HomeMy WebLinkAboutRedevelopment Agency - 381 RESOLUTION NO. 381
A RESOLUTION OF THE REDEVELOPMENT AGENCY OF THE CITY
OF HUNTINGTON BEACH APPROVING THE HOUSING
REHABILITATION LOAN PROGRAM
WHEREAS, staff of the City of Huntington Beach's Department of Economic
Development prepared that certain document entitled "Housing Rehabilitation Loan
Program Policies and Procedures—Effective January 6, 2003;" and
The Housing Rehabilitation Loan Policies serves as an internal resource to
Economic Development staff to enable them to understand important program
administrative matters and to maintain better administrative control over the various loan
and grant programs offered by the Agency; and
Market conditions and rehabilitation financing needs of homeowners in the City
of Huntington Beach have changed since 2003; and
The current Housing Rehabilitation Loan Policies have been revised by the City's
Department of Economic Development to reflect these changes,
NOW, THEREFORE, the Redevelopment Agency of the City of Huntington
Beach does hereby resolve as follows:
1. That certain document entitled "Policies and Procedures Affordable
Homeowner Rehabilitation Loans and Grants Program-The City of Huntington Beach-
April 5, 2010," hereafter referred to as "the Policy," a copy of which is attached hereto as
Exhibit "A" and incorporated by this reference as though fully set forth herein, is hereby
adopted and approved.
2. Authorization is hereby given to Agency staff to administer the various
loan and grant programs described in the Policy in accordance with the rules, regulations
and guidelines set forth therein.
3. The Policy shall become effective on April 5, 2010; shall supersede any
existing housing rehabilitation loan policies utilized by Agency staff, and shall apply to
all loans or grants approved or made by the Agency on or after April 5, 2010.
07-1152.001/44999 1
Resolution No. 381
PASSED AND ADOPTED by the Redevelopment Agency of the City of
Huntington Beach at a regular meeting thereof held on the 5th day of
April , 2010.
REVIEW D APPROVED:
Exe Me Oirector Th—Z-64an
INITIATED AND APPROVED:
Deputy Executive Direct
A ROVED AS TO FORM:
A ency Counsel
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07-1152.001/44999 2
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April 2010
TABLE OF CONTENTS
CHAPTER 1 - INTRODUCTION.........................................................................................................4
CHAPTER 2 - PROGRAM..................................................................................................................5
GENERAL.........................................................................................................................................5
HOUSING REHAB►LITATION PROGRAM ................................................................................................5
DEFERRED PAYMENT LOANS (DPL)...................................................................................................5
REHABILITATION GRANTS..................................................................................................................6
CHAPTER 3 - PROGRAM REQUIREMENTS....................................................................................7
GENERAL.........................................................................................................................................7
ELIGIBILITY.......................................................................................................................................7
APPLICATION CONSIDERATION FACTORS ...........................................................................................8
APPLICATIONFEE.............................................................................................................................8
DETERMINING INTEREST RATES.........................................................................................................8
LOANPAYMENTS..............................................................................................................................8
PREPAYMENT PENALTY.....................................................................................................................9
MAKE PAYMENTS ON ALL DEBTS........................................................................................................9
PRIMARY RESIDENCE........................................................................................................................9
PROPERTY MAINTENANCE...............................................................................................................10
FIRE AND HAZARD INSURANCE ........................................................................................................10
FLOODINSURANCE.........................................................................................................................10
PROPERTY TAXES AND HOMEOWNER ASSOCIATION DUES ................................................................10
USEOF FUNDS...............................................................................................................................10
TIMING OF REHABILITATION PROJECTS ............................................................................................11
NON-DISCRIMINATION .....................................................................................................................11
COMPLAINT PROCEDURES ..............................................................................................................11
CHAPTER4 - PROCESSING...........................................................................................................12
GENERAL.......................................................................................................................................12
THEAPPLICATION...........................................................................................................................12
APPLICATIONLOG...........................................................................................................................13
QUALIFYING REHABILITATION LOANS ...............................................................................................13
LOAN UNDERWRITING/QUALIFYING FORM........................................................................................13
LOW INCOME HOUSEHOLD QUALIFICATION.......................................................................................13
INCOME..........................................................................................................................................13
DEBT TO INCOME RATIO..................................................................................................................14
LOAN TO VALUE RATIO ...................................................................................................................14
INCOMEHISTORY ...........................................................................................................................14
VERIFICATIONS...............................................................................................................................15
TITLEINSURANCE...........................................................................................................................15
PRELIMINARY PROPERTY INSPECTION..............................................................................................15
LOANAPPROVAL ............................................................................................................................16
SELECTION OF CONTRACTORS........................................................................................................16
CONFLICT OF INTEREST ..................................................................................................................17
BONUS, COMMISSION OR FEE..........................................................................................................17
ACCEPTABLE CONTRACTS...............................................................................................................17
CHANGEORDERS...........................................................................................................................17
CONSTRUCTION PROGRESS INSPECTIONS .......................................................................................18
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FUNDINGTHE LOAN ........................................................................................................................18
CONTRACTOR LIEN RELEASES ........................................................................................................19
FINALINSPECTION ..........................................................................................................................19
ACCEPTANCEOF WORK..................................................................................................................19
POSTFUNDING AUDIT.....................................................................................................................19
CHAPTER 5 - DOCUMENTATION...................................................................................................20
GENERAL.......................................................................................................................................20
DOCUMENTSREQUIRED..................................................................................................................20
PROMISSORYNOTE........................................................................................................................20
DEEDOF TRUST............................................................................................:................................21
LIEN AGAINST MOBILEHOME TITLE...................................................................................................21
DISCLOSURES AND NOTICES...........................................................................................................22
HISTORIC PRESERVATION COMPLIANCE...........................................................................................24
NOTICE OF OPPORTUNITY TO RESCIND TRANSACTION......................................................................24
NOTICE TO CONTRACTOR AND HOMEOWNER OF CONTRACTOR PROVISIONS......................................24
SAFEGUARDINGDOCUMENTS..........................................................................................................24
CHAPTER 6 - LOAN MAINTENANCE AND ACCOUNTING ...........................................................25
GENERAL.......................................................................................................................................25
FILEORGANIZATION........................................................................................................................25
ACCOUNTING FOR DEFERRED REPAYMENT LOANS ...........................................................................26
CHARGE-OFFS...............................................................................................................................26
PARTIAL REPAYMENT UPON SALE OR REFINANCE ............................................................................26
LOANPAYOFFS ..............................................................................................................................26
RESPONDING TO A REQUEST FOR BENEFICIARY'S DEMAND...............................................................27
RECONVEYING THE TRUST DEED.....................................................................................................27
DEFAULTS......................................................................................................................................28
SUBORDINATION.............................................................................................................................28
CLOSINGTHE LOAN FILE.................................................................................................................30
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LIST OF APPENDICES
Appendix A—Additional Loan Requirements for Duplexes, Triplexes and Fourplexes
Appendix B— Emergency Rehabilitation Grant Application
Appendix C — Single-Family Rehabilitation Loan Application
Appendix D— Rehabilitation Loan Qualifying Sheet
Appendix E —Authorization for Release of Information Form
Appendix F— Loan Approval Form
Appendix G — California Code of Regulation Title 25 Housing and Community
Development, Section 6914— Gross Income Defined
Appendix H — Right of Entry Agreement
Appendix I — Sample Escrow Disbursement Agreement
Appendix J—Authorization of Loan Disbursement Form
Appendix K— Sample Escrow Control Instructions
Appendix L— Single-Family Home Promissory Note
Appendix M — Mobilehome Promissory Note
Appendix N — Deed of Trust Form and Provisions
Appendix O— Mobilehome Statement to Encumber
Appendix P— Mobilehome Statement of Lien
Appendix Q —Authorization to Access Records Form
Appendix R— Fair Lending Notice
Appendix S - Regulation Z
Appendix T— Sample Contract Between Homeowner and General Contractor
Appendix U — Notice to Proceed Form
Appendix V— Loan Subordination Policy and Application
Appendix W— Loan Subordination Request Form
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Definitions
The following defined terms apply throughout these loan programs guidelines unless
otherwise specified herein:
1. "Approval and Revisions of Policies and Procedures" means a City Council action to
amend the adopted rehabilitation loan and grant programs policies and procedures.
2. "CDBG" means Community Development Block Grant funds.
3. "Certificate of Title" means a record of property ownership. The certificate of title will
tell the prospective buyer the size and general shape of the section (property), who
owns it and whether there are mortgages, leases, rights of way or other interests
registered against the title. It will also tell you whether the land is freehold or
leasehold.
4. "Eligible Contractor" means a building contractor who has a current and valid State of
California contractor's license, City business license and valid insurance.
5. "City" means the City of Huntington Beach, California.
6. "City Council" means the City Council of the City of Huntington Beach.
7. "County" means the County of Orange, California.
8. "Deeds of Trust" means when taking out a loan to buy a house, the borrower is
required to sign a promissory note (or "note") that legally obligates the borrower to
pay back the money. At the same time, the borrower gives the lender a mortgage, or
a lien on the house that provides the lender with a security interest in the property..
This means that the borrower puts the house up as collateral for repayment of the
loan. If the borrower fails to pay the loan, the mortgage allows the lender to foreclose
on the property. In some states, the security interest in the house is called a "deed of
trust," which is essentially the same thing as a mortgage.
9. "Director of Economic Development" (or designee) means the City official that is
authorized to make discretionary approvals; and reviews and rules on any appeal of a
decision made by the Program Administrator. This City official also rules on any
dispute pertaining to the administration of the program as provided in the guidelines
for Homeowner Rehabilitation Loans and Grants Program.
10. "DPL" means Deferred Payment Loans for which payment of the principal and
accrued interest is deferred until the property is sold, transferred, or refinanced.
11. "Economic Development Department" means the Economic Development Department
of the City of Huntington Beach which is also the Redevelopment Agency staff.
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12. "Grant Agreement" means the agreement between the Redevelopment Agency and
the Participant (either single-family or mobilehome owner) describing the scope of
work, disbursement of Agency Grant proceeds, use of the property to verify owner
occupancy and income eligibility, and conditions of defaults, remedies and
termination.
13. "HCD" means the California Department of Housing and Community Development.
14. "Homeowners" includes owners of single-family detached homes, townhomes,
duplexes, triplexes, fourplexes and mobilehomes. Homeowners are required to
reside on the property as their primary residence.
15. "Housing Manager" means the Housing and Real Estate Manager in the Economic
Development Department of the City of Huntington Beach. The Housing Manager
may approve an exception to the qualifying debt to income ratio for a loan applicant.
16. "HQS" means HUD designated Housing Quality Standards.
17. "HUD" means the United States Department of Housing and Urban Development.
18. "Lead Based Paint Standards" means the 1992 Housing and Community
Development Act as amended in 1999 which includes regulations requiring that
Federally funded housing rehabilitation programs assess lead-based paint risks and
abate hazards in specific circumstances. For more complete details regarding lead-
based paint regulation requirements, refer to Title X of the HCD Act (a copy of this
regulation is maintained in the Economic Development Department).
19. "Loan Agreement" means that portion of the City of Huntington Beach DPL
Promissory Note which contains the terms of the loan agreement between a
Homeowner and the City.
20. "Loan Eligibility Requirements" means the requirements that must be met in order to
qualify for a DPL.
21. "Low Income Households" refers to households whose incomes meet the standards
defined by 24CFR570.3 for the use of CDBG funds. For the purposes of the
Affordable Homeowner Rehabilitation Loans and Grants Program, the term Low
Income Households means low- and moderate-income households that have an
income less than the Section 8 low income limit established by HUD The qualified
household income levels are published by HUD annually.
22. "Notice of Right to Rescind Transaction" means in the case of any consumer credit
transaction in which a security interest, is or will be retained or acquired in any
property which is used as the principal dwelling of the person to whom credit is
extended, the obligor (borrower) shall have the right to rescind the transaction until
midnight of the third business day following the consummation of the transaction or
the delivery of the information and rescission forms required under this section
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together with a statement containing the material disclosures required under this
subchapter, whichever is later, by notifying the creditor.
23. "Program Administrator" is a staff member or firm contracted by the City to administer
the Homeowner Rehabilitation Loans and Grants Program.
24. "Promissory Note" is one of the required loan documents that defines the essential
terms of the loan and describes the repayment obligation of the borrower.
25. "Rehabilitation Loan Database" means the City's database of each loan including
amount, borrower name, address, date and comments.
26. "Single-Family Home" means single-family homes, townhomes, mobilehomes,
duplexes, triplexes and fourplexes.
27. "Truth in Lending Statements" (also referred to as Regulation Z) means Mortgage
lenders are required to provide the borrower a truth in lending (TIL) statement
containing information on the annual percentage rate, the finance charge, the amount
financed, and the total payments required. Within 3 days of the time application for
the mortgage, the lender is required to provide the borrower with a "good faith
estimate of settlement costs," or TIL, based on his or her understanding of purchase
contract. This estimate should provide the buyer a good idea of how much cash will
be needed at closing to cover pro-rated taxes, first month's interest, and other
settlement costs.
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CHAPTERA INTRODUCTION
The City of Huntington Beach through its Affordable Homeowner Rehabilitation Loans and
Grants Program (Program) provides deferred payment rehabilitation loans and grants to
Homeowners that are Low Income Households. Qualifying properties include single-family
homes, townhomes, mobilehomes, duplexes, triplexes, and fourplexes. The City uses
Community Development Block Grant funds to provide these loans and grants. The City
Council authorizes funding, and the Economic Development Department either contracts
with a consulting firm (Program Administrator) to administer the Program or administers the
Program in-house. The primary objective of the Program is to provide financing to
households who would otherwise have difficulty paying for the repairs necessary to bring
their home to a decent, safe and sanitary quality level. Loans are underwritten and
approved by the Program Administrator. The underwriting process is intended to give the
City assurance that the borrower is creditworthy, has the ability to repay the debt, and has
sufficient collateral to minimize the chance for loan default. Property owners may contact the
Economic Development Department to obtain the most current Program information.
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P,HAPTER
rR.0 ® 1
General
The Affordable Homeowner Rehabilitation Loans and Grants Program is authorized by the
City Council and administered by the Program Administrator based upon the Processing
Procedures for Affordable Homeowner Rehabilitation Loans and Grants Program
(Processing Procedures) adopted by the City Council. The Processing Procedures are
authorized by the City Council. City staff may make technical changes to the Processing
Procedures or any form, application, agreement or other document used to implement the
Affordable Homeowner Loans and Grants Program. Substantive additions or policy
revisions outside of clarification or technical corrections require the approval of the City
Council. At the recommendation of the Program Administrator and at the Director of
Economic Development's sole discretion, an applicant's written request for a waiver of
certain Loan Eligibility Requirements may be considered. Waivers are rare, but may include
such things as allowing an alternative type of documentation as proof of income or the use of
other alternative means to accommodate special circumstances. All waiver requests shall
include a detailed explanation of the circumstances surrounding the request, and why the
request is reasonable and necessary for the safety or well-being of the borrower/grantee.
The City will at no time consider or grant a waiver that is inconsistent with established HUD
CDBG Guidelines.
Housing Rehabilitation Program
The City offers both grants and loans for ownership housing rehabilitation. The ongoing
funding is authorized by the City Council upon the recommendation of the Director of
Economic Development. The loans are offered at below market interest rates to qualified
Homeowners that are Low Income Households. The grants provide money for smaller
projects that can range from correcting deferred maintenance to correcting health and safety
defects or for lead based paint abatement. Details for these programs are provided below.
Deferred Payment Loans (DPL)
The rehabilitation loans are funded from HUD CDBG money. The amount of available
funding varies annually. Homeowners that are Low Income Households are eligible to apply
for loans of up to $75,000 under the DPL. Individual loans are evaluated, underwritten, and
approved by the Program Administrator. The funding limit is set at $75,000 for single family
homes, condominiums and multi-family residencies. Mobilehomes will be capped at
$15,000. Funding limits for individual loans may be increased by up to $10,000 ($5,000 for
mobilehomes) if deemed necessary to meet the HUD HQS requirements. Any increase
above the $75,000 loan limit must be approved by the Director of Economic Development.
Prior recommendation for approval by the Program Administrator will be required before a
request to exceed the funding limits will be submitted to the Director of Economic
Development for approval. The current household income limits are available in the
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Economic Development Department. The interest rate for these loans is 3% subject to
change at the direction of the Director of Economic Development.
Payment of the principal and accrued interest is deferred until the property is sold,
transferred, or refinanced. However, if the DPL is repaid within two years, a prepayment
penalty will be applied. This requirement is imposed to ensure that the loan funds are not
used on a speculative basis to enhance the home's value for resale purposes.
Rehabilitation Grants
The City offers a one-time grant not to exceed $10,000 to Homeowners that are Low Income
Households for deferred maintenance and health and safety-related household repairs.
Deferred maintenance can include paint, siding replacement, window and door replacement
and roof repair or removal of any condition of blight. Household repairs may include
restoration or replacement of inoperable or severely deteriorated plumbing, heating, and
electrical systems, structural and appliance replacement. A Homeowner is not eligible to
receive a grant if a DPL has been funded within the past five years unless extreme
emergency can be established. However, if additional funds are needed for emergency
repairs the amount of the additional funds will be added to the loan balance. If an owner
who receives a grant applies to and is approved for a DPL within five years of receipt of the
grant funds, the grant amount will be added to and become a part of the loan. All grants
extended in addition to DPL loans must be approved by the Director of Economic
Development prior to funding. A grant will not be extended if the estimated cost of repairs
required to meet the health and safety code exceeds $10,000. In this case, the borrower
may apply for a DPL.
The Program Administrator must approve the proposed grant and scope of work. With this
approval, the grant recipient may proceed with the authorized rehabilitation. After work is
completed and inspected, the Homeowner must submit to the City either an original receipt
or invoice. A licensed contractor must perform all work.
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General
There are a number of regulatory requirements associated with Federally funded municipal
housing rehabilitation loan programs. The City has also elected to impose certain additional
restrictions in order to assure that the Affordable Homeowner Rehabilitation Loans and
Grants Program will be utilized in a manner that best serves the community. It is not
intended for the City to make loans that are unreasonably risky thus jeopardizing its
investment. The requirements discussed below are designed to address these matters. The
loan requirements pertain to owners of single-family homes, townhomes, and mobilehomes.
Additional requirements for duplexes, triplexes, and fourplexes are provided in Appendix A.
Eligibility
The City will only consider loan and grant applications for homes that satisfy the following
minimum requirements:
• The home must be located within the City of Huntington Beach.
• The home must be owner occupied.
• If the property is located within a flood zone, adequate flood insurance is required.
• The property must be zoned for appropriate residential use.
® The City's Municipal Code must allow the proposed improvements.
• The rehabilitation must bring the property (including all units within the property) into
compliance with existing City building and zoning codes and HUD HQS.
No property can have loans that cumulatively exceed 80% of the property's value —
this includes the rehabilitation loan.
The debt to income ratio cannot exceed 50% the Homeowner's income.
The Homeowner must qualify as a Low Income Household.
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Application Consideration Factors
Loan and grant applicants will be considered on a first-come, first-serve basis and approved
as funding permits. The following factors will be analyzed when approving projects..
• Availability of funds
• Remaining economic life of the proposed improvements on the property
• Location of the project — although the programs are offered citywide, preference will
be granted to those homes located within the Redevelopment Agency's Project Areas
or CBDG Enhancement Areas. Established CDBG Enhancement Areas shall have
first priority in the case of limited funds.
• Extent of rehabilitation required to meet HUD HQS and to meet building requirements
such as architectural compatibility with the neighborhood
• The degree of impact the rehabilitation of the home will have on the neighborhood
• Equity position of the borrower
• Credit worthiness of the borrower
• For duplexes, triplexes, and fourplexes, the Homeowner agrees to restrict at a
minimum 51% of the rental units to Low Income tenants at the defined affordable
rental rates until the rehabilitation loan is repaid in full.
Application Fee
Borrowers must pay a loan-processing fee of $500 for title search, title update, appraisal,
credit report, and recording as needed. The fee may be paid from loan proceeds. The fee
may be adjusted to reflect current market conditions at the discretion of the Director of
Economic Development.
Determining Interest Rates
The DPL interest rate is 3%. Should the Director of Economic Development determine that
the interest rate no longer best reflects current market conditions, at his/her discretion
another interest rate may be adopted.
Loan Payments
The rehabilitation loans must be repaid under the following terms:
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® Unless loan documents specifically allow an existing loan to be assumed by a new
owner upon the sale or transfer of the property, the City will require that the loan be
repaid by the borrower according to the terms of the Promissory Note and Loan
Agreement when a property is sold or transferred, transferred to a trust or refinanced.
O Simple interest accrues on the principal balance until the loan is repaid. The accrued
interest must be paid concurrently with the repayment of the principal balance.
® Immediate payment of the principal balance and accrued interest is triggered by the
borrower's default of the loan agreement (see Chapter 6 — "Defaults").
Loans must follow the individual program guidelines as described below in this chapter.
Prepayment Penalty
If a rehabilitation loan is paid within two years of the date of the loan agreement, there will be
a prepayment penalty equal to the maximum amount the law allows at the time of default.
This penalty may be waived at the discretion of the Director of Economic Development. If a
prepayment penalty is waived for cause, the circumstances and justification must be clearly
documented in the loan file. A loan may be paid in full with no penalties assessed at any
time after two years. The purpose of this condition is to preclude borrowers from using these
funds solely for the purpose of upgrading a home and then putting the unit up for sale. The
program's basic purpose is to help people repair the home in which they intend to live.
Make Payments on all Debts
Borrowers must agree to remain current on their payments for all debts recorded against the
property. Should a borrower default on any debt recorded against the property, thus
triggering foreclosure proceedings, the City would be at risk of losing its investment. Failure
to remain in good standing with all creditors who have a claim against the property is a
cause of default and would make the rehabilitation loan immediately due and payable.
Primary Residence
Under the rehabilitation loan and grant programs, the borrower is required to own and reside
in the property being financed, and have a likelihood of continuing to reside in the property
for a minimum of two years. For duplexes, triplexes and fourplexes, the Homeowner must
reside in one of the units, and rent at least 51% of the other units to qualified Low Income
Households. Any violation of these requirements represents an event of default.
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Property Maintenance
The borrower is required to maintain the property in good condition during the term of the
rehabilitation loan (15 years) and in compliance with applicable City and State laws and
codes. The applicant must further agree to comply with HQS for the duration of the loan.
Fire and Hazard Insurance
The home taken as collateral for the rehabilitation loan must have adequate insurance
coverage to protect the City from loss due to fire or other hazards. The property must be
insured for an amount equal to the greater of: (1) the outstanding loans on the property, or
(2) the replacement cost of the improvements. Borrowers are required to provide evidence
of insurance during the term of the loan on an annual basis. The City must be designated on
such insurance as an additional loss payee. Non-payment of insurance is an event of
default and will make the loan due and payable.
The borrower must certify the details of the coverage before a loan is disbursed by providing
the City with the original policy or binder. Policies must show an inception date prior to, or
corresponding with, the date of rehabilitation loan funding.
Flood Insurance
During the credit evaluation process, the City will determine if the property is located in a
special flood hazard area by reviewing flood maps located at the Building Department. If the
property is found to be located within a designated special flood zone area, the borrower will
be required to obtain flood insurance. Evidence of such insurance must be received prior to
rehabilitation loan funding.
Property Taxes and Homeowner Association Dues
Borrowers are required to pay all property taxes and Homeowner's association dues during
the term of the loan. Non-payment is an event of default and will make the rehabilitation
loan due and payable.
Use of Funds
Rehabilitation loan funds are for the sole purpose of financing construction or reimbursing
construction expenditures as identified in the approved scope of work. In the event the City
determines that a borrower misused loan funds, the loan will become immediately due and
payable.
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Timing of Rehabilitation Projects
After the loan has been approved and loan documents have been signed, the borrower will
have 30 days to commence construction work. All work must be completed within a period
not to exceed 180 days.
The Borrower (Homeowner and/or Homeowner's contractor) will diligently purse the
rehabilitation construction within the schedule identified above. The Program Administrator
may extend, in writing, the deadline for completing improvements for a period reasonably
necessary to overcome a delay if the delay is due to a cause that is beyond the Borrower's
reasonable control. A cause is beyond the Borrower's reasonable control if the Borrower
with reasonable diligence, could not have foreseen and avoided the cause. Such causes
include, but, are not limited to, acts of God; unusually severe weather or flood; concealed
conditions; and unavoidable inability to secure materials, supplies tools or transportation.
Non-discrimination
Applicants will not be discriminated against on the basis of race, color, religion, sex, sexual
orientation, creed, ancestry, national or ethnic origin, age, family or marital status, handicap
or disability. In addition, applicants may not discriminate in the lease, rental, use,
occupancy, and awarding of contracts with respect to the property to be rehabilitated with
the assistance of a rehabilitation program loan or grant.
Complaint Procedures
Complaints concerning the Affordable Homeowner Rehabilitation Loans and Grants Program
must be submitted in writing to the Program Administrator. Complaints will be accepted only
if they are in writing and are received within 30 days from the event giving rise to the
complaint. The Program Administrator will contact the complainant and attempt to resolve
the problem. A written response will be made to the complainant within 10 business days.
If a complainant is not satisfied with the written response, a request for an appeal may be
filed with the Housing Manager. The written request must identify the reasons for the appeal
and must be received by the Housing Manager within 15 days from the date of the Program
Administrator's written response. In the event the request does not meet these
requirements, the complainant will be notified that the appeal request is denied; otherwise,
the complainant will be invited to meet with the Housing Manager and Program Administrator
to express his/her complaint. The response of the Housing Manager will be made in writing
within 10 business days. If the complainant is not satisfied with review and decision of the
Housing Manager the complainant may appeal the decision to the Director of Economic
Development. The Director will review the complaint and then make a final ruling on the
issue. The decision of the Director of Economic Development will be final.
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CHAPTER 4 - PROCESSING
General
The process of handling a loan from the acceptance of an application through funding is
called loan processing. Upon approval of the loan the City and applicant will enter into a
loan agreement followed by the funding of the loan. Included in Appendix B are sample
Loan Agreements (Single-Family Deferred Loan, Single-Family Rehabilitation Grant, and
Mobilehome Rehabilitation Grant). The following is a step-by-step outline of the loan
processing procedures for the rehabilitation loan and grant programs.
The Application
Applicants for the City's Affordable Homeowner Rehabilitation and Loans and Grants
Program must provide the information identified on Grant Application (Appendix B) and the
information on the Loan Application (Appendix C). The applications will be reviewed by the
Program Administrator. A loan applicant's qualifying criteria will be summarized on the
Rehabilitation Loan Qualifying Sheet (Appendix D). The information provided on these
forms is summarized below:
• Property information and purpose of loan
• A description of the proposed repairs
• Applicant information and proof of residency
• Employment information
• Income and expense information
• Assets and liabilities information
• Declarations (credit history, citizenship, ethnicity)l
• Schedule of real estate owned (for owners of duplexes, triplexes and fourplexes)
• Schedule of rents for owners of duplexes, triplexes and fourplexes that are for
additional loan requirements (for owners of duplexes, triplexes and fourplexes)
All applicants are required to sign an Authorization for Release of Information Form
(Appendix E) which allows the release to the Agency of any materials which are deemed
necessary to complete and verify the application. All submitted applications are reviewed for
1 Information on citizenship and ethnicity is only included on the Loan Application.
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completeness and program eligibility. When an applicant is determined to be eligible based
on the information in the application, a preliminary property inspection, credit report, title,
appraisal and lead-based paint inspection are ordered and scheduled, as needed.
Application Log
As the City receives each application, it is recorded in an application log. This procedure
assists City staff in tracking individual applications, and allows for management oversight of
the loan origination process.
Qualifying Rehabilitation Loans
Upon receipt of a completed application package, the Program Administrator will verify the
applicant's eligibility. The applicant's financial information is reviewed for compliance with
the rehabilitation loan and grant parameters. Issues such as debt to income ratio, loan to
value ratio, and credit history are evaluated at that time. The Loan Approval Form is
provided as Appendix F.
Loan Underwriting/Qualifying Form
Upon receipt of completed application package, the Program Administrator will perform the
underwriting using the Qualifying Sheet. This form is designed to guide the Program
Administrator through the general approval criteria of the loan program.
Low Income Household Qualification
Classification within Low Income category is based upon household size and the gross
income of all adult individuals who reside within the household. HUD publishes updated
income guidelines annually for Orange County; these guidelines are used to establish the
maximum household income for each household size.
As part of the underwriting review, staff members will verify that the Homeowner and tenants
(if applicable) qualify as Low Income Households as defined by CDBG. The Program
Administrator will review the applicant's scope of work at this point in the process.
Income
For the purposes of the rehabilitation loan and grant programs the Gross Income calculation
is based on the California Code of Regulations Title 25 Section 6914 definition (Appendix G).
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Debt to Income Ratio
The applicant's monthly expenses such as housing costs, auto loans, revolving charge
accounts, alimony, and child support must be identified in the application. The applicant's
debt to income ratio is then calculated by dividing the monthly expenses by the monthly
gross income.
The debt to income ratio is one of the basic criteria used to determine if an applicant has the
ability to repay a home mortgage. For the rehabilitation loan and grant programs the
applicant's total debt to income ratio may not be higher than 50%, unless the Program
Administrator recommends an exception subject to approval by the Housing Manager.
Loan to Value Ratio
The total of all liens on the subject property, including the City loan, may not exceed 80% of
the after-rehabilitation appraised value of the home. The Director of Economic Development
may set lower Loan to Value limits, depending on current market conditions. All existing and
proposed encumbrances on the property are determined, and a comparison of the
encumbrances to the value of the property is made. The value of the property is then
established. The loan to value ratio is calculated by dividing the encumbrances by the sum
of the appraised value at the time the loan is qualified and the City's loan amount.
When there is more than one existing loan on a property, and the City will be required to
accept a third position, the third position loans will receive more stringent review and risk
analysis than those in a first or second position. The City will not accept any lien position
lower than third.
Income History
To verify that the borrower has the ability to pay their existing monthly expenses, salaried
applicants must provide written verification of two years income. Two years of records is
required to verify a pattern of income. Only the most recent year is used for determining
whether the household qualifies under the established income limitations. At the discretion
of the Program Administrator the verification may be in the form of one or more of the
following: completed and signed Federal Tax Returns, W-2 forms, pay stubs, and/or direct
employment verification forms, and bank statements in case of direct deposited funds, such
as pensions or Social Security. In the case of authorized waivers, as discussed in the
"Approval and Revision of Policies and Procedures", the Director of Economic Development
may require or accept an alternate form of income verification.
Self-employed applicants or those with sole-proprietor businesses must also provide a
minimum of two years income history. Minimum acceptable verification must be in the form
of completed and signed Federal Tax Returns.
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Verifications
All income and asset sources must be verified independently of the information provided on
the borrower's application. It is the responsibility of the City to obtain and evaluate
verifications for accuracy.
One method of evaluating accuracy of an applicant's financial information is to compare
items listed on the credit report with the items listed on the application. The applicant must
account for any item not listed in one place or the other.
Any derogatory credit information must be fully explained in writing by the borrower.
Significant derogatory credit information may be reason for denial of the loan.
Title Insurance
The City's ability to lend money where real estate is being used as collateral is dependent in
most cases upon the applicant having clear title to the property and being able to give the
City a secured interest in the property. In order to assure that the borrower has accurately
represented title to real estate, all such loans must be supported by a preliminary title report
obtained by the City.
A Title Officer prepares a title report after a search of public records, maps, and other
relevant documents. This report ascertains title ownership and the existence of easements,
restrictions, rights of way, conditions, encumbrances, or other matters affecting the title to, or
use of, real property. A visual inspection of the property may also be made.
A preliminary title report is a signed and dated formal report that sets out in detail the current
conditions to a parcel of land. The following matters must be checked carefully when
reviewing a title report:
a The estate or interest covered
® -The recorded owner
® The parcel of land
® Exceptions, liens, and encumbrances
® Conveyances
Preliminary Property Inspection
The applicant shall agree that the City can require inspections of the property to be
conducted at any time during the rehabilitation process to assure compliance with City and
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State Building Codes, HUD HQS and HUD Lead Based Paint Standards. The applicant
must also permit all other inspections deemed necessary regarding the property such as the
rehabilitation work, materials, equipment, payrolls, and conditions of employment pertaining
to the work.
After an applicant has been determined initially eligible for rehabilitation assistance, a
preliminary property inspection will be scheduled. Prior to entry by City staff or authorized
representative, the owner shall agree to the right of entry to inspect work on the property in
consideration of eligibility for approval of a loan and approval of completed work by signing
the Right of Entry Agreement between the City and the owner (Appendix H). This inspection
will allow the Program Administrator to verify the extent of repairs needed to correct City
code violations or to ascertain the existence of other property deficiencies. The Scope of
Work Report will need to be approved by the Program Administrator at the time of loan
approval. Only items identified in this scope of work may be funded by the City's loan,
unless change orders are necessary to address unknown items.
Loan Approval
Upon the receipt and analysis of all required application information by the City, the Program
Administrator will evaluate the application and other pertinent documentation. Based on this
information, the Program Administrator will recommend approval or denial of the application..
The Loan Approval Form is used to determine whether the applicant has sufficiently satisfied
each approval criteria for a loan. The Program Administrator and the City will sign the Loan
Approval Form to document approval of the loan.
Selection of Contractors
Contracting must be done on a competitive bid basis. Prior to loan approval, the Program
Administrator will work with the property owner to prioritize the necessary scope of work, and ,
the borrower will request bids from home improvement contractors. The Homeowner must
show due diligence or evidence of the solicitation of at least three bids, and the contract
must be awarded to the lowest-cost, qualified bidder who meets the City's licensing and
insurance requirements. The applicant may not award any contract for rehabilitation work to
any contractor who, at the time of bid acceptance, does not have a current and valid State of
California contractor's license, City business license or valid insurance. A contract may not
be awarded to a contractor who has been disqualified by the City, HCD, or HUD. The City
reserves the right to disqualify any contractor it deems unqualified to carry out the work to be
performed. A Homeowner is eligible to perform his/her work provided they have the proper
license to perform said work. In this case, the loan or grant will only pay for materials (not
labor).
When a contractor has been selected and loan approval has been obtained and lien or deed
of trust has been secured against the owner's property, the Program Administrator will
authorize work to begin. In the event a borrower begins construction work before Program
Administrator approval is given, such work will not be an eligible activity under the
rehabilitation loan or grant.
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Conflict of Interest
No member of the governing body of the City or an employee who exercises any functions or
responsibilities in the administration of this program can have any interest, direct or indirect,
in the proceeds of the loan, grant or in any contract entered into by the applicant for the
performance of work financed. No City employee can have any financial interest in any
contract, subcontract, or agreement either for themselves or those with whom they have
business or immediate family ties. City employees who qualify as Low Income Households
will be permitted to participate in the Homeowner Rehabilitation Loans and Grants Program.
However, in no instance shall an employee of the Economic Development Department be
permitted to apply and participate in the programs. With the exception of a confirmed, dire
emergency, all applications received from City employees are to be considered and
processed in the same manner and order as all other applications, using the same
established qualifying criteria as approved herein. At no time shall an application received
from a City employee be given preferential treatment nor shall an employee applicant be
offered preferential terms in connection with a loan or grant.
Bonus, Commission or Fee
The applicant may not pay a bonus, commission, or fee to any individual or business for the
purpose of obtaining approval of the loan application or for any other approval to complete
the rehabilitation work financed.
Acceptable Contracts
Three forms of contracting will be allowed under this program as follows:
® Contracts between the Homeowner and a general contractor (a sample contract is
provided in Appendix 1);
® Contracts between the Homeowner and a subcontractor; and
® Contracts between the Homeowner (acting as a contractor) and vendors.
All general contractors, Homeowners acting as contractors and subcontractors must be
licensed and in good standing with the State of California and the City of Huntington Beach.
Homeowners acting as their own contractor cannot be compensated for labor.
Change Orders
All change orders to the contract require the signature of both the contractor and the
borrower. The Program Administrator must also approve change orders in order for them to
be included in the rehabilitation loan.
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Construction Progress Inspections
From time to time during construction, a contractor may request payment for work
completed. Before payment will be approved, the Program Administrator will inspect the
property to determine that the work has been completed or that an appropriate increment of
the work has been completed. A material and lien release must be supplied for the portion of
the work completed in an amount equal to the payment being made.
Funding the Loan
Upon loan approval by the Program Administrator and selection of qualified contractors by
the borrower, the Program Administrator will create material requisitions for each contractor
(material requisitions are used to open purchase orders). If payments are made through the
City, separate material requisitions are required for each individual contractor. Checks will
be made payable to the contractor or to an escrow company in the amount of the funds to be
disbursed per the loan agreement. All funding documents will be made part of the
permanent file.
When a purchase order is opened, a copy must be placed in the file, and one copy must be
given to the Economic Development Department's finance coordinator. A final copy must be
filed in the Department's purchase order file system.
Before funding preparation is complete, the City's Rehabilitation Loan Database must be
updated to include the new loan. The Director of Economic Development maintains this
database in Microsoft Access.
Prior to initiation of the work, the City may enter into an agreement with an escrow company
into which the loan amount will be deposited. The standard Escrow Disbursement
Agreement Form is provided in Appendix I. After each phase of work has been completed
and inspected, an invoice must be submitted to the City for payment. It is submitted to
Accounts Payable or to an escrow company contracted by the City to have a check printed
and provided to the contractor. A copy will be maintained in the permanent file. If an escrow
company disburses the funds, an Authorization of Loan Disbursement form, provided in
Appendix J, is sent to the escrow agent authorizing payment to the contractor. The escrow
agent will follow the "Control Instructions" (a sample is provided in Appendix K) to ensure all
contingencies have been meet prior to distribution of funds.
For loans existing prior to May 2007, a copy of the Promissory Note and the Loan Service
Set-up Form was forwarded to the City's loan service company. Monthly accounting
statements from the loan service company are reviewed and reconciled. The loan servicing
company sends out late letters to delinquent borrowers. In addition, the City may contact
delinquent borrowers and will document all conversations, correspondence, etc., in file.
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Contractor Lien Releases
After a contractor completes the approved rehabilitation work, a request for final payment
must be accompanied by a complete and signed lien release for all construction and material
liens whether or not recorded against the subject property.
Final Inspection
After all rehabilitation work is finished, the property will be inspected by the Homeowner and
the City to verify that the approved scope of work has been competed. This inspection is
required before the final loan disbursement will be approved.
Acceptance of Work
The City will not be a party to a construction contract. Through its rehabilitation loan and
grant programs, the City provides funding to projects and assists with monitoring the project
according to the approved scope of work. The City will not be a party to any claims or
disputes between the owner and contractor.
In the event a dispute arises between the Homeowner and the contractor concerning the
contracted scope of work, the City will refer the Homeowner and/or contractor to the State
Board of Contractors. The contractor and owner agree to protect, defend and hold harmless
the City for unpaid work, labor or materials with respect to the contractor's performance or
for the contractor's failure to complete work or within the agreed-upon period.
Post Funding Audit
The Program Administrator is responsible for reviewing all application and loan documents
for accuracy. Proper lien position, proper designation of Beneficiary/Trustor/Trustee,
adherence to program guidelines, and any special issues will also be reviewed. A checklist
will be provided and kept current with regard to City and CDBG required file documentation.
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General
Master loan documents for the DPL loan program are prepared by the City Attorney's Office.
Subsequently, individual loan documents are prepared by Program Administrator in
accordance with the City Attorney approved master documents..
Documents Required
The following loan documents are required for every DPL secured by real property:
Promissory Note
Deed of Trust
® Truth in Lending Statement _
Disclosures (i.e., Fair Lending, Lead-Based Paint)
® Notice of Opportunity to Rescind Transaction
® Minor Rehabilitation Environmental Review
® Notice to Contractor and Homeowner
Promissory Mote
As security for the City's rehabilitation loans, the borrower is required to sign a promissory note
secured by a deed of trust. The deed of trust will be recorded with the County Recorder's
Office. This document protects the City's investment should the borrower attempt to sell the
property or incur additional debt against the property before their loan with the City has been
repaid.
For a loan on a mobilehome, the borrower is required to allow placement of the City as the
Legal Owner on the mobilehome Certificate of Title (or as junior lien-holder if an existing loan
is on the Certificate of Title). The City must remain on the Certificate of Title until the
rehabilitation loan has been repaid in full.
The note defines the essential terms of the loan and describes the repayment obligation of the
borrower. Basic components include principal amount, interest rate, payment terms and
default provisions. Appendix L includes a Promissory Note for single-family homes and
Appendix M includes a Promissory Note for mobilehomes.
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Deed of Trust
The deed of trust creates a lien on real property serving as collateral for a loan. This lien
excludes personal property not affixed to the land, but includes personal property that is affixed
to the land including mobilehomes. There are three parties to a deed of trust: (1) the Trustor
(the borrower), (2) the trustee (for City loans, the Redevelopment Agency or a City appointed
title company will act as trustee), and (3) beneficiary (the City as the lender). Basic terms of
the deed of trust include:
0 A description of the promissory note that the trust deed secures
® A definition of the obligations of the borrower that the trust deed covers
• A legal description of the real property that is subject to the trust deed
• Warranties and covenants
0 Property insurance
0 Events of default
® Remedies
The deed of trust requires the Trustor's signature to be acknowledged in front of a notary
public, and must be recorded with the County Recorder. A Deed of Trust form is provided in
Appendix N.
Lien Against Mobilehome Title
Liens created against mobilehomes on rented spaces (mobilehome parks) are processed by
HCD. The formed used is entitled "Statement to Encumber" (Appendix O) or in the case of a
loan in second position or junior lienholder, the form used is entitled "Statement of Lien"
(Appendix P).
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Disclosures and Notices
Several different laws govern financial privacy rights. These include the California Right to
Financial Privacy Act and the Federal Right to Financial Privacy Act, both of which govern the
process of releasing a borrower's financial information. Essentially, these regulations allow a
lender to disclose a borrower's financial records only upon the receipt of legal process or with
the borrower's written authorization. The lender is then required to notify the borrower of the
receipt of legal process, unless ordered by the court not to do so.
Because credit and application information is not subject to public disclosure to anyone other
than the borrower, any request for such information by legal process or by anyone other than
the signer of the promissory note will be referred to the City Attorney's office for disposition.
Written requests by the borrower for copies of financial information may be handled directly by
the Program Administrator. A copy of the written request will be maintained in the loan file.
Authorization to access of private information and privacy disclosure notice is provided as
Appendix Q.
Various laws and regulations govern real estate-secured loans and require that lenders
provide applicants with certain information. These requirements are as follows:
• Truth in Lending — Regulation Z
Regulation Z is a consumer protection regulation that requires a lender to provide clear
and understandable credit terms to consumers granted credit under specific situations.
Regulation Z covers credit secured by any real property for any amount when granted to
consumers for personal and household purposes. A Truth in Lending document is
provided to the borrower disclosing the credit terms required by Regulation Z.
• Lead-Based Paint Hazard Warning
Applicants for rehabilitation assistance (and tenants in a property being rehabilitated)
must be provided with information regarding lead-based paint. Evidence of the receipt
of this information must be clearly documented in the loan file
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The lead-based paint abatement requirements are determined by the amount of funding the
City provides, as described in the following chart:
Required Activities to Address Lead-Based Paint
<$5,000 $5,000- $25,000 .>$25,000
Approach to Lead Do no harm Identify and control Identify and abate
Hazard Evaluation lead hazards lead hazards
and Reduction
Notification Yes Yes Yes
Lead Hazard 1. Paint Testing of 1. Paint Testing of 1. Paint Testing of
Evaluation surfaces to be surfaces to be surfaces to be
disturbed by disturbed by disturbed by
rehabilitation rehabilitation rehabilitation
2. Risk assessment 2. Risk assessment
Lead Hazard 1. Repair surfaces 1. Interim controls 1. Abatement
Reduction disturbed during 2. Lead safe work 2. Lead safe work
rehabilitation practices practices
2. Lead safe work 3. Clearance of unit 3. Clearance of unit
practices
3. Clearance of
work site
Any required lead-based paint inspections will be performed and paid for by the City in
compliance with State and Federal LBP regulations. The City will assist the Homeowner in
acquiring grants to pay for the treatment or abatement of all lead-based paint found, if grant
funds are available. Lead-based paint reports will be provided to the Homeowner and made
available to the contractors working on the property. Only a Certified Contractor can remove
the lead -based paint. The contractor engaged to remove the lead-based paint will not be paid
until evidence of a lead-based paint clearance is presented to the City. Any costs associated
with the removal or clearance of lead- based paint will be added to the rehabilitation loan or
grant. When these costs exceed the maximum loan or grant, the Director of Economic
Development can authorize increasing the loan or grant to pay for these Federally mandated
procedures up to a maximum loan amount of $60,000 including the cost of building
rehabilitation.
• Fair Lending and Disclosure Statement
Applicants for rehabilitation assistance must be provided with information on
discrimination in the provision of or in the availability of financial assistance. Evidence
of the receipt of the Fair Lending Notice must be included in the loan file. A copy of the
Fair lending Notice is included in Appendix R and Regulation Z is included in Appendix
S.
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Historic Preservation Compliance
Any property listed on the City, County, or State historic survey must obtain approval from the
City's Planning Department for any proposed exterior improvements. The requirement is
imposed to assure that the improvements are compatible with the style and architecture of the
building, and that they maintain or enhance the character of the property.
Notice of Opportunity to Rescind Transaction
Regulation Z allows consumers the right to cancel a loan transaction when a security interest
is taken in their personal residence. According to the regulation, the rescission period is three
business days. No funds may be disbursed, no service may be performed, and no materials
may be delivered in connection with the transaction until this time period has expired. The City
may, however, perfect its security interest and record the deed of trust prior to the expiration of
this time period.
Notice to Contractor and Homeowner of Contractor Provisions
The Homeowner/Contractor Agreement helps establish the responsibilities of the Homeowner
and contractor as they relate to the construction contract, program guidelines and procedures,
requirements of the lender (City), state and federal government, and the project in general.
The Homeowner and contractor must both abide by the provisions contained within the
Agreement, as evidenced by their signatures, or the loan will not be funded. A sample
Homeowner/Contractor Agreement is provided in Appendix T.
Safeguarding Documents
Original loan documents (i.e. note and property deed of trust or mobilehome title) are to be
maintained in a secure and fire resistant location if possible in the Economic Development
Department or another location selected by the Economic Development Department. A
borrowers' private information will be protected by the City to the maximum extent permitted by
law. The City maintains and grants access to its borrowers' information only in accordance.
with its internal security standards which restricts access to non-public personnel, or in
response to a required random audit of City Housing Loan Program files. When a loan is paid
in full or about to be paid in full, these documents will be released to a licensed escrow
company, or in certain circumstances, they will be reconveyed directly to the borrower by the
City.
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1
General
During the life of a loan several issues can arise which cause the City to revisit the loan file.
Some of those issues may involve defaults, partial payments, full repayment, or property
insurance cancellation. This chapter addresses those situations that may occur between the
time the loan has been funded and the point of full repayment of the loan.
File Organization
Loan file organization is an important aspect of loan portfolio management. Rehabilitation
Loan files will be organized according to a basic credit file format. The objectives of this
procedure are-
0 To ensure that all files contain the documentation necessary to support sound credit
decisions.
® To ensure that files are organized in a way that is efficient and clearly understood by
individuals requiring access to the files.
There are six sections to the loan file and they are as follows:
1. Correspondence (letters, documentation and/or an accounting of events, etc.).
2. Application (in this order: signed Loan Approval Form; completed Qualifying Sheet;
original loan application; required signed disclosures; income and asset information and
verification; mortgage and rent documentation; insurance documentation; and federal
tax forms).
3. Title Information/Appraisal (property profiles; appraisals; property comparable
information; preliminary title reports and information; preliminary mobilehome title and
registration documents and information; completed environmental review and pictures
(photographs); lead based paint inspection report and lead base paint clearance (if
applicable); and credit report).
4. Fund Disbursement (record of all loan funding and disbursements, copies of all
construction invoices, lien releases, disbursement authorizations, checks issued,
escrow disbursement agreement, copy of funding check from City and associated back
up documentation).
5. Loan Documents: (COPIES of signed and recorded loan documents, including
promissory note, deed of trust, Regulation Z (or Truth in Lending Statement), Statement
of Lien forms, Power of Attorney forms, and Right of Rescission forms, final title policy,
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final Lead- Based Paint Clearance if needed, Declaration of CC&R's if applicable,
revised insurance declarations with the City as loss payee and any loan agreements).
The original Promissory Note and recorded Deed of Trust (or mobilehome title
documentation) are to be stored separately in a safe location.
6. Construction Contract/Bids/ Work Write-Up (signed accepted work write-up with
insurance and license information for each accepted contractor, copy of original,
unexecuted work write-up/inspection report). A sample copy of a Notice to Proceed in
provided as Appendix U.
Accounting for Deferred Repayment Loans
DPL obligations do not require principal or interest payments to be made during the term of the
loan. For that reason, the loan accounting system employed by the City uses a personal
computer based database program. The database keeps track of each loan by amount,
borrower name, address, and date.
Charge-Offs
A loan is considered a charge-off if it has been deemed uncollectible. These may be loans
that have been approved for partial repayment or no repayment according to this Chapter, or
they may be loans deemed uncollectible because of the borrower's bankruptcy or death. In
any event, the loan must be indicated as such in the database monitoring system and removed
from the outstanding loan balance figures. Notice of a loan charge-off must be given to the
City Treasury Department and to the City Accounting Department, with a copy to the City
Attorney's Office.
Partial Repayment Upon Sale or Refinance
.If a sale or refinance of a home generates insufficient funds to fully repay the rehabilitation plus
accrued interest, the Director of Economic Development may approve a partial payment as
payment in full. Notice of a partial repayment must be given to the City's Treasury Department
and Accounting Department with a copy to the City Attorney's Office. The rehabilitation loan
program does not allow refinancing with cash out.
Loan Payoffs
The City will generally receive a request for a payoff amount when repayment occurs as part of
a property sale or mortgage refinance. The request will usually come in the form of a Request
for Beneficiary's Demand from an escrow company, title insurance company, or financial
institution.
Due to potential errors and misunderstandings when discussing payoffs verbally, the City will
provide a payoff demand only upon receipt of a written request. The City will communicate a
payoff demand to the requester only in writing. A fee will be charged for any requested payoff
demand. The fee is established by City ordinance. A "Payoffs in Progress" file will be
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maintained with all loan payoff correspondence and copies of loan payoff demands, etc., with
regard to loans that are in the middle of the payoff process OR a detailed list of loans in the
payoff process indicating the current status of the loan with regard to payoff.
Responding to a Request for Beneficiary's Demand
The following steps will be taken when the City has received a written request for a loan payoff
demand:
• Upon receipt of the payoff demand and the fee, retrieve the loan file and review the loan
agreement for repayment requirements. Check the comment section of the database
for extenuating or unique circumstances that may have been documented.
• Prepare a demand letter describing the principal balance, interest rate, date of loan,
current date, calculation of interest to the current date, a per day interest amount for the
estimated payoff date and City demand fee and reconveyances/lien removal fee.
Attach a copy of the request for beneficiary's demand to the demand letter and send to
the requesting party.
Place a copy of the demand letter and the original request for beneficiary's demand in
the loan file at the top of the right side.
If the request for a demand is from a licensed escrow and/or title company, City staff will
respond by processing a Deed of Reconveyance within 10 days after receiving full payoff of a
loan. If the request is from any other representative of the borrower, the City will hold the
reconveyance until payment is received in full and the payment check has been cleared
through the bank.
The original title and registration for a mobilehome and a signed conditional lien release form
will be sent to a licensed escrow company or title company, together with a payoff demand,
provided that these documents were requested and are necessary to complete a pending sale
transaction.
Reconveying the Trust Deed
After the City has received payment in full of"good" funds, the deed of trust will be released as
a lien against the property. ("Good" means funds that are drawn on a title company, escrow
company, or financial institution. Funds drawn on a personal account must be cleared through
the bank before reconveying the deed of trust.) A reconveyance of a trust deed will be
prepared by City staff to be recorded (the document will note the borrower's name and current
address). The document will be sent directly to the County Recorder or to the entity that
provided the payoff funds, such as the title or escrow company for recordation. Upon receipt
of the recorded reconveyance document a copy of the recorded reconveyance will be
maintained in the closed loan file and the original reconveyance will be sent to the borrower
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Defaults
A borrower will be in default on the terms of the loan if he/she violates conditions of the loan
agreement. These default issues can include the following-
0 Failure to occupy the home as the borrower's primary residence.
® Selling or transferring the property by any means without prior approval of the City.
® Allowing the rehabilitated building (interior and/or exterior) to fall into disrepair or be kept
unclean, unsafe, or out of compliance with current City building codes.
• Non-payment of other mortgages, taxes, insurance, or Homeowner association dues-
0 Allowing the rents or incomes of the tenants in duplexes, triplexes or fourplexes to
exceed the affordability requirements established by this program.
® Allowing the number of persons occupying a unit to exceed the standard limits
established by HUD or any other terms in the Agreement, Note or Deed of Trust.
® Any further encumbrance of the property without express written authorization by the
Director of Economic Development.
® Obtain a reverse mortgage agreement.
® Violation of the terms on the Regulatory Agreement_
Because of the time required to monitor these issues, the City will generally enforce only those
defaults that come to the attention of staff through the on going management of the loan
portfolio. For example, if the City becomes aware of a sale transaction because a new
property insurance policy has been received indicating a new owner, the City would pursue
and expect payment in full from the original borrower. To accomplish this, a demand letter
would be sent to both the new owner and original borrower citing the sale of the property as an
event of default. In such situations, at the discretion of the Director of Economic Development,
the property owner will be given 30 days to remedy a default before filing a notice of default
and proceeding with foreclosure. If the event of a default the City may change a prepayment
penalty up the maximum amount permitted by law at the discretion of the Director of Economic
Development.
Subordination
Subordinations to new first trust deed loans are not generally permitted. In the event a
borrower determines that it would be in their best interest to refinance their existing first trust
deed loan to lower the monthly payments, the City may consider subordination. However, the
City has the right to decline a request to subordinate at its sole discretion.
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The City will consider subordination of DPL's under the following circumstances:
1. Borrower will be refinancing their first mortgage at a reduced interest rate that results in
a lower monthly mortgage payment.
2. Borrower will not be withdrawing or using any equity ("pulling out cash") for any reason.
However, any fees associated with the refinance may be included in the new first
mortgage.
The City may not approve a subordination that involves the following:
® Withdrawal of equity for any reason.
e Subordination to a loan involving negative amortization.
Subordination to a variable rate mortgage loan or reverse mortgage loan.
® Change of ownership, including adding new owners or co-signer(s) onto the loan or title.
® The combined total of the new first mortgage loan and City's existing second mortgage
loan exceeds 80% of the appraised value of the borrower's property.
The City's loan will become immediately due and payable if the borrower at any time: (1) takes
out any other loan against the property in lieu of subordinating the City's loan, OR (2) uses
refinance proceeds to repay revolving or other debt. The City of Huntington Beach will
consider subordination of rehabilitation loans if the Borrower will be refinancing their first
mortgage at a reduced rate that results in a lower monthly mortgage payment. Fees
associated with the refinance may be included in the new first mortgage. A $250 service
charge will be due to the City for processing the request. The City will not approve a
subordination that involves the following.-
Withdraw of equity for any reason.
® Subordination to a loan involving negative amortization.
® Subordination to a variable rate mortgage loan or reverse mortgage loan.
® Change of ownership, including adding new owners or co-signer(s) on the loan or title.
The combined total of the new first mortgage loan and City's existing second mortgage
loan exceeds 80% of the appraised value of the subject borrower's property.
If the borrower takes out another loan again the property in lieu of subordinating the City's loan
or uses refinance proceeds to repay revolving or other debt the loan will become immediately
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due and payable to the City. A Loan Subordination Policy and Application form is provided in
Appendix V and a Loan Subordination Request form is provided in Appendix W.
Closing the Loan File
After a loan has been paid in full and the corresponding deed of trust or mobilehome title has
been reconveyed, the loan file will be closed. The Economic Development Department will
indicate, "Paid in Full" (or another notation if appropriate) on the exterior of the file folder, and
the file will be stored in a separate area. The loan database will be updated as well as any file
required for City year-end accounting and reconciliation. Closed files should be maintained for
a period not less than five years after which the file can be destroyed but only according to the
City's file destruction process.
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14066 004 001/06/25/07
Res. No. 381
STATE OF CALIFORNIA )
COUNTY OF ORANGE ) ss
CITY OF HUNTINGTON BEACH )
I, JOAN FLYNN, Clerk of the Redevelopment Agency of the
City of Huntington Beach, California, DO HEREBY CERTIFY that the
foregoing resolution was duly adopted by the Redevelopment Agency of
the City of Huntington Beach at a regular meeting of said Redevelopment
Agency held on April 5, 2010 and that it was so adopted by the following
vote:
AYES: Carchio, Coerper, Hardy, Green, Bohr, Dwyer, Hansen
NOES: . None
ABSENT: None
ABSTAIN: None
C k of the Redevelopm t Agency
of the City of Huntington Beach, CA