13.3 LOANS FOR UNITS IN A COMMUNITY LAND TRUST [7 CFR 3555.206] (03/09/16)

© RHS HB-1-3555 SFH Guaranteed Loan Program Technical Handbook

Loans to finance the purchase of dwellings located on land owned by a community land trust may be guaranteed if the conditions described in this paragraph are met, and if the applicant and the property otherwise meet the requirements outlined in this handbook.

A. Definition

Community land trust is defined as a private not-for-profit community housing development organization that owns and leases land at affordable prices. A community land trust sells the property improvements (i.e., buildings, streets, sewers) that normally increase the land’s value, but leases the land under a long-term ground lease to low- and moderate-income households. The organization must:

Be organized under State or local laws.

Have no part of its net earnings benefiting any member, founder, contributor, or individual.

Comply with financial accountability.

Maintain, through significant representation on the organization’s governing board, accountability to low-income community residents with regard to decisions on the design, siting, development, and management of affordable housing.

Have its corporate membership open to any adult resident of a particular geographic area specified in the by-laws of the organization.

Be established to carry out all of the following activities:

Acquire parcels of land, held in perpetuity, primarily for conveyance under long-term ground leases.

Transfer ownership of any structural improvements located on such leased parcels to the lessees.

Retain a pre-emptive option to purchase any such structural improvements at a price determined by a formula that is designed to ensure that the improvement remains affordable to low- and moderate-income people in perpetuity.

The lender must ensure that the lease contains provisions for continued use of the land for low- and moderate-income housing.

The lender’s mortgage file must contain documentation that the community land trust has received local market acceptance, as evidenced by market acceptance of comparable community land trust projects in the area.

The lender must verify that the community land trust has broad-based community representation, and that the Community Land Trust has a two-year record of providing affordable housing.

Protection of Lender Rights and Lien Position

The relevant legal documents must contain language that ensures that all restrictions relating to community land trusts will automatically and permanently terminate upon foreclosure or lender acceptance of a deed in lieu of foreclosure. Language that merely subordinates the restrictions to the mortgage is not sufficient. The restrictions also cannot be forced upon subsequent purchasers following resale by the lender.

C. Restrictions on Resale Price

Restrictions on the limits to the resale price of the property or recapture of equity are permitted. A maximum sales price may be imposed or the sales proceeds due the borrower may be limited, with any excess payable to a governmental body or nonprofit organization for reuse in the community land trust. When such restrictions apply, the requirements listed below must be met. Any other arrangements for sharing appreciation must be approved by the State Director.

The borrower must be permitted to recover at least the original purchase price, sales commission, and cost of capital improvements when the borrower sells the property.

If the program permits the borrower to sell the property at market value but recaptures part of the equity, the Agency considers a reasonable share of appreciation to be at least 50 percent. The Agency does not object to situations whereby the borrower’s share of appreciation is on a sliding scale beginning at zero, provided that within two years the homeowner would be permitted to retain 50 percent of the appreciation.

The borrower must be permitted to recover a reasonable amount of appreciation as determined by the lender. Appreciation is measured by the difference between the original purchase price and the actual price at which the property is resold.

If the program sets a maximum sales price restriction, the borrower must be permitted to retain 100 percent of the appreciation.

Right of First Refusal

One method commonly used to ensure that housing remains part of an affordable housing program is for the community land trust to hold a “right of first refusal” or an “option right” that can be exercised when the borrower proposes to sell the home to a purchaser not eligible for the program benefits. Such a provision is permitted if all of the requirements listed below are met.

The rights must be held only by a governmental body or eligible nonprofit organization and exercised by them or someone they have identified as an eligible purchaser.

Any right must be exercised within 45 days after the holder of these rights may exercise them (for example, the rights are often triggered by a notice of sale from the borrower).

Any option price must allow the borrowers to recover their investments plus reasonable shares of appreciation.

Appraisals

A property located on a site owned by a community land trust must be appraised as a leasehold interest.