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HomeMy WebLinkAboutRDA AG PKT 2004-01-26 #C f AGENDA REPORT DATE: January 26, 2004 TO: Chairperson and Members of the Redevelopment Agency THRU: - John B. Bahorski, Executive Director FROM: 1 Lee Whittenberg, Director of Development Services SUBJECT: Approval of Conditional Rental Subsidy Agreement — Substantial Rehabilitation Projects SUMMARY OF REQUEST: Approve the proposed "Conditional Rental Subsidy Agreement ", allowing certain units within the Seal Beach Trailer Park - to proceed forward with the replacement of their housing structures. BACKGROUND: In May 2002 the Redevelopment Agency approved program guidelines and funding levels for the Home Improvement Program. Since that time 19 homeowners have received rehabilitation funding and 3 homebuyers have received Mortgage Assistance funding. We have an additional 11 homeowners who have had their applications approved but are pending any further funding from other sources. Despite the fact that a loan product existed on the Home Improvement Program to assist applicants in the replacement of their mobilehomes, Staff encountered a conflict between LINC's bond documents and the legal requirement that a covenant recorded on the property for projects that are classified as "Substantial Rehabilitation ". The legal requirements for the replacement of a mobilehome using housing set aside funds state that a Unit Regulatory Agreement (i.e. restrictive covenant) for each of the mobilehomes be recorded in the Official Records of Orange County as a condition to the loan. Legal counsel from the Agency and LINC have reviewed this issue and determined that the Unit Regulatory Agreement might result, at some point in the future, in a rental deficiency. Legal' counsel to LINC advised against executing such a document that would jeopardize the bondholders' position. AGENDA ITEM 1&'1 - C Z:\My Documents \RDA\Mortgage Assistance Program \Conditional Rental Subsidy Agreement.RDA Stan' Report doc \LW\01 -22 -04 Conditional Rental Subsidy Agreement — Substantial Rehabilitation Projects Redevelopment Agency Staff Report January 26, 2004 To resolve this issue Staff explored how an agreement between the Agency and LINC could be executed that would allow LINC to execute the Unit Regulatory Agreement without jeopardizing the bondholders. The results of the investigation examined the issues causing the conflict and a solution that would keep the risk to the Agency to a minimum. In coming to a solution to this issue, LINC has agreed to execute and acknowledge the Unit Regulatory Agreements and deliver them to the RDA for recordation provided that the RDA agrees to pay to LINC from time to time any Rental Deficiency that might result from the restrictions in the Unit Regulatory Agreements. The recommended "Conditional Rental Subsidy Agreement" will accomplish that. Overview of Affordability Issue: When a replacement issue arises, the law limits the of owning the mobilehome to an "affordable housing cost." State Redevelopment Law defines "Affordable housing cost" as an amount where the "actual total housing costs" is less than the legal definition and calculation of "affordable rent." Below are the "Affordable Housing Cost" calculations for the three applicants requesting a replacement unit and have approved funding: Vella — 54 Riversea Rd. Actual Housing Cost: $570.93 (includes $220 subsidy) Affordable Rent: $756.25 Sheriff— 139 Cottonwood Lane Actual Housing Cost: $504.50 (includes $176 subsidy) Affordable Rent: $661.25 Moore — 30 Welcome Lane Actual Housing Cost: $685.00 Affordable Rent: $661.25 Vella and Sheriff have an "Actual Housing Cost" that is less than the "Affordable Rent" and would therefore not require a rental deficiency payment by the Agency. However, Moore's Actual Housing Cost exceeds the permitted "Affordable Rent" and would consequently require a monthly payment by the Agency every month. The Redevelopment Agency currently pays a rental subsidy to qualified units within the Seal Beach Trailer Park. The Redevelopment Agency committed to pay this rental subsidy for 10 years. If after 10 years the rental subsidy is eliminated, the Agency could be required to continue paying a small subsidy on these units until the end of the 55 -year affordability covenant. However, because the owner's income is qualified at the time of the application, the Agency will not incur a worse scenario if the owner's income Conditional Rental Subsidy Agreement RDA Staff Report 2 Conditional Rental Subsidy Agreement — Substantial Rehabilitation Projects Redevelopment Agency Staff Report January 26, 2004 declines over the years. In addition, if the owner sells the property to a non - income qualified homebuyer, then the loan is repaid to the Agency and the Conditional Rental Subsidy Agreement is removed from the property. The Home Improvement Program has additional applicants who are looking to replace their units but are on -hold until additional funding is available. If the City secures additional funding, future requests for a replacement mobilehome will be treated on a case -by -case basis, requiring the approval of the City and LINC before funds can be expended and a covenant recorded. Only those applicants with "Actual Housing Cost" less than the "Affordable Rent" will be recommended for approval. All other applicants will need to have their units repaired in a manner as not to require the covenant to be recorded. FISCAL IMPACT: No impact to the City General Fund. The Conditional Rental Subsidy Agreement may require the use of the Redevelopment Agency Housing Set -Aside Fund, Account Number 061 - 081 -45050 once the existing 10 -year rental subsidy expires. Loans for the replacement of the existing housing units have already been approved and funded from the same Housing Set -Aside Fund. RECOMMENDATION: Staff recommends that the Redevelopment Agency approve the Conditional Rental Subsidy Agreement and authorize the Executive Director to execute said document. Furthermore, that the applicants for 54 Riversea Road and 139 Cottonwood Lane be authorized to proceed with the replacement of their unit within the loan limits and guidelines of the approved Home Improvement Program. NO ► D ., N ► APPROV :1) : . � -he Whittenberg John B. i 4p i, Ex: , i ve Director Director of Development Services Redeye pment Agency Attachments: (1) Attachment 1: Conditional Rental Subsidy Agreement Conditional Rental Subsidy Agreement.RDA Staff Report 3