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Housing Rehabilitation Loan Program - Revised policies and p
s,> AJ Council/Agency Meeting Held: Deferred/Continued to: *App ved ❑ Conditionally Approved ❑ Denied C i t ler ' Signatu -7 Council Meeting Date: 4/5/2010 Department ID Number: ED 10-13 CITY OF HUNTINGTON BEACH REQUEST FOR COUNCIL/REDEVELOPMENT AGENCY ACTION SUBMITTED TO: HONORABLE MAYOR/CHAIRMAN AND CITY CO NCdL MEMBERS/REDEVELOPMENT AGENCY MEMB SUBMITTED BY: FRED A. WILSON, CITY ADMINISTRATOR/EX VE DIRECTOR PREPARED BY: STANLEY SMALEWITZ, DIRECTOR OF ECON IC DEVELOPMENT/DEPUTY EXECUTIVE DIRECTOR SUBJECT: APPROVE REVISED POLICY PROCEDURES FOR THE AFFORDABLE HOMEOWNER REHABILITATION LOANS AND GRANTS PROGRAM Statement of Issue,Funding Source,Recommended Action,Alternative Action(s),Analysis,Environmental Status,Attachment(s) Statement of Issue: The City Council is asked to approve the revised version of the Policies and Procedures for the City's Affordable Homeowner Rehabilitation Loans and Grants Program. Funding Source: The City will incur no cost, as a result of the action being requested herein. The Program utilizes Community Development Block Grant (CDBG) funds to pay loans and administrative expenses. Recommended Action: Motion to: 1. Approve Resolution No.2010-31A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HUNTINGTON BEACH APPROVING THE HOUSING REHABILITATION LOAN PROGRAM 2. Approve Resolution No. 381 A RESOLUTION OF THE REDEVELOPMENT AGENCY OF THE CITY OF HUNTINGTON BEACH APPROVING THE HOUSING REHABILITATION LOAN PROGRAM Alternative Action(s): Do not approve the revised of Policies and Procedures for the Affordable Homeowner Rehabilitation Loans and Grants Program and provide direction to staff. REQUEST FOR COUNCIL/REDEVELOPMENT AGENCY ACTION MEETING DATE: 4/5/2010 DEPARTMENT ID NUMBER: ED 10-13 Analysis: The Housing Rehabilitation Loan Program ("Program") provides loans to low and moderate-income Huntington Beach homeowners and owners of rental properties, where low-income families live. The Program's objective is to provide low-cost financing to households who would otherwise have difficulty paying for necessary health and safety- related repairs. These loans are funded through the City's established CDBG revolving loan fund. This fund was established in the 1970's. The Program's administrative costs are paid with annual allocations of CDBG funds. The Program was developed in 2000. On January 6, 2003, the City Council/Redevelopment Agency approved the current Housing Rehabilitation Loan Policies and Procedures ("Policies") utilized by the Economic Development Department in processing applications, underwriting loans, and administering the City's/Agency's housing rehabilitation loans portfolio. The City averages approximately 20 to 25 loans and grants per year. The last two years, the City has issued 30 loans and 6 grants to a mix of mobilehomes, single-family residences, and condominium multi-family rentals occupied by low-income residents. Due to the rising cost of construction materials and labor since the original policies were adopted, and to increase flexibility of administrating the program, the following recommendations are: 1. Increase the maximum loan amount for single family homeowners from $25,000 to $75,000 to accommodate the increased cost of labor and materials. Since 2005, approximately 80% of the loans issued by the City have been in excess of the prescribed loan limit. These loans have been issued on the average, for an amount 10% higher than the loan limit, which is the extent currently allowed under the existing Program Policies and Procedures. In 2008, three loans had to be approved by the City Council due to the minimum cost of needed repairs ranging between $45,000 and $70,000. These homes were severely neglected and with the current limit of $25,000, not all health and safety requirements could be addressed. The maximum loan amount would be extended to $75,000 for single-family residences, condominiums, and multi-family homes occupied by low-income residents. The limit will be $15,000 for mobilehomes. 2. Increase the amount of emergency one-time only grants from $1,000 to $10,000. The City is currently averaging three to five emergency grants per year. The current limit of $1,000 per household is not enough to cover an average emergency repair, such as plumbing and roofing repairs. 3. Expand Program to include owners of duplexes, triplexes, and fourplexes that rent units to low-income households. The current economy has triggered a greater interest in the City's Loan Program from apartment owners, because banks are less willing to loan money, the value of real estate (and equity) has decreased substantially, and landlords are being forced to offer a higher quality unit. 3/24/2010 3:20 PM REQUEST FOR COUNCIL/REDEVELOPMENT AGENCY ACTION MEETING DATE: 4/5/2010 DEPARTMENT ID NUMBER: ED 10-13 4. Authorize the Economic Development Director and the City Administrator to approve individual loans that may require additional funding above the designated loan limits as necessary to satisfy Housing Quality Standards (HQS) and to waive, on a case-by- case basis, certain loan eligibility requirements under special or unique circumstances. The updated procedures have been reviewed by the City's HUD Representative from the Los Angeles Field Office, as well as the City Attorney's Office. Technical corrections to meet HUD guidelines have also been incorporated. Strategic Plan Goal: Maintain and enhance public safety. Environmental Status: N/A Attachment(s): Pakge NumberDescription 1. Resolution No 2010-31 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HUNTINGTON BEACH APPROVING THE HOUSING REHABILITATION LOAN PROGRAM 2. Resolution No. 381 A RESOLUTION OF THE REDEVELOPMENT AGENCY OF THE CITY OF HUNTINGTON BEACH APPROVING THE HOUSING REHABILITATION LOAN PROGRAM 3/22/2010 3:14 PM ATTACHMENT # 1 RESOLUTION NO. 2010-31 A RESOLUTION OF THE CITY COUNCIL 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 City; 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 City Council 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 City 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 City staff-, and shall apply to all loans or grants approved or made by the City on or after April 5, 2010. 07-1152.001/44998 1 Resolution No. 2010-31 PASSED AND ADOPTED by the City of Huntington Beach at a regular meeting thereof held on the 5th day of Apri 1 , 2010. REVIEW D APPROVED: Cit nistrator Mayo INITIATED AND APPROVED: Director of Economic Dev ent VED AS TO FORM: Cit Attorney 3�gl�,oio 07-1152.001/44998 2 Pug"LFC-1 E- AN'4D P RHO CbE Da't !rla�ft �e Hgo m e o R_ wnje r .e h b`I�,t �10 at a L'o Mill,_ a rogr 1 J 1 •'i•- a _J I. (. I il . ] TABLE OF CONTENTS CHAPTER 1 -INTRODUCTION.........................................................................................................4 CHAPTER2 - PROGRAM..................................................................................................................5 GENERAL.........................................................................................................................................5 HOUSING REHABILITATION PROGRAM.......................................................... .....................................5 DEFERREDPAYMENT 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 PRIMARYRESIDENCE........................................................................................................................0 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 CHAPTER 4-PROCESSING............................................................... ......12 GENERAL....................................... ............12 THEAPPLICATION............................................•-- .............. ......................................................_.....12 APPLICATIONLOG..................................................................... .....................................................13 QUALIFYING REHABILITATION LOANS ...............................................................................................13 LOAN UNDERWRITING/QUALIFYING FORM........................................................................................13 LOW INCOME HOUSEHOLD QUALIFICATION..................................................................... .................13 INCOME............... .............I.................................. ............... ........... ....._...... ...............13 DEBTTO INCOME RATIO..-....... .................................................................................. ....................14 LOAN TO VALUE RATIO ...................................................................................................................14 INCOMEHISTORY ............. ........... ...._...... ..................... .................................................... .........14 VERIFICATIONS..................................... .............---•.............15 TITLEINSURANCE..............................................................................._... ....................................15 PRELIMINARY PROPERTY INSPECTION............................. ..................... ......................................15 LOANAPPROVAL .......--•.................. ..............----.............................................................................16 SELECTION OF CONTRACTORS........................................ .......................16 CONFLICTOF INTEREST.................................................................... ...........................................17 BONUS, COMMISSION OR FEE_................................. ........... ....... ---------------- ..........................17 ACCEPTABLE CONTRACTS......... ---•.................................... ................................ .............--.....17 CHANGEORDERS...... .................................................................. ............._....17 CONSTRUCTION PROGRESS INSPECTIONS .......................................................................................18 Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page i 0706043_H$'PA:gbd 14066.004 00110612 510 7 FUNDINGTHE LOAN........................................................................................................................18 CONTRACTOR LIEN RELEASES ........................................................................................................19 FINALINSPECTION..........................................................................................................................19 ACCEPTANCEOF WORK..................................................................................................................19 POSTFUNDING AUDIT.....................................................................................................................19 CHAPTER 5 - DOCUMENTATION...................................................................................................20 GENERAL.......................................................................................................................................20 DOCUMENTS REQUIRED..................................................................................................................20 PROMISSORYNOTE........................................................................................................................20 DEED OF 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 SAFEGUARDING DOCUMENTS..........................................................................................................24 CHAPTER 6 - LOAN MAINTENANCE AND ACCOUNTING ...........................................................25 GENERAL.......................................................................................................................................25 FILE ORGANIZATION........................................................................................................................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 CLOSING THE LOAN FILE.................................................................................................................30 Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page ii 0706043.H6 PA.gbd 14066 004 001106125107 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 Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page iii 0706043.HB=PAgbd 14066 004 001106/25707 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 1 0706043-HB.PA:gbd 14066 004 001/06/25107 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 Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 2 0706043 HB PA_gbd 14066 004 001106125/07 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 3 0706043 H6 PA gbd 14066.004.001 M6125107 A. 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 4 0706043.HB:PA:gbd 14066 004.00 1/0 612 5/0 7 ,CHAPTER - PROGRAM : 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 Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page. 5 0706043 HBYA'gbd 14066 004.00 1 10 6/2 5/0 7 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 6 0706041H8 PA_gbd 14066.004 001/06125107 CHAPTER -PROGRAM o ® oA RE QUIREMENTS 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: a 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. a 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 7 0706043.H8TA_gbd 14066 004 001106125107 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: Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 8 0706043-N8-PA gbd 14066 004 007/0625107 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. • 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 9 0706043 H6-PA.gbd 14066 004.0 0 1/0 612 5/0 7 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 10 0706043.H8_PAgbd 14066.004 00 1/06/2510 7 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. 1f 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 11 0706043 H8-PA-gbd 14066 004.009N6125107 a m , m ®a 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)' 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 Information on citizenship and ethnicity is only included on the Loan Application. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 12 0706043 H8 PA-gbd 14066 004 001/06125107 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 Logy 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)e Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 13 0706043 HS AA gbd 14066 004 OO1106125107 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 14 0706043 HB-PA gbd 14066 004 001/06125107 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: • The estate or interest covered ® The recorded owner 0 The parcel of land ® Exceptions, liens, and encumbrances 0 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 Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 15 0706043 HB PAgbd 14066 004 001106125t07 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 16 0706043 HS PA=gbd 14066-004 001IOG25107 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- 0 Contracts between the Homeowner and a general contractor (a sample contract is provided in Appendix I); 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 17 0706043 HB PA gbd 14066 004.001106t25107 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 18 0706043 HBPA gbd 14066 004 0011OU25107 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 19 0706043_HB:PAgbd 14066 004 001106125107 no ! m in N TAT, 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 20 0706043 H8 PA abd 14066 004 001/06/2✓0 7 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: 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 ® Property insurance ® 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). Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 21 0706043.HB_PA gbd 14066 004 00110625107 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 Attorneys 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.- 0 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 Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 22 0706043 HB PA gbd 14066 004.001106125107 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 23 0706043 HO PAgbd 14066.004 001106125107 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 24 0706043.t1$PA:gbd 14066 004 001/06t25/07 a ' p e ® ♦ ♦ HTIFT-UNWEkill, a 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: ® 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: 9_ 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, Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 25 0706043 HB PA gbd 14066 004 001/06125107 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/BidsNVork 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 Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 26 0706043 HS'A god 14066.004 00 110612510 7 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 dosed loan file and the original reconveyance will be sent to the borrower Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 27 0706043 HB:PA_gbd 14066 004.001 WQ5107 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.- Failure to occupy the home as the borrower's primary residence. 0 Selling or transferring the property by any means without prior approval of the City. 0 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. 0 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 28 0706043 HS PA gbd 14066 004 001/06125107 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. • 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-signers) 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 Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 29 0706041H8 PA gbo 14066 00400M625/07 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 30 0706043_HS PA:gbd 14066 004 001106125107 Res. No. 2010-31 STATE OF CALIFORNIA COUNTY OF ORANGE ) ss: CITY OF HUNTINGTON BEACH ) I, JOAN L. FLYNN the duly elected, qualified City Clerk of the City of Huntington Beach, and ex-officio Clerk of the City Council of said City, do hereby certify that the whole number of members of the City Council of the City of Huntington Beach is seven; that the foregoing resolution was passed and adopted by the affirmative vote of at least a majority of all the members of said City Council at a regular meeting thereof held on April 5, 2010 by the following vote: AYES: Carchio, Coerper, Hardy, Green, Bohr, Dwyer, Hansen NOES: None ABSENT: None ABSTAIN: None Clerk and ex-offic Clerk of the City Council of the City of Huntington Beach, California ATTACHMENT #2 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—aQ09an INITIATED AND APPROVED: Deputy Executive Direct A ROVED AS TO FORM: A ency Counsel P� r 3r�jLolo 07-1152.001/44999 2 P09LICI ES ANDI Ffli EDl U'R ES : 1 , Affordable No m _eowne habi331 "! e Loansand QMjjtS Program , n 6........... ji TABLE OF CONTENTS CHAPTER1 -INTRODUCTION.........................................................................................................4 CHAPTER2 - PROGRAM..................................................................................................................5 GENERAL.........................................................................................................................................5 HOUSING REHABILITATION 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 PREPAYMENTPENALTY.....................................................................................................................9 MAKE PAYMENTS ON ALL DEBTS........................................................................................................9 PRIMARYRESIDENCE........................................................................................................................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 ............................................................................................1 1 NON-DISCRIMINATION .....................................................................................................................11 COMPLAINTPROCEDURES ..............................................................................................................11 CHAPTER 4 - PROCESSING...........................................................................................................12 GENERAL.......................................................................................................................................12 THEAPPLICATION...........................................................................................................................12 APPLICATIONLOG...........................................................................................................................13 QUALIFYING REHABILITATION LOANS ...............................................................................................13 LOAN UNDERWRITING/QUALIFYING FORM........................................................................................13 LOW INCOME HOUSEHOLD QUALIFICATION.......................................................................................13 INCOME..........................................................................................................................................13 DEBTTO INCOME RATIO..................................................................................................................14 LOANTO VALUE RATIO ...................................................................................................................14 INCOMEHISTORY ...........................................................................................................................14 VERIFICATIONS...............................................................................................................................15 TITLEINSURANCE...........................................................................................................................15 PRELIMINARY PROPERTY INSPECTION..............................................................................................15 LOANAPPROVAL ............................................................................................................................16 SELECTION OF CONTRACTORS ........................................................................................................16 CONFLICTOF INTEREST ..................................................................................................................17 BONUS, COMMISSION OR FEE..........................................................................................................17 ACCEPTABLECONTRACTS...............................................................................................................17 CHANGEORDERS...........................................................................................................................17 CONSTRUCTION PROGRESS INSPECTIONS .......................................................................................18 Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page i 0706043.HB.PA.gbd 14066 004 001106125107 FUNDINGTHE LOAN........................................................................................................................18 CONTRACTOR LIEN RELEASES ........................................................................................................19 FINALINSPECTION..........................................................................................................................19 ACCEPTANCE OF WORK..................................................................................................................19 POST FUNDING 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 SAFEGUARDING DOCUMENTS..........................................................................................................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 Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page ii 0706043.HB:PA:gbd 14066.004.0 0 110 6/2 5.107 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 Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page iii 0706043.HB:Pllgbd 14066.004.001/06/25/07 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. "DPU 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 1 0706043.HB.PA.gbd 14066 004 OO1106125107 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 Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 2 0706043.HB:PA:gbd 14066.004.001/06/25/07 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 3 0706043 HB:PA.gbd 14066 004.001 ro6/z5r07 - INTR-ODUCTION 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 4 0706043.HB:PA:gbd 14066.004.001/06/25/07 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 Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 5 0706043.HB:PA.gbd 14066 004.001/06/25/07 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 6 0706043.H8'PAgbd 14066A04.0 0 1 10 6/2 510 7 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 7 0706043.H6:PA:gbd 14066.004.001106125107 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. 0 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 59% 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: Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 8 0706043 HB_PAgbd 14066 004.0 0 1/0 612 510 7 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. • 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. 0 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 9 0706043-HB:PA-gbd 14066 004 00VW25/07 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 10 0706043.HB.PA.gbd 14066.004 001/06/25107 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 11 0706043 HB_PA.gbd 14066.004.00 1/0 612 5/0 7 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)' • 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 Information on citizenship and ethnicity is only included on the Loan Application. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 12 0706043HB PA:gbd 14066-004 A01/06/25l07 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). Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 13 0706043.HB.PA:gbd 14066 004.001 M25/07 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 14 0706043.HS:PA gbd 14066.004.001 l06125107 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: 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 Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 15 0706043.HB:PA:gbd 14066.004.001/0605/07 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 16 0706043 HS PA'gbd 14066.004 001/06/25/07 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- 0 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 17 0706043 HS PA:gbd 14066,004 001/06125/07 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. 1t 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 18 0706043.HB.PA-gbd 14066 004 001/06/25107 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 19 0706043.H8:PA.gbd 14066.004.001/06/25/07 D® • 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: f Promissory Note • Deed of Trust O 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 Note 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 20 0706043 H6 PA and 14066 004.001 j06l2;i07 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: • 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 i Property insurance • 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). Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 21 0706043.HB:PA:gbd 14066 004.001/06/25/07 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 , 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 Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 22 0706043 HB PA gbd 14066.004.001106125107 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 23 0706043.HB:PAgbd 14066 004.0 0 110 6/25l07 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. Processing Procedures Affordable Homeowner Rehabilitation loans and Grants Program Page 24 0706043.HB:PA:gbd 14066 004 001/06125107 1 m s • l 1 1 1 knoirrmeniniam 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: • 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, Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 25 0706043_HB:PA-gbd 14066 004 001106/2510 7 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 Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 26 0706043 Fib PA:gbd 14066 004 001/06/25/07 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.- 0 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. 6 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 Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 27 0706043.H8 PA gbd 14066 004 001106125/07 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: 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. • 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. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 28 0706043.HB.PA gbd 14066 004 001/06125107 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. • 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 $250 service charge will be due to the City for processing the request. The City will not approve a subordination that involves the following: • Withdraw of equity for any reason. • Subordination to a loan involving negative amortization. Subordination to a variable rate mortgage loan or reverse mortgage loan. • Change of ownership, including adding new owners or co-signer(s) on the loan or title.. • The combined total of the new first mortgage loan and City's existing second mortgage loan exceeds 80% of the appraised value of the subject borrower's property. If the borrower takes out another loan again the property in lieu of subordinating the City's loan or uses refinance proceeds to repay revolving or other debt the loan will become immediately Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 29 0706043.HB_PA.9bd 14066.004 A01 I06725107 due and payable to the City_ A Loan Subordination Policy and Application form is provided in Appendix V and a Loan Subordination Request form is provided in Appendix W. Closing the Loan File After a loan has been paid in full and the corresponding deed of trust or mobilehome title has been reconveyed, the loan file will be closed. The Economic Development Department will indicate, "Paid in Full" (or another notation if appropriate) on the exterior of the file folder, and the file will be stored in a separate area. The loan database will be updated as well as any file required for City year-end accounting and reconciliation. Closed files should be maintained for a period not less than five years after which the file can be destroyed but only according to the City's file destruction process. Processing Procedures Affordable Homeowner Rehabilitation Loans and Grants Program Page 30 0706043 H$PA.gbd 14066 004 001/06125/07 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 Qo-,n)— e2(- Jvv� C k of the Redevelopm t Agency of the City of Huntington Beach, CA RCA ROUTING SHEET INITIATING DEPARTMENT: Economic Development SUBJECT: Approve Revision of the Policies and Procedures for the Affordable Homeowner Rehabilitation Loans and Grants Program COUNCIL MEETING DATE: April 5, 2010 RCA ATTACHMENTS STATUS Ordinance (w/exhibits & legislative draft if applicable) Attached ❑ Not Applicable Resolution (w/exhibits & legislative draft if applicable) Attached Not Applicable ❑ Tract Map, Location Map and/or other Exhibits Attached ❑ Not Ap licable Contract/Agreement (w/exhibits if applicable) Attached ❑ (Signed in full by the City Attorney) Not Applicable Subleases, Third Party Agreements, etc. Attached ❑ (Approved as to form by City Attorney) Not Applicable Certificates of Insurance (Approved by the City Attorney) Attached ❑ Not Applicable Fiscal Impact Statement (Unbudgeted, over $5,000) Attached ❑ Not Applicable Bonds (If applicable) Attached ❑ Not Applicable Staff Report (If applicable) Attached ❑ Not Applicable Commission, Board or Committee Report (If applicable) Attached ❑ Not Applicable Findings/Conditions for Approval and/or Denial Attached ❑ Not Applicable EXPLAHATIOH F 'T& S3N G ATTACHMv ENTS REVI ED 10�o RE_ R ED F® DED Administrative Staff Deputy City Administrator (I 'tial) c ( ) City Administrator (Initial) City Clerk ( ) PLANATION FOR RETURN OF ITEM: (Bel® o RCA Author: Sidney Stone Ext. 5901