proposed action will help ensure the principal of the City's loan is repaid and reduce
the potential of a foreclosure.
DISADVANTAGES:
No disadvantages have been identified.
Item 8.e. - Page 2
CITY COUNCIL
CONSIDERATION OF A RESOLUTION AUTHORIZING THE CITY MANAGER TO
AMEND LOAN REQUIREMENTS RELATED TO THE AFFORDABLE HOUSING UNIT
AT 266 ASPEN STREET
NOVEMBER 13, 2012
PAGE3
ENVIRONMENTAL REVIEW:
No environmental review is required for this item.
PUBLIC NOTIFICATION AND COMMENTS:
The agenda was posted in front of City Hall on Thursday, November 8, 2012 and on the
City's website on Friday, November 9, 2012. No public comments were received.
Item 8.e. - Page 3
RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ARROYO
GRANDE AUTHORIZING THE CITY MANAGER TO AMEND THE LOAN
DOCUMENTS FOR THE AFFORDABLE HOUSING UNIT AT 266
ASPEN STREET
WHEREAS, Parcel 2 of Parcel Map No. AG 95-068 was created in 1995 as part of a
density bonus approved by the City that required the developer to commit the housing
unit at 266 Aspen Street ("unit") to affordable housing for a minimum of 30 years,
secured by a deed restriction; and
WHEREAS, the existing promissory note requires the property owner to pay the City
$30,000 with interest at an annual rate of 6% if the unit is sold and converted to an
unrestricted market rate unit prior to 2032; and
WHEREAS, as a result of the significant downturn in the housing market, the maximum
affordable sales price for the unit is above the market rate; and
WHEREAS, the market sales price of the unit will not be sufficient to pay off the existing
mortgage; and
WHEREAS, foreclosures result in blight and negative economic conditions and will
eliminate any repayment of the loan to the City; and
WHEREAS, the City Council, in an attempt to maintain the affordable housing deed
restriction on affordable housing units and avoid foreclosures, deems that it is in the best
interest of the City to authorize the City Manager to amend the interest rate on the loan
and take other actions necessary to protect the City's investment in the unit.
NOW THEREFORE BE IT RESOLVED by the City Council of the City of Arroyo Grande
that the City Manager shall be vested with the authority to protect the City's investment in
the real property located at 266 Aspen Street, Arroyo Grande, by amending the interest
rate and taking other actions as necessary.
Item 8.e. - Page 4
RESOLUTION NO.
PAGE2
On a motion by Council Member
following roll call vote to wit:
AYES:
NOES:
ABSENT:
, seconded by Council Member
the foregoing Resolution was passed and adopted this day of 2012.
, and by the
Item 8.e. - Page 5
RESOLUTION NO.
PAGE3
TONY FERRARA, MAYOR
ATTEST:
KELLY WETMORE, CITY CLERK
APPROVED AS TO CONTENT:
STEVEN ADAMS, CITY MANAGER
APPROVED AS TO FORM:
TIMOTHY J. CARMEL, CITY ATTORNEY
Item 8.e. - Page 6