AGENDA #4g

 

MEMORANDUM

 

TO:                  Mayor and Town Council

 

FROM:            W. Calvin Horton, Town Manager

 

SUBJECT:       Request from Orange Community Housing and Land Trust to Modify Performance Agreement Regarding the Vineyard Square Development

 

DATE:             February 28, 2005

 

The purpose of this memorandum is to respond to a request from Orange Community Housing and Land Trust (Land Trust) to modify its Performance Agreement with the Town for use of Community Development funds for the Vineyard Square development (Please see Attachment 1).  

 

The attached resolution would authorize an amendment to the Town’s Performance Agreement with Orange Community Housing and Land Trust to allow $20,000 of its 2004-2005 Community Development allocation to be distributed among the remaining unsold units so that they become more affordable.  These funds would be provided to the buyers in the form of a deferred second mortgage that would be repaid to the Town if the property is resold to a buyer earning more than 70% of the area median income. 

 

REQUEST

 

In a letter dated January 4, 2005, and supplemental letter of February 23, 2005, Robert Dowling, Executive Director of the Land Trust requested that the Town reallocate $20,000 of 2004-2005 Community Development funds to provide additional subsidy to families that cannot afford the $105,000 sales price of the Vineyard Square units.  Rather than a set amount of $10,000 subsidy per unit, the requested amendment would allow the Land Trust to set varying amounts of subsidy to promote more affordability for families having lower incomes.

 

BACKGROUND

 

On June 21, 2001, the Council approved a Special Use Permit for Centex Homes for the Vineyard Square development that included affordable housing stipulations.  According to the stipulations, thirty units in the development were reserved for affordable units and were required to meet the following conditions:

 

1.       That the affordable units only be available for private ownership and occupancy. Homeowner covenants shall be established to prevent rental of these units.

2.       That the affordable units shall be priced so as to be affordable for Qualified Buyers.  Qualified Buyers shall be defined as individuals or families with gross incomes equal to 80% or less of the median family income.

3.       If an affordable unit is unsold 60 days after the Certificate of Occupancy is granted, then the household income of the Qualified Buyer may increase to 90% or less of the median family income.  Furthermore, if the unit remains unsold 90 days after the Certificate of Occupancy is granted then the household income of the Qualified Buyer may increase to 100% or less of the median family income.  The Purchase Price shall remain affordable to Qualified Buyers earning 80% or less of the median family income; however, if the unit remains unsold, the pool of Qualified Buyers will increase over time to include those households earning up to 100% or less of the median family income. 

4.       Each Qualified Buyer shall deliver to the Developer written evidence, acknowledged in writing by the Orange Community Housing Corporation (or alternative organization as approved by the Town Manager), that such buyer has been officially determined to be a Qualified Buyer.

5.       That mechanisms shall be established to guarantee that the 30 affordable units shall be permanently affordable and available to Qualified Buyers, subject to the approval of the Town Manager and the Orange Community Housing Corporation (or alternative organization as approved by the Town Manager).

 

On April 26, 2004, the Council approved a Community Development plan for the 2004-2005 program year.  The adopted plan includes an allocation of $100,000 to the Land Trust to reduce the prices of 10 three-bedroom townhomes in the Vineyard Square Development from $115,000 to $105,000 for first time home buyers earning less than 80% of the area median income.  The memorandum states that the funds would be provided as a grant to the Land Trust so that the units would be more permanently affordable. In addition, once subsidized, the homes cannot be sold to households earning more than 80% of the area median income.

 

In addition to the $100,000 of Community Development funds allocated by the Council to subsidize 10 units, the Land Trust also received $77,000 of HOME Program funds to subsidize eight other units for lower income home buyers ($9,625 to each buyer).  Seven of the HOME Program subsidized units have been sold.   

 

DISCUSSION

 

The Land Trust is responsible for selling the thirty affordable units in this development.  Of these units, 18 have been sold and nine are under contract for purchase.  Two homes were sold to families earning less than 80% of the area median income that did not require subsidy.  The remaining three homes are not under contract.  Of the 18 units sold, one received subsidy from the Community Development program and seven received subsidy through the HOME Program.   Of the nine homes under contract, one will receive subsidy through the HOME Program and seven through the Community Development Program. 

 

The Land Trust is in the process of identifying buyers for its last homes in the Vineyard Square development.  Of the units sold or under contract for purchase, two were purchased by households that did not use Community Development or HOME Program subsidy funds; one buyer did not meet the residency requirement of living or working in Orange County for one year, and the second met the income requirements but was able to qualify for a mortgage of $115,000 and did not need additional subsidy.  Therefore there are $20,000 of residual funds from the Community Development allocation available for subsidies.

 

If the Council approves this request, the Land Trust could provide additional subsidy if needed to potential buyers earning less than 70% of the area median income of the remaining four units.  We understand that the buyers that have expressed interest in these units earn less than 70% of the median household income and the residency requirement, but require more than $10,000 of subsidy to purchase the units. 

 

For the remaining units, the Land Trust would determine the gap between the purchase price and what a family can afford using lender’s standard financial evaluation methodology, and if additional subsidy is needed.  The Land Trust’s intent would be to serve families earning less than 70% of the area median income.  The Land Trust believes that the additional $20,000 will serve as a flexible source of subsidy that will enable them to target the funds to the appropriate families and sell the remaining units.

 

As stated in the February 23, 2005 letter, the Land Trust recommends subsidy over $10,000 be provided to the buyer in the form of a deferred second mortgage to buyers earning less than 70% of the area median income.  There would be no monthly payments due on this second mortgage, and the Town’s funds would be repaid in the property is resold to a buyer earning more than 70% of the area median income.

 

RECOMMENDATION

 

That the Council adopt the attached resolution to approve an amendment to the Town’s Performance Agreement with Orange Community Housing and Land Trust to allow $20,000 of the Land Trust’s 2004-2005 Community Development allocation to be distributed among the remaining unsold units so that they become more affordable for households earning less than 70% of the area median income.  These funds would be provided to the buyers in the form of a deferred second mortgage that would be repaid to the Town if the property is resold to a buyer earning more than 70% of the area median income.  If the Council allows the Land Trust to set varying amounts of subsidy, we believe that the units could be sold to families having lower incomes.

 

ATTACHMENTS

 

1.      January 4, 2005 letter from Robert Dowling, Orange Community Housing and Land Trust (p. 5).

2.      February 23, 2005 letter from Robert Dowling, Orange Community Housing and Land Trust (p. 6).

 

 

A RESOLUTION AUTHORIZING A MODIFICATION OF THE TERMS OF THE TOWN’S PERFORMANCE AGREEMENT WITH ORANGE COMMUNITY HOUSING AND LAND TRUST FOR THE VINEYARD SQUARE DEVELOPMENT (2005-02-28/R-6)

 

WHEREAS, on November 11, 2004, the Town executed a Performance Agreement with Orange Community Housing and Land Trust  for use of $100,000 of 2004-2005 Community Development funds to reduce the sales price of 10 three-bedroom townhome units from $115,000 to $105,000; and

 

WHEREAS, in a letter dated January 4, 2005, Orange Community Housing and Land Trust requested that the Town modify its Performance Agreement with the Land Trust to allow $20,000 of the Community Development funds be used to provide additional subsidy for three units in the Vineyard Square development;

 

NOW, THEREFORE, BE IT RESOLVED by the Council of the Town of Chapel Hill that the Council approves a modification to the terms of the Town’s Performance Agreement with the Orange Community Housing and Land Trust for the Vineyard Square development to allow use $20,000 of the Land Trust’s 2004-2005 Community Development allocation to be distributed among the remaining unsold units for households earning less than 70% of the area median income.  The Land Trust will determine the gap between the purchase price and what a family can afford using lender’s standard financial evaluation methodology, and provide a deferred second mortgage if needed. 

 

BE IT FURTHER RESOLVED that Community Development funds in excess of $10,000 will be provided to a Vineyard Square buyer earning less than 70% of the area median income in the form of a deferred second mortgage that will be due to Town if the property is resold to a household earning more than 70% of the median area income. Buyers are required to execute a Promissory Note and Deed of Trust to the Town for any additional subsidy in excess of $10,000.

 

BE IT FURTHER RESOLVED that the Council authorizes the Manager to execute an amendment to the Town’s Performance Agreement with Orange Community Housing and Land Trust to reflect this change.

 

This the 28th day of February, 2005.