Loading...
HomeMy WebLinkAbout- - Review of Neighborhood Stabilization Pro - 9/21/2010CITY COUNCIL AGENDA REPORT MEETING DATE: SEPTEMBER 21, 2010 ITEM NUMBER: SUBJECT: REVIEW OF NEIGHBORHOOD STABILIZATION PROGRAM DATE: SEPTEMBER 13, 2010 FROM: CITY MANAGER'S OFFICE PRESENTATION BY: THOMAS R. HATCH, ASSISTANT CITY MANAGER MURIEL ULLMAN, NEIGHBORHOOD IMPROVEMENT MANAGER FOR FURTHER INFORMATION CONTACT: MURIEL ULLMAN - (714) 754-5328 RECOMMENDATION: Receive and File this report. BACKGROUND: The Neighborhood Stabilization Program (NSP) was a program developed by the federal government to reduce the negative impact to neighborhoods from home foreclosures. The City Council and Redevelopment Agency reviewed and approved the City's participation in the Program in June and November of 2009. The Program required that grant funds be spent within very short deadlines. The City developed a partnership with the cities of Fullerton and La Habra and proceeded to hire Mercy Housing to manage the Program for the tri -city partnership. The City of Costa Mesa received only $303,000 from the federal government and the Redevelopment Agency allocated $360,000 in Low to Moderate Income Housing Funds for first time home buyer loans if needed. Mercy Housing purchased a home on Harding Way and is in the process of purchasing a second home on Paularino Avenue. After these homes are rehabilitated and sold, this will deplete Costa Mesa's grant funding and Costa Mesa's participation in the Program will conclude. On September 7, 2010, the City Council requested that staff develop an updated status report on the NSP for review by the City Council. The request was in response to questions raised by Mr. John Feeney through e-mails and via public comments at prior City Council meetings. Mr. Feeney's key interest is for the City Council to discontinue this Program. Attached to this report is a detailed memo (Attachment A) that fully explains the status of the Program; how and when it was approved; how we are full partners with the cities of Fullerton and La Habra; the terms of the various agreements; federal requirements; how and why the homes on Harding Way and Paularino Avenue were selected; details of the rehabilitation needed for each home; details of residential occupancy standards; homebuyer selection procedures; the legal issues and challenges of unraveling the agreements and remaining work to be completed. Council Report — review of NSP Program 9-21 While the attachment includes the details of the Program, the cover report seeks to specifically address the questions that have been discussed at this point. ANALYSIS The developer for all three cities, Mercy Housing, has already purchased one home on Harding Way in Costa Mesa and a second home on Paularino Avenue is scheduled to close escrow this week. With the purchase of the second home as well as the upcoming rehabilitation and related administrative costs for these two homes, the majority of Costa Mesa's allocation will be utilized and the Program will conclude with the estimated $40,000 in surplus funds being returned to the Joint Partnership for use in a partner city or returned to the state. The ability to discontinue the Program at this point may still be possible but would clearly result in significant staff work and costs. The most difficult and time consuming part of this Program has already been completed and contractors have already been selected to complete the rehabilitation for both homes. Attachment 1 of this report thoroughly outlines the key elements and mechanics of the program. The Analysis Section of this report will not be addressing all of these issues but instead will focus on what was specifically addressed as concerns by a member of the public at the last City Council meeting. These concerns include the following: Concern — It was expressed that the Program has changed since it was approved by the City Council in both June and November of 2009. Response — The core framework of the Program really has not changed since it was originally approved. At the time of approval, it was understood that the intent of this federal Program was to use grant funding to hire developers to purchase homes that had fallen into foreclosure, rehabilitate the homes and then resell the homes to moderate income families. Only those who live and/or work in Costa Mesa will be eligible to participate in the program. Staff does agree that the detailed regulations of the Program were not immediately available and have taken significant time to fully understand and implement. However, the City Council/Redevelopment Agency (RDA) did approve both the Joint Partnership and NSP -1 Agreements in June and November 2009, respectively, and authorized the City Manager and Executive Director of the Agency to take any actions necessary to implement the Agreement and execute documents necessary to properly carryout the homebuyer program (Attachment 1). 2. Concern — It was expressed that the two homes for this Program were both purchased in the Mesa North neighborhood instead of lower income areas. Response — The Program was designed by the federal government to stabilize home prices in areas that were experiencing higher foreclosure rates rather than low income target areas. These areas are extremely limited in scope (Attachment 2). Mercy Housing was hired to specifically manage the complex set of criteria and purchase homes within these target areas, while attempting to limit taxpayer funds going towards relocation costs. Attachment 1 provides more details about the search process that was used by Mercy Housing. Nine homes were evaluated from October 2009 through May 2010. However, purchase options were severely limited by the myriad of tenant and owner protection laws governing the NSP -1 program as well as the dearth of vacant foreclosed properties, the level of rehabilitation needed, and the restricted areas of purchase. 3. Concern — Local Realtor Jim Fisler will financially benefit from the Program. Council Report — review of NSP Program 9-21 2 Response - On November 10th of 2009, the City/Agency in a joint session approved the agreement to hire Mercy Housing to manage the acquisition/resale program for all three cities. The expectation was that staff did not have the expertise or time to meet the very short deadlines of this program — we needed developer help. This agreement spelled out that Mercy Housing is responsible for hiring consultants, appraisers, working with banks, hiring real estate agents or any other staff or consultants needed to comply with their scope of work. Allowable costs include real estate broker fees, since this is a home purchase and sale program that requires in-depth real estate knowledge. Jim Fisler was engaged by Mercy Housing directly because they needed local expertise to help facilitate the acquisition of the properties. Fisler worked with Mercy Housing to provide a written offer on Paularino and some basic property maintenance on Harding. He has received no fees for any acquisitions. Fisler will act as the broker when both Paularino and Harding resell on the open market. That will be his only compensation. City staff did not recommend Mr. Fisler or any other brokers, nor were they involved in any discussions regarding whom Mercy Housing should hire. Staff from Mercy Housing stated that they found Mr. Fisler by searching online for agents. Mr. Fisler's name came up on their search and they entered into discussions with him. 4. Concern — The Homebuyer will not be required to pay back the loan. Response — The Homebuyer will be required to pay back the loan in its entirety. The nature of this program (identical to the Redevelopment Agency's current First Time Home Buyer Program) is to provide a second loan to assist moderate income families afford the purchase of a home in Costa Mesa. Staff plans to utilize the existing RDA guidelines from the existing First Time Home Buyer Program and adapt them to the NSP -I program. In lieu of interest, the City will receive a share of any equity appreciation. If the homebuyer lives in the home and sells it during the first 30 years, an equity share amount is due to the City in an amount proportionate to the amount of the second mortgage to the original value of the home. If the homebuyer remains in the home over 30 years, then 1/15th of this equity sharing obligation is forgiven each year. This equity share is in lieu of an ongoing interest payment. The loan itself is never forgiven under any circumstances. 5. Concern — If this Program is allowed to continue, the five bedroom home on Harding Way would allow occupancy levels of up to eleven people in one house. Response — Because this is a federal Program, occupancy limits can be placed on these homes. Hence, it is accurate to state that no more than eleven people can occupy the Harding Way home. However, if this house was not part of this Program and was sold on the open market, legal occupancy levels could reach twenty-two people or more since State law constrains the ability of local government to regulate occupancy levels. Additionally, NSP -I ensures that rooms are not rented within the home and that the home will be owner -occupied. In summary, both of these conditions would not be guaranteed if the home was not part of this Program. The NSP -I Program actually provides greater protections against unreasonable occupancy levels than a home purchased on the open market. 6. Concern — The rehabilitation costs for the homes are excessive. Response — It is likely that the rehabilitation costs for each home will be in the range of $60,000. This is similar to rehabilitation costs experienced by the City's rehabilitation loan program. Both homes are in need of substantial improvements. The Harding Way home has an illegal bedroom in the rafters of the garage and an illegal restroom in the garage. Council Report — review of NSP Program 9-21 3 Attachments 3 and 4 provide additional details and pictures as to the extent of the rehabilitation work needed. Federal law requires that all deficiencies be abated as part of the rehabilitation work. Two meetings were held with representatives of Mesa North and significant information was provided to outline the intent of the Program. Mr. Feeney's above concerns are understandable and staff is aware that members of the public may have additional philosophical concerns regarding this type of Program. However, these funds were granted to Costa Mesa via the federal Economic Recovery Act of 2008 and the American Recovery and Reinvestment Act of 2009. While this Program has excessive regulations and irresponsibly short deadlines, the City has partnered with two other cities to complete this program and the most difficult part is already behind us. Foreclosed homes are at risk of being purchased by investors with the sole intent of renting them. NSP -I will result in two newly renovated homes that will be sold at market -rate and be owner - occupied by a carefully screened middle income buyer who will be subject to numerous conditions such as occupancy standards, rental restrictions, and annual occupancy recertifications. FISCAL REVIEW It is unknown what the cost would be for the City to legally discontinue the Program. Attachment A of this report provides additional details as to the steps that would be needed to proceed down this path, but the exact costs are unknown at this time. More research will be needed to identify all of the realistic impacts/costs to make a decision to discontinue the Program. LEGAL REVIEW The City Attorney's Office Special Housing Counsel have both reviewed this report and provided input and advice. CONCLUSION The City has completed approximately 70% of the work for the NSP Program to date and agreements are in place and plans are being implemented to finish the Program. The two homes that are a part of this Program will be a benefit to the Mesa North neighborhood. It is recommended that the Program be completed and that the City Council receive and file this report. THOMAS R. HATCH ASSISTANT CITY MANAGER MURIEL ULMAN NEIGHBORHOOD IMPROVEMENT MGR. KIMBERLY HALL BARLOW CITY ATTORNEY Attachment A — Memo to Council (Attachments 1. 2. 3 and 4 within Memo Council Report — review of NSP Program 9-21 4