25 Staff Report - Below Market Price Housing Program Units in Foreclosure And/or Bankruptcy ProceedingsDATE:
TO:
FROM:
SUBJECT:
MEETING DATE: 11/4/02
ITEM NO. (�
COUNCIL AGENDA REPORT
October 31, 2002
MAYOR AND TOWN COUNCIL
DEBRA J. FIGONE, TOWN MANAGE
ADOPT A RESOLUTION AUTHORIZING THE TOWN MANAGER TO
EXECUTE PURCHASE AGREEMENTS FOR BELOW MARKET PRICE
HOUSING PROGRAM UNITS IN FORECLOSURE AND/OR
BANKRUPTCY PROCEEDINGS
RECOMMENDATION:
Adopt a resolution authorizing the Town Manager to execute purchase agreements for Below Market
Price Housing Program units in foreclosure and/or bankruptcy proceedings, and authorizing related
budget adjustments.
BACKGROUND:
The Town's Inclusionary Zoning Ordinance was adopted in 1979. The ordinance requires
developers to provide a specified number of affordable owner -occupied or rental units, as
appropriate, in their new housing projects. In some instances, developers may pay fees in lieu of
providing affordable units. All units developed under the ordinance are managed under the Town's
Below Market Price (BMP) Housing Program.
One of the BMP Program's primary challenges is to keep owner -occupied units affordable. In
contrast to many cities throughout California, Los Gatos requires that units remain in the Program
at resale, and are resold to income -eligible owners. This affordability requirement is accomplished
through a deed restriction recorded on the property. The Town also retains a first right of refusal to
purchase each unit.
DISCUSSION:
Through the BMP Program, the Town assures an affordable purchase price for each unit, and it
PREPARED BY: Regina A. Falkner
Community Services Dire c
Reviewed by: P5 J Assistant Town Manager i, Town Attorney Clerk Finance
Community Development Revised: 10/31/02 4:30 pm
Reformatted: 55/.30/�02
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PAGE 2
MAYOR AND TOWN COUNCIL
SUBJECT: ADOPT A RESOLUTION AUTHORIZING THE TOWN MANAGER TO
EXECUTE PURCHASE AGREEMENTS FOR BELOW MARKET PRICE
HOUSING PROGRAM UNITS IN FORECLOSURE AND/OR BANKRUPTCY
PROCEEDINGS
October 31, 2002
facilitates the escrow process. It does not, however, hold the mortgage on any unit. Each unit owner
obtains a mortgage through a standard lending institution. Occasionally, a unit owner defaults on
mortgage payments, the mortgage holder forecloses, and title to the unit falls to the mortgage holder.
In other words, a bank owns the BMP unit. The mortgage holder will then seek to sell the unit as
soon as possible, in order to recoup its investment in the property.
The Housing Element of the Town's General Plan emphasizes the importance of affordable housing
opportunities, and the need to preserve existing affordable housing in Town. Implementing Strategy
H.I.1.9.A of the General Plan states:
If necessary, the Town will exercise its "right of first refusal" to purchase BMP units
which may have resale prices that exceed low or moderate income affordability
limits...The Town will utilize funds from all available sources, including the
Affordable Housing Fund, to subsidize the unit in order to make it affordable to the
appropriate low/moderate income group and to ensure that it remains a BMP unit in
perpetuity.
As noted above, in some instances developers may pay fees in lieu of providing affordable units.
These funds, referred to as `BMP In -Lieu funds," are held in a deposit account, and may be used to
finance BMP-related or other affordable housing projects. In the past, the Town has used the BMP
In -Lieu funds to "pay down" the purchase prices of BMP units to make them affordable to lower -
income households. Staff believes that it would be very appropriate to make these funds available
to purchase properties in the foreclosure process and in danger of losing their affordability, in order
to keep them in the BMP Program. Properties purchased by the Town would then be sold to income -
eligible owners through the standard BMP unit purchase process. The Town would be effectively
paying down the purchase price of the units for the subsequent owners, and keeping the units in the
BMP Program.
Though Council has discussed this issue in the past, it has come to the forefront at this time because
of the impending foreclosure and resale of the BMP unit at 108 Sierra Linda. The owners of this unit
have filed Chapter 7 personal bankruptcy proceedings, and title to the property remains in question.
It is certain, however, that the mortgage holder would, if possible, attempt to resell the unit at market
rate, unless the Town is able to purchase the unit.
As in the case of 108 Sierra Linda, foreclosure and resale proceedings generally proceed at an
accelerated pace, and decisions must be made quickly. Often, there is no time available to bring the
matter to Council and request its authorization to purchase the unit. In order to best fulfill the
affordable housing goals of the Town's General Plan, staff recommends that the Town Manager be
given a contingency authority to execute purchase agreements for BMP units in foreclosure and/or
bankruptcy proceedings, and that BMP In -Lieu funds be used to purchase these units. The Town
PAGE 3
MAYOR AND TOWN COUNCIL
SUBJECT: ADOPT A RESOLUTION AUTHORIZING THE TOWN MANAGER TO
EXECUTE PURCHASE AGREEMENTS FOR BELOW MARKET PRICE
HOUSING PROGRAM UNITS IN FORECLOSURE AND/OR BANKRUPTCY
PROCEEDINGS
October 31, 2002
Manager would request purchase authority from Council of such a purchase as time allowed; the
authority provided under the draft resolution (Attachment 1) would be a contingency in the case that
a purchase decision must be made before the issue could be heard by Council.
CONCLUSION:
Staff recommends that Council adopt a resolution authorizing the Town Manager to execute
purchase agreements for BMP units which are in foreclosure and/or bankruptcy proceedings, and
which are in danger of losing their affordability. Staff further recommends that the Town Manager
be authorized to use BMP In -Lieu funds to finance the purchase of these units, and that budget
adjustments may be made accordingly.
ENVIRONMENTAL ASSESSMENT:
Purchase of a BMP units is not a project defined under CEQA, and no further action is required.
FISCAL IMPACT:
The balance of the BMP In -Lieu fund (account 100-26216) as of July 1, 2002 is $1,398,164.09. The
purchase price paid for a BMP unit in foreclosure would vary by current market conditions. As the
resale price to an income -eligible owner through the BMP Program would be restricted by the BMP
Program guidelines, it is conceivable the Town would expend more to acquire the unit than it would
recoup in the resale.
When a Town -owned BMP unit was resold to an income -eligible owner, the purchase price would
be refunded to the BMP In -Lieu fund.
Attachments:
1. Resolution of the Town Council of the Town of Los Gatos authorizing the Town Manager
to execute purchase agreements for Below Market Price Housing Program units in
foreclosure and/or bankruptcy proceedings, and authorizing related budget adjustments.
Distribution:
1. Richard Warren, Housing Authority of Santa Clara County, 505 W. Julian Street, San Jose,
CA, 95110-2300
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RESOLUTION 2002 - 177
RESOLUTION OF THE TOWN COUNCIL OF THE TOWN OF LOS GATOS
AUTHORIZING THE TOWN MANAGER TO EXECUTE PURCHASE AGREEMENTS
FOR BELOW MARKET PRICE HOUSING PROGRAM UNITS
IN FORECLOSURE AND/OR BANKRUPTCY PROCEEDINGS
AND AUTHORIZING RELATED BUDGET ADJUSTMENTS
WHEREAS, the Town of Los Gatos Zoning Ordinance Sections 29.10.3000 through
29.10.3040 establish a Below Market Price (BMP) Housing Program to assist low and moderate
income Los Gatos citizens to purchase homes; and
WHEREAS, the BMP Program requires construction of dwellings that persons and
families of low and moderate income can afford to buy, and assures to the extent possible that the
resale prices of those dwellings will be within the means of persons and families of low and
moderate income; and
WHEREAS, the Housing Element of the Town's General Plan states, "If necessary,
the Town will exercise its `right of first refusal' to purchase BMP units which may have resale prices
that exceed low or moderate income affordability limits."; and
WHEREAS, occasionally BMP units come in danger of losing their affordability,
through foreclosure and/or bankruptcy proceedings; and
WHEREAS, the Town wishes to ensure BMP units in foreclosure and/or bankruptcy
proceedings remain in the BMP Program, and retain their affordability to persons and families of low
and moderate income.
i
NOW, THEREFORE, THE TOWN COUNCIL OF THE TOWN OF LOS
GATOS DOES HEREBY RESOLVE:
1) The Town Manager is authorized to execute purchase agreements for Below Market Price
(BMP) Housing Program units in foreclosure and/or bankruptcy proceedings. This authority
shall be limited to those circumstances in which adequate time to request purchase authority
for a specific unit from Council is not available.
2) The Town Manager is authorized to make budget adjustments related to the execution of
such purchase agreements. Funds for purchases made under the authority of this Resolution
shall be taken from the BMP In -Lieu Fund.
PASSED AND ADOPTED at a regular meeting of the Town Council of the Town
of Los Gatos, California, held on the 4th day of November, 2002, by the following vote.
COUNCIL MEMBERS:
AYES: Steven Blanton, Sandy Decker, Steve Glickman, Joe Pirzynski,
Mayor Randy Attaway
NAYS:
ABSENT:
ABSTAIN:
None
None
None
SIGNED:
MAYOR OF THE TOWN
LOS GATOS, CALIFORNIA
ATTEST:
CLERK OF THE TOWN OF LOS GATOS
LOS GATOS, CALIFORNIA
LOS GATOS
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