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HomeMy WebLinkAboutResolution - HA 13-02 STATE OF CALIFORNIA ) RESOLUTION NO. HA 13-02 COUNTY OF RIVERSIDE ) ss CITY OF SAN JACINTO ) A RESOLUTION OF THE SAN JACINTO HOUSING AUTHORITY AUTHORIZING THE APPROVAL OF A SHORT SALE POLICY FOR FORMER REDEVELOPMENT AGENCY ASSISTED PROPERTIES AS A MEANS OF PREVENTING FORECLOSURES AND BLIGHT FROM VACANT, UNOCCUPIED PROPERTIES WHEREAS, on January 27, 2012, the City of San Jacinto pursuant to Resolution No. 3410 elected to not retain the former San Jacinto Redevelopment Agency's housing assets and functions and designated the Housing Authority as the entity to assume the former Redevelopment Agency's housing assets and functions; and WHEREAS, due to the economic downturn in the real estate market, many homeowners who need to sell their properties are often not able to sell at a price that allows them to recover sufficient funds to pay the existing mortgages and former Redevelopment Agency loans ("Agency Loans") in full on their properties; and WHEREAS, many first lenders are now agreeing to accept less than is owed on the first mortgage as full payment (i.e. a short sale) instead of having to seek a foreclosure sale. Most first lenders are asking junior lien holders, such as the Authority, to accept less than the full amount owed, or agree to a short sale; and WHEREAS, the Housing Authority also seeks to prevent further foreclosures in the City and to reduce the risk of properties that are subject to Agency Loans becoming future code enforcement problems during the foreclosure proceedings, and a source of blight, by adopting a short sale policy; and WHEREAS, the short sale policy is also intended to allow the Authority to release certain properties from affordability requirements recorded against such properties ("Affordability Covenants"), as further set forth in the short sale policy. NOW, THEREFORE, BE IT RESOLVED, ordered, and determined by the Board of Directors of the Housing Authority as follows: SECTION 1. Recitals. The Recitals set forth above are true and correct and are incorporated into this Resolution by this reference. SECTION 2.Adoption of Short Sale Policy. The Board of Directors approves the Short Sale Policy attached hereto as Exhibit "A" and incorporated herein by reference. 24438.00000\7745765.2 SECTION 3.Authorization to Sign Program Documents. The Housing Authority hereby authorizes and directs the Executive Director, or designee, to sign all documents related to reducing and/or cancelling Agency Loans and releasing Affordability Covenants in order facilitate short sales of properties as permitted under the policy referenced above. SECTION 4. Severability. If any provision of this Resolution or the application of any such provision to any person or circumstance is held invalid, such invalidity shall not affect other provisions or applications of this Resolution that can be given effect without the invalid provision or application, and to this end the provisions of this Resolution are severable. The Board of Directors declares that it would have adopted this Resolution irrespective of the invalidity of any particular portion of this Resolution. PASSED, APPROVED AND ADOPTED at a special meeting of the San Jacinto Housing Authority, on the 16th day of July, 2013, by the following vote: AYES: Ledezma, Miller, Ruiz, Bartel NAYS: None ABSENT: Kotyuk ABSTAIN: None San Jacinto Housing Authority Mark Bartel, Chairperson ATTEST: yz��i�-& Richard Miller, Authority Secretary 1 24438.00000\7745765.2 2 CERTIFICATION STATE OF CALIFORNIA ) COUNTY OF RIVERSIDE ) ss CITY OF SAN JACINTO ) I, Richard Miller, hereby certify that the foregoing is a true copy of Resolution No. HA 13-02, was adopted by the Board of Directors of the San Jacinto Housing Authority at a special meeting thereof held the 16th day of July, 2013. WITNESS my hand this 16th day of July, 2013. �Z-L L& Richard Miller, Authority Secretary 24438.00000\7745765.2 EXHIBIT "A" SHORT SALE POLICY 24438.0000O17745765.2 Exhibit A SAN JACINTO HOUSING AUTHORITY SHORT SALE POLICY Policy Statement The San Jacinto Housing Authority ("Authority") will continue to maximize prior investments provided as part of the former Redevelopment Agency's first time homebuyer and rehabilitation loan/grant programs by recapturing the former Redevelopment Agency's investments through a foreclosure prevention strategy for previously assisted recipients of first-time homebuyer and rehabilitation loans ("Agency Loans"). This policy will also cover under what circumstances the Authority would be willing to release any related affordability covenants. This policy will be subject to any limitations under the law and will involve a case-by-case basis determination by Authority staff of which of the options contained herein best serves the Authority's foreclosure prevention strategies in light of the homeowner's specific financial situation. Purpose To set forth guidance on recovering the former Redevelopment Agency's prior investment of low and moderate income housing funds upon the voluntary sale of Agency Loan-assisted properties in order to accommodate a pending sale by a prior Agency Loan recipient ("Recipient") and proposed buyer, including the release of any related affordability covenants. Background The purpose of the short sale policy is to reduce the risk that the subject residential property will be foreclosed upon and will be the possible source of future code enforcement problems associated with vacant and/or abandoned properties. This policy will provide the Authority a consistent and fair process by which to evaluate requests seeking relief from present obligations owed to the Authority. A short sale occurs when the sale price of a home is less than the total amount of liens encumbering the property. To close, a short sale must have approval from all lenders, acknowledging that the sales price is not sufficient to cover a portion (up to the total amount) of their existing loan payoff amounts. Generally, short sales are initiated when borrowers contact listing agents to sell (maybe due to the borrowers' difficulty in making mortgage payments) and it is determined that the likely sales price will not satisfy all liens. The listing agent will want to continue the process, assuming they can get one or more of the lien holders to "forgive" a portion or the entire lien amount. As the first time homebuyer loan and/or rehabilitation loan are subordinated to the primary mortgage lender, and sometimes second mortgage lender, the listing agent, Title Company, and/or the primary lender will condition the approval of the short sale upon the Recipient's ability to obtain a partial or complete forgiveness of junior liens. Generally, a primary lender will not want to accept less than the full amount owed when funds are being used to pay junior liens on the property. At a certain point, the primary lender may simply allow the property to fall into foreclosure. Upon foreclosure, any interest by the Authority would be wiped out. Agency Loans The former Redevelopment Agency's loans often provided low interest and/or zero interest financing to low and moderate income households for assistance in purchasing a home, as silent second financing, down payment assistance closing cost assistance, and/or rehabilitation loans. Funding for these loans was provided through the use of former low and moderate income funds as then permitted under prior California Redevelopment Law. The award of these loans was conditioned on, and induced by, Recipient's agreement to restrict the use of the residential property for the term of the loan to owner-occupancy for low and moderate income individuals for 45 years. The purpose of this affordability covenant is to increase and/or maintain a supply of low and moderate income housing available at an affordable housing cost by ensuring that the property would be sold to another low or moderate income household or that the loan would be recaptured in order to preserve the public investment upon the sale of the assisted property to a non-qualifying household. However, during the life of the loan, no loan payments are required to be repaid. In some cases, these investments were structured as grants subject to certain affordability covenants. As for rehabilitation loans, the former Redevelopment Agency was prepared to forgive the loan in full if, after the 30th anniversary of the date the regulatory agreement (affordability covenant) was recorded and the Recipient was not in default on any of the conditions and terms of the regulatory agreement. Requests for Relief When a Recipient becomes financially distressed and is unable to continue making payments on the first mortgage, the Recipient may submit a request for relief from the applicable regulatory agreement and agency loan in order to accommodate a short sale or a release from an affordability covenant. Sometimes, the sale of the home can be voluntary, such as the decision of a homeowner to move to another primary residence, a deed in lieu of foreclosure, or a short-sale. The sale could also be involuntary such as a foreclosure. Since the "Great Recession", the housing market in the Inland Empire has suffered record levels of foreclosures and job losses. As such, housing sales have slowed and many property owners find themselves routinely owing more on their homes than what they can sell them for. In order to avoid foreclosure and to lessen the damage to a Recipient's credit history, a Recipient may often seek a short sale or may need to make a market sale under certain limited emergency circumstances. Recipients requesting relief through short sale will be evaluated under the Agency's hardship criteria which may include an analysis of debt to income ratio, assets and liabilities, and demonstrated financial hardship. Based on these criteria, the Authority's Executive Director or designee may make a determination to forgive an amount up to the total Agency Loan amount in order to accommodate the short sale. Options: The Authority shall evaluate each request for financial hardship on a case-by-case basis and shall consider one of the following three options: • When sufficient net proceeds exists, the Authority shall require total repayment of the agency's investment, including recapture if permissible; • When net proceeds are not sufficient to repay the agency's investment, the Authority will request a minimum of at least 10% of the loan, or $2,000, whichever is higher; or • For those parties that meet the hardship criteria below, the Authority may make a determination to forgive an amount up to the total agency loan amount in order to accommodate a sale, and in some cases a transfer to a non-qualified homeowner. At any time, the Authority reserves the right to convert the agency loan to a personal note and request installment payments. For personal notes, the Agency will require minimum installment payments of $100 per month until the loan is paid off. Hardship Criteria: Existing Agency Loan Recipients that can demonstrate financial hardship may petition the Housing Authority to complete a short sale of their home and may request partial or complete relief of the Agency Loan if one of the following has occurred: • Extended unemployment of 3 months or more • Death in immediate family • Immediate threat of foreclosure • A serious medical condition that leads to loss of employment • Bankruptcy • Other comparable circumstances Review and Payoff Approval Process Once the resale amount has been negotiated and approved by the Authority, staff will provide the realtor and the Title Company a zero demand letter that states the Authority agrees to release the Agency Loan upon receipt of the negotiated payment of the Agency Loan. The Authority will also prepare a release of affordability covenant when required. The Authority is permitted to accept zero dollars, which can be allowed on a case by case basis, when determined to be in the best interest of the Authority when foreclosure is imminent. In conjunction with any actions taken on the Agency Loan, the Executive Director or designee may also grant relief from the affordability covenant on the property under the following circumstances: • The Recipient obtains short sale counseling, a discussion of alternatives to short sale such as loan modifications, and counseling about the possible tax consequences of a short sale. • The Authority recovers the agency's prior investment under the options above. • The Authority negotiates the best possible "deal" with the first lender (e.g. some communities have reported that first lenders routinely allow $2,000 to $3,000 of the first lender's proceeds to go to public agency lenders in short sale situations) • The Authority ensures that the following documentation is in the file for Authority review o Written request from Recipient seeking partial or complete relief regarding Agency Loan o Proof of the Recipient's efforts to attempt direct loan modification with the current primary lender, if applicable o Proof of the Recipient's financial hardship o Written summary regarding staff discussions with the Recipient, if applicable o An estimate of the fair market value of the property o A copy of the final purchase offer from the potential buyer o A copy of the Title Report o Description of the Authority's negotiations with the primary lender, if any. o Written verification of the sale approval by the primary lender o Copy of documents pertaining to escrow This policy authorizes the Executive Director and/or designee to execute all documents required for execution of the short sale. These guidelines are subject to change. July 16, 2013.