CC 2012-11-27_08.e. Authority to Modify Affordable Housing AgreementsMEMORANDUM
TO: CITY COUNCIL
FROM: STEVEN ADAMS, CITY MANAGER iJs
SUBJECT: CONSIDERATION OF RESOLUTION EXTENDING THE CITY
MANAGER'S AUTHORITY TO MAKE MODIFICATIONS TO
AFFORDABLE HOUSING AGREEMENTS
DATE: NOVEMBER 27, 2012
RECOMMENDATION:
It is recommended the City Council adopt a Resolution extending the terms and
conditions under which the City Manager is authorized to amend existing affordable
housing agreements on a temporary basis.
FINANCIAL IMPACT:
Since the City would not receive any funding from affordable housing units if the
maximum sales price exceeds the market rate value, there will not be a financial impact
to the City from the recommendation.
BACKGROUND:
The City currently has 36 total owner occupied and 135 rental deed restricted affordable
housing units. Most of the owner occupied units have ·been obtained through
inclusionary affordable housing requirements.
When purchased, an affordable housing agreement is required that sets forth resale
provisions based upon either the maximum sales price under the affordability formula or
the housing price index formula (indexed value), whichever is higher. The maximum
sales price formula has been established by the City Council. Since it has been
modified, the formula in place at the time the unit was originally built and sold is applied.
Sellers are required to list the units at the appropriate maximum sales price for a
minimum of 90 days. If they are unsuccessful, the City has an option to purchase the
unit or they may list it as an unrestricted market rate unit. If it is sold as an unrestricted
market rate unit, 90% of the difference between the sales price and the maximum
affordable sales price must be paid to the City. If the bank forecloses on a unit, the
bank may remove the deed restriction and no funds are paid to the City.
Item 8.e. - Page 1
CITY COUNCIL
CONSIDERATION OF RESOLUTION EXTENDING THE CITY MANAGER'S
AUTHORITY TO MAKE MODIFICATIONS TO AFFORDABLE HOUSING
AGREEMENTS
NOVEMBER 27,2012
PAGE 2
Due to the current economic downturn, a number of owners of affordable housing units
are attempting to sell. However, there are few qualified buyers and the housing market
has caused the market rate price to be close to, and in several cases less than, the
affordable price. As a result, at the September 8, 2009 meeting, 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 on a temporary basis for
a two-year period in order to address the current housing market conditions.
In August 2010, a new resolution was adopted that modified the amendments the City
Manager is authorized to make to include the following:
• If a willing buyer is identified, the owner may sell the unit as a deed restricted
affordable unit up to the original price the owner paid for the unit. This is only
useful for low and very-low income units. The buyer would be restricted to the
original maximum sales price conditions, but would also be eligible for the same
amendments if a sale became necessary within the next two-year period when
these measures are still in place.
• If the unit is converted to market rate, the seller may be required to only pay to the
City the difference between the sale price and the amount currently owed on the
mortgage after all normal realtor fees and closing costs are deducted.
• As an alternative to selling a unit, owners may be allowed to rent the unit at market
rate for a period of up to 5 years.
ANALYSIS OF ISSUES:
The original formula adopted by the City for the maximum sales price allowed for
affordable units was the County of San Luis Obispo formula. Due to concerns identified
with the formula, the City established its own formula, but later switched back to the
County formula after they adopted one similar to what was being utilized by the City.
Units that were constructed when the original County formula was in effect are
regulated by an agreement that sets forth that formula. Therefore, the formula
continues to apply to those units when they are resold. As a result of the current
economic conditions, the maximum sales price for moderate rate units under that
formula actually now exceeds the market value for the home.
Some of the owners are trying to sell in order to avoid foreclosure. However, the 90-day
requirement to list the unit for the maximum sales price as a deed restricted affordable
unit presents a hardship because there is no chance that it will be sold and increases
Item 8.e. - Page 2
CITY COUNCIL
CONSIDERATION
AUTHORITY TO
AGREEMENTS
NOVEMBER 27, 2012
PAGE3
OF RESOLUTION EXTENDING THE CITY MANAGER'S
MAKE MODIFICATIONS TO AFFORDABLE HOUSING
payments due to the bank if the owner is already facing potential foreclosure. Owners
have requested the City waive the 90-day requirement. Therefore, it is recommended
that the Council adopt a new Resolution that also authorizes the City Manager to waive
the 90-day requirement if it is verified that the maximum sales price exceeds the market
price. The Resolution also extends the authorization of these modifications for a new
two-year period since housing market conditions have not improved since the
Resolution was originally approved.
The proposed Resolution is now recommended to be in effect for a period of three
years.
ALTERNATIVES:
The following alternatives are provided for the Council's consideration:
Approve the Resolution.
Modify and approve the Resolution.
Provide staff other direction.
ADVANTAGES
Approval of the Resolution will enable staff to continue to reduce foreclosures and
eliminate waste of time and effort by City staff, property owners and realtors by requiring
owners to list properties under terms that will make them infeasible to sell.
DISADVANTAGES
If housing prices and/or factors in the formula change, it may become more difficult to
verify the maximum sales price exceeds the market value.
ENVIRONMENTAL REVIEW:
No environmental review is required for this item.
PUBLIC NOTIFICATION AND COMMENTS:
The agenda was posted in front of City Hall and on the City's website on Wednesday,
November 21, 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 TEMPORARILY AUTHORIZING THE CITY MANAGER TO
AMEND AFFORDABLE HOUSING AGREEMENTS UNDER SPECIFIED
CIRCUMSTANCES
WHEREAS, the City's lnclusionary Affordable Housing regulations sets forth
inclusionary housing requirements for all residential projects over four (4) units to
include a percentage of moderate, low and very low income units; and
WHEREAS, the City has entered into several affordable housing agreements since
certification of the City's Housing Element; and
WHEREAS, as a result of the significant downturn in the housing market, the maximum
affordable sales price (hereinafter referred to as "Maximum Sales Price") calculation
required by many affordable housing agreement now often results in a Maximum Sales
Price below the original purchase price and/or above the market rate; and
WHEREAS, requiring a Maximum Sales Price below the original purchase price results
in an incentive for each seller of an affordable housing unit to simply allow foreclosure
as opposed to incurring a shortfall on the sale and the corresponding liability for the
balance of any mortgage on a go forward basis; and
WHEREAS, requiring an owner to list a deed restricted unit at a Maximum Sales Price
above the market rate eliminates the ability of the owner to sell the unit in a reasonable
time period and increases the likelihood of foreclosure; and
WHEREAS, upon foreclosure, any deed restriction requiring continued affordability of
the property recorded subsequent to the trust deed is eliminated; and
WHEREAS, foreclosures result in blight and negative economic conditions; 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 any affordable housing
agreement under the specific facts and circumstances described herein.
NOW THEREFORE BE IT RESOLVED by the City Council of the City of Arroyo Grande
as follows:
1. Upon a clear showing that the seller of an affordable housing unit will incur a
financial loss if required to sell the affordable housing unit at the Maximum Sales
Price, the City Manager shall be vested with the authority to make any or all of
the following amendments to such affordable housing agreement:
Item 8.e. - Page 4
RESOLUTION NO.
PAGE2
a. Upon identifying a willing buyer, the seller may be allowed to sell the
restricted property at a Maximum Sales Price up to the seller's original
purchase price;
b. If, ultimately, the affordable housing unit is converted to a market rate
unit, thereby placing no restrictions on the potential sale price, the seller
would be required to pay to the City the difference between the sale price
and the balance owed on the mortgage, after deducting customary realtor
commissions and closing costs; or
c. If the sale of the affordable housing unit is unlikely, the seller may be
allowed to rent the unit at a market rate for a period of up to five (5) years.
d. If the Maximum Sales Price exceeds the market rate for the unit, the City
Manager may waive the requirement to list the unit at the Maximum Sales
Price as a deed restricted unit for ninety (90) days.
2. The City Manager shall provide the Council with Annual Reports describing any
amendments to affordable housing agreements.
3. The City Manager's right to amend affordable housing agreements, absent
further action by the City Council, shall expire three (3) years from the date of
adoption of this Resolution.
On a motion by Council Member
the following roll call vote to wit:
AYES:
NOES:
ABSENT:
, seconded by Council Member , and by
the foregoing Resolution was passed and adopted this 2ih day of November, 2012.
Item 8.e. - Page 5
RESOLUTION NO.
PAGE3
TONYFERRARA,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