AGENDA #5b
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to: |
Roger L. Stancil, Town Manager |
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from: |
J.B. Culpepper, Planning Director Loryn Clark, Housing and Neighborhood Services Coordinator |
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subject: |
Response to Petition from Doris Lee Regarding the Culbreth Park Program |
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date: |
October 22, 2007 |
The purpose of this memorandum is to respond to a petition from Ms. Doris Lee regarding the Culbreth Park affordable housing program (please see Attachment 1).
We recommend that the Council take no action at this time.
In 1990, the Town and the Culbreth Park Development Corporation entered into an agreement for the development of the Culbreth Park subdivision. Eligible households had to earn less than 80% of the area median income to qualify for this program. Twenty-seven of thirty houses constructed by the Corporation were sold to qualified buyers. The Town provided $14,000 in deferred second mortgages from the Housing Loan Trust Fund to each of the twenty-seven households that become due to the Town upon sale of the house. The amount to be repaid to the Town is determined by terms in a Shared Equity Agreement executed by the buyers at the time of initial sale.
There are currently nine original homebuyers living in Culbreth Park; one of these homes is under contract by Orange Community Housing and Land Trust. Sixteen of the houses have been sold by the original homebuyers on the open market or the owners chose to repay the Town’s second mortgage and remain in the home. Five of the sixteen homes were purchased by the Land Trust and sold to qualified buyers. The original buyers repaid the Town’s funds according to the terms of the Shared Equity Agreement that was executed by the buyers at the time of initial sale. These funds were returned to the Housing Loan Trust Fund and used for eligible affordable housing projects.
On September 10, 2007, Ms. Doris Lee submitted a petition to the Council requesting a modification to the Culbreth Park Shared Equity Agreement. The petition states that the terms of the Shared Equity Agreement would value the Town’s second mortgage at $72,000. Ms. Lee requests that the Town modify the terms of the Agreement and subordinate its loan so that she may obtain a home equity loan.
In the past, we have agreed to requests from Culbreth Park homeowners to subordinate the Town’s second mortgage if all loans secured by the property, including the Town’s second mortgage, did not exceed 90% of the appraised value of the home. In the case of Ms. Lee’s request, the value of her first mortgage, the proposed new loan plus the value of the Town’s second mortgage would be approximately $206,759, and would exceed the appraised value of the property ($204,500). Ninety percent of the appraised value would be approximately $184,050.
The Shared Equity Agreement includes a methodology to determine the current value of a second mortgage. The methodology is based on several factors including the appraised value or sale price compared to the original sales price and the number of years lived in the home[. In addition, the Shared Equity Agreement caps the amount of equity that can be realized at the time of sale. Equity received by the owner is capped at 2% per year to reduce the incentive to sell homes at unaffordable prices. In Ms. Lee’s case, the property was purchased for $94,000 in 1992, and the current appraised value of her home is $204,500. According to the Shared Equity Agreement calculation, the value of the Town’s $14,000 original second mortgage plus the Town’s share of appreciation is approximately $72,000.
We do not recommend modifying the Shared Equity Agreement. The Culbreth Park program has been in place since 1990. We do not believe it would be fair to previous owners if the program was revised to allow homeowners to receive more equity than the Agreement originally proposed. Though Culbreth Park homeowners are not able to receive the full equity in their homes, we believe that the program allows owners to realize a significant portion of equity. We note that an equity share model is also used with other affordable housing projects that have received Town assistance, including projects with EmPOWERment and Orange Community Housing and Land Trust.
We do not recommend that the Council modify the terms of the Culbreth Park Shared Equity Agreement. We recommend that the Council take no action at this time.