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2013-001 - Subordination Policy for the Below Market Housing PlanRESOLUTION 2013 -001 RESOLUTION OF THE TOWN COUNCIL OF THE TOWN OF LOS GATOS ESTABLISHING A SUBORDINATION POLICY FOR THE BELOW MARKET PRICE HOUSING PROGRAM WHEREAS, the Town of Los Gatos Zoning Ordinance Sections 29.10.3000 through 29.10.2040 establishes a Below Market Price (BMP) Housing Program to assist low and moderate income Los Gatos citizens to purchase homes at prices below market value; and WHEREAS, the program requires construction of dwellings that persons and families of low and moderate income can afford to rent or buy, and assures to the extent possible that the resale prices of those dwelling units and rents, if they are rented, will be within the means of persons and families of low and moderate income; and WHEREAS, the Program helps the Town meet State mandated housing goals; and WHEREAS, systemic changes in the broader housing and finance markets due to the "Great Recession" have caused lenders to tighten their loan underwriting requirements and require higher recorded lien positions for their loans in the event of foreclosures; and WHEREAS, the Town has identified the need to establish a Subordination Policy for the BMP Housing Program to reflect the changes that have occurred in the housing and finance markets; and WHEREAS, this resolution establishes a Subordination Policy for the Town of Los Gatos BMP Housing Program in order to ensure that BMP buyers are able to obtain necessary lender financing to purchase available units and maintain the Town's ability to retain units for the longest feasible time possible. NOW, THEREFORE, BE IT RESOLVED, AND IT IS HEREBY RESOLVED, that Town Council of the Town of Los Gatos adopts the Town of Los Gatos Below Market Price Housing Program Subordination Policy attached as Exhibit A. PASSED AND ADOPTED at a regular meeting of the Town Council of the Town of Los Gatos, California, held on the 22 "a day of January 2013, by the following vote: COUNCIL MEMBERS: AYES: Marcia Jensen, Steven Leonardis, Diane McNutt, Joe Pirzynski, and Mayor Barbara Spector NAYS: ABSENT: ABSTAIN: SIGH: c � _ M, AYOR OF THE TOWN OF LOS GATOS LOS GATOS, CALIFORNIA ATTEST: wa . CLERK ADMINISTRATOR OF THE TOWN OF LOS GATOS LOS GATOS, CALIFORNIA N TOWN OF LOS GATOS BELOW MARKET PRICE HOUSING PROGRAM SUBORDINATION POLICY In order to facilitate the on -going purchase of Below Market Price (BMP) for -sale units by eligible Lower and Moderate Income households and to allow for the preservation of the BMP units in Town's affordable housing stock for the longest feasible time, the Town Council of the Town of Los Gatos establishes this Subordination Policy for the BMP Housing Program, 1. The Town Manager or designee is authorized by the Town Council to execute a Subordination Agreement with a lender providing financing for a BMP for -sale property subject to the following requirements: A. The Town's Deed Restriction shall be recorded immediately after the Grant Deed transferring ownership to the BMP buyer. B. The lender must be a bona fide financial institution subject to the banking laws and regulations of the United States government. C. The lenders loan shall be for a fixed term and fixed rate with no balloon payments. D. The amount of the lender's purchase loan cannot exceed the designated BMP sales price. E. The Subordination Agreement shall require the lender to promptly notify the Town upon the occurrence of a default event for the lender's loan. F. The Subordination Agreement shall require the lender to timely provide the Town copies of all delinquency notices, late payment, and courtesy correspondences that are sent to the homeowner /borrower. G. The Subordination Agreement shall provide the Town a minimum 180 -day period to be able to cure a default of the lender's loan, and if necessary pay off the lender's loan and purchase the property from the buyer prior to foreclosure. H. The Subordination Agreement shall note that the 180 -day cure period shall commence upon receipt of the Town's receipt of a Notice of Default on the lenders loan. I. The Borrower shall pay any applicable application or processing charges established by the Town to offset its costs related to the provision of the requested Subordination Agreement (e.g. staff time, materials, etc.) J. The Subordination Agreement shall be for the specific purchase loan being provided by the lender and only for the loan documents recorded at the time of initial purchase. 2. The Town Council may consider approval of a Subordination Agreement for a lender refinance loan for an existing BMP unit provided that all the following requirements are satisfied: 3 A. The proposed refinance loan is consistent with the BMP Housing Program Guidelines. B. The proposed refinance loan is only for a lower rate or term and will result in lower monthly payments to benefit the homeowner. C. The proposed refinance loan amount is equal to or less than the amount of the outstanding loan balance of the existing loan (i.e. no cash out to homeowner). D. The homeowner has attempted to obtain a refinance loan from other lenders and has provided the Town documented evidence that a refinance loan cannot be obtained from any lender without the Town's approval of a Subordination Agreement. E. Satisfaction of Policy Items Section IA through 11.