AGENDA #4i

 

MEMORANDUM

 

TO:                  Mayor and Town Council

 

FROM:            W. Calvin Horton, Town Manager

 

SUBEJCT:       Response to Petition from EmPOWERment, Inc.

 

DATE: March 24, 2003

 

 

The purpose of this memorandum is to respond to a petition submitted by EmPOWERment, Inc. on February 24, 2003. EmPOWERment has requested that the Council grant an exception to the guidelines of the Housing Loan Trust Fund to allow a non-Chapel Hill resident to receive second mortgage assistance from the Housing Loan Trust Fund (Please see Attachment 1). 

 

The attached resolution would authorize an exception to the guidelines of the Housing Loan Trust Fund to allow a non-Chapel Hill resident to receive a deferred second mortgage from the Housing Loan Trust Fund to purchase 613 Sykes Street. 

 

BACKGROUND

 

In January 2001 the Town provided EmPOWERment $25,000 from the Housing Loan Trust Fund to assist with the acquisition of 613 Sykes Street.  The Town entered into a Performance Agreement with EmPOWERment for this property.  The Agreement was amended once to extend the time of performance until September 30, 2002.  Key terms of the Town’s Performance Agreement include:

 

·        EmPOWERment will sell the home to a household earning less than 70% of the median, currently living or working in Chapel Hill, qualifying for a first mortgage of $80,000, and meeting the requirements of the Housing Loan Trust Fund;

·        Upon sale to a qualified buyer, the Town’s loan will be converted into a permanent second mortgage;

 

Renovation of the house was complete in 2002.  Since that time EmPOWERment has focused its efforts on identifying a buyer for this house.

 

 

THE REQUEST

 

In a letter dated February 19, 2003, on behalf of a potential buyer, EmPOWERment requested that the Council authorize an exception to the requirement of the Housing Loan Trust Fund that buyers live or work in Chapel Hill.   According to the letter submitted, the family previously lived in Chapel Hill for twelve years; after leaving Chapel Hill, the potential buyer moved to Carrboro and then to Chatham County.   EmPOWERment also states that the potential buyer is no longer employed in Chapel Hill.

 

EmPOWERment requests that the potential buyer be allowed to receive a $25,000 deferred second mortgage from the Housing Loan Trust Fund.

 

DISCUSSION

 

The intent of the Housing Loan Trust Fund is to provide homeownership opportunities for current Chapel Hill residents or those employed in Chapel Hill.  Guideline 7(a) of the Housing Loan Trust Fund states that in order to qualify for participation in the Housing Loan Trust Fund program, the applicant must be a resident of Chapel Hill or employed in Chapel Hill.  We determined that the Manager does not have the authority to waive this requirement. Please see Attachment 2 for the guidelines of the Housing Loan Trust Fund.   

 

Providing assistance to the homebuyer selected by EmPOWERment to purchase this house would be a high-risk loan.  The potential buyer earns less than 30% of the current median family income through Social Security and Disability Income payments, and is not currently employed. However, the potential buyer has been approved by RBC Centura Bank for a $49,500 mortgage.

 

In order to purchase this home for the $105,000 purchase price, the buyer will require a total public subsidy of $55,000.  In addition to the Town’s $25,000 deferred loan, EmPOWERment has requested $25,000 deferred loan from the Orange County HOME Program, and $5,500 from the Federal Home Loan Bank.  Normally, we do not recommend this level of public subsidy for a mortgage. 

 

In addition, we are concerned about the family’s ability to afford the cost of owning and maintaining a home over time.  EmPOWERment feels confident that the potential buyer will be a successful homeowner.  The buyer has completed EmPOWERment’s Homebuyer class, and the organization believes that the buyer will be able to purchase and maintain this house.

 

For the past two years, the Town has participated in the Sykes Street Steering Committee’s activities to improve living conditions in the Sykes Street area of the Northside neighborhood.  When the project began in January 2001, the Committee agreed that creating homeownership opportunities could help stabilize the community.  An additional homeowner in the Sykes Street area would benefit the revitalization efforts currently in the neighborhood.

 

As stated in reports presented to the Council by UNC Planning Students working with the Sykes Street Steering Committee, the work that has been underway in the Sykes Street area has addressed significant problems in the neighborhood. In addition to 613 Sykes Street, the Town has provided funds to EmPOWERment to purchase three dilapidated houses: 501 Sykes Street; 503 Sykes Street; and 229 North Graham Street.  Currently, 501 and 503 Sykes Street are under renovation; and EmPOWERment is developing plans to reconstruct a house at 229 North Graham Street.  Once construction is complete, these homes will be sold to first time homebuyers and placed in the Land Trust.  In addition, the Police Department has increased patrol in the Northside neighborhood and worked to improve street lighting and overall safety in the community.  Although conditions are improving, EmPOWERment has noted difficulty in identifying homebuyers willing to purchase houses in this neighborhood.

 

We believe that making significant improvements in the Sykes Street neighborhood will require the Town to take some unusual risks. Therefore, we believe that it is reasonable to authorize an exception to the Housing Loan Trust Fund guidelines to provide a deferred second mortgage to this buyer.  The potential benefit to the neighborhood justifies taking the risk, in our opinion.

 

If the Council approves this request, the $25,000 the Town provided to EmPOWERment to purchase the property in 2001 would be converted into a deferred second mortgage for the buyer.  Upon sale or transfer of ownership of the property, the owner would repay the $25,000 plus a portion of any equity received.  The buyer would be required to use the property as his/her primary residence. 

 

RECOMMENDATION

 

We recommend that the Council adopt the attached resolution authorizing an exception to the guidelines of the Housing Loan Trust Fund to allow a non-Chapel Hill resident to receive a deferred second mortgage from the Housing Loan Trust Fund to purchase 613 Sykes Street in order to help achieve the objectives of revitalizing the Sykes Street area.

 

ATTACHMENTS

 

1.      February 19 , 2003 Request from EmPOWERment (p. 5).

2.      Guidelines of the Housing Loan Trust Fund (p. 6).

A RESOLUTION AUTHORIZING AN EXCEPTION TO THE GUIDELINES OF THE HOUSING LOAN TRUST FUND (2003-03-24/R-6.1))

 

WHEREAS, the Town entered into a Performance Agreement with EmPOWERment, Inc. for the acquisition of 613 Sykes Street; and

 

WHEREAS, the Performance Agreement required the house to be renovated and sold to a household that lived or worked in Chapel Hill; and

 

WHEREAS, EmPOWERment has identified a potential buyer that is not a current resident of Chapel Hill;

 

NOW, THEREFORE, BE IT RESOLVED, that the Council of the Town of Chapel Hill authorizes an exception to the guidelines of the Housing Loan Trust Fund to allow a non-Chapel Hill resident to receive deferred second mortgage assistance from the Housing Loan Trust Fund to purchase 613 Sykes Street in order to help achieve the objective of revitalizing the Sykes Street area.

 

This the 24th day of March, 2003.