Affordable Housing Production Program (Inclusionary Housing)

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Tenant Ownership Rights Charter Amendment (TORCA)
Affordable Home Ownership Opportunities
Share Application Loan Program, 2006 Information Package  

INTRODUCTION & GENERAL INFORMATION

The City of Santa Monica is currently accepting applications for loans under its new, improved TORCA Shared Appreciation Loan Program. Under this Program, the City may make Shared Appreciation Loans to low- and moderate-income households, to assist them to buy condominiums in buildings which have been converted under TORCA (Tenant Ownership Rights Charter Amendment).

Loans are available for up to $110,000, depending on your household size, the size of the condominium, the purchase price, and your income. Under this loan program, the City is repaid its principal and a share of the appreciation of your home at the time of resale. No monthly payments are required.

In order to be eligible for this program, you must meet household income limits described in the Program Guidelines. In addition, you must currently live in the unit that you are interested in buying, and meet other program guidelines.

These loans are designed to be used together with a separate loan from a bank, savings and loan or other lender (also known as first mortgage lender). You may seek such a loan from any lender you wish; however, terms of these loans are subject to approval by the City, and adjustable rate loans with negative amortization will not be allowed. Refer Lenders currently preapproved by the City.  

Loan Approval & Closing Process

Your first mortgage lender will be responsible for managing the joint loan approval and closing process (for lender and City) on your behalf. Any questions you might have regarding the status of your City loan should be directed to your lender. Please remember that your lender will be working closely with the City to expedite your loan request. Do not contact the City directly for loan status.

Summary of Joint Loan Approval & Closing Process  

Home Buyer Education

Buying a home for the first time can be a confusing process. We strongly encourage you to learn about how to buy a home by taking a “home buyer education” class. A list of certified home buyer education programs in the Los Angeles area is included (Attachment 8). A handy web resource for home buyer education may be found on the Livable Places Website.

Applications & Program Guidelines

Applications for the City loan program may be obtained from the following financial institutions that have been approved by the City. Alternatively, you may work with a first mortgage lender of your choice upon approval by the City. Copies of Program Guidelines (which include application materials) can be obtained by contacting the Housing Division, or the Planning Counter in Room 111 at Santa Monica City Hall located at 1685 Main Street.

CITY APPROVED LENDERS

American Residential Mortgage
William Gross
(310) 553-5999
Bill@JumboLoanPro.com

Updates to this list can be obtained from the Housing Division

TORCA SHARED APPLICATION LOAN PROGRAM
SUMMARY OF TERMS

MAXIMUM LOAN AMOUNT: Varies with Bedroom, Household Size, and Household Income:

TORCA SHARED APPLICATION LOAN PROGRAM
GUIDELINES

The TORCA Shared Appreciation Loan Program was established by the Tenant Owner­ship Rights Charter Amendment (TORCA) and amended by Proposition K adopted in 1992, in order to assist low- and moderate-income households to purchase their units as condominiums under TORCA. Under this program, the City makes Shared Appreciation loans to persons who could not otherwise afford to purchase their apartments when those apartments have been converted to condominiums.

The maximum loan amount available from the City will depend on the size and income of the household, and the size and price of the unit. No payments need be made on the City loan until the unit is sold or otherwise transferred, the term of the loan expires, or there is a default on the loan. Upon sale, transfer, loan expiration, or default, the owner repays the loan and will share any increase in the value of the property with the City, in proportion to the amount of the City's investment.

General Requirements

Shared Appreciation Loans are intended to make home ownership possible for buyers who:

1. have adequate incomes to support a mortgage, but do not have the funds available to pay the necessary down payment or closing costs, or
2. have incomes which are too low to qualify for an adequate mortgage for the unit being purchased.

The loan amount will be based upon the applicant's borrowing capacity, assets available for down payment, household size, and unit size. The loan amount shall be no more than is necessary to enable a Borrower to: (1) obtain maximum affordable private financing, and (2) utilize personal assets to purchase the Assisted Unit. In no case shall loans exceed 60% of the purchase price. The following maximum amounts per unit and household size apply:

For Low-income households, as defined on page 7 of these Guidelines, the Maximum City loan may not exceed $110,000.

For Moderate-income households, as defined on page 7 of these Guidelines, the Maximum City loan may not exceed the following:

Unit Size	Maximum City Subsidy	Minimum * Household Size	Maximum* Household Size
Studio or efficiency	$50,000	1	2
One bedroom unit	$60,000	1	3
Two bedroom unit	$75,000	2	4
Three bedroom unit	$75,000	2	6
Four bedroom unit	$75,000	2	8
*Exceptions are detailed in the Definitions Section under the Maximum Loan Amount category. The minimum loan is $5,000

All loans will be available only to eligible borrowers whose borrowing capacity is determined to be insufficient to purchase the unit on their own. All loans will be secured by a Deed of Trust recorded against the Assisted Unit. The City's Deed of Trust may be subordinated to a private lender's First Deed of Trust and City approved seller financing.

Eligibility Requirements

BORROWERS

1. Must be low- or moderate-income households who currently reside in a building which has undergone Tenant Participating Conversion (TPC). Potential borrowers must first contact the City to obtain an eligibility certificate. This involves unit inspection and proof of occupancy in order to establish proof of residence in the TORCA unit. Evidence includes:
   (1)  any type of picture I.D. to facilitate subsequent on-site identification and
   (2)  four pieces of evidence to support occupancy of the subject unit. One of the documents must be the Rental Agreement and another must be a copy of a canceled rent check (both front and back). Additional documentation can include (but is not limited to): utility bills or driver’s license.
2. May not currently own another residence.
3. May not be members of the City Council. Also, persons employed by the City's Resource Management Department, City Manager's Office, City Council, or family members of such persons are not eligible to participate in the program.
4. May not be the immediate relatives of the seller of the unit, including the spouse, child, parent, grandparent, brother, sister, father in-law, mother-in-law, son-in-law, daughter-in-law, aunt, uncle, niece, nephew, sister-in-law or brother-in-law.

Income Limits

Maximum low- and moderate-income levels per household size for 2006 are as follows:

*Based on the State of California Housing and Community Development Low (80%) and Moderate (120%) Income Limits.  Figures updated annually.

Uses of City Loan 

A)  Acquisition (including down payment assistance and eligible closing costs) of the Borrower's unit in a building which has undergone a Tenant Participating Conversion to condominium ownership.  Eligible closing costs include typical escrow and title insurance fees and reasonable financing fees for private loans.  City loan proceeds may be used to fund eligible closing costs, including typical escrow and title insurance fees, up to a maxi­mum of $4000.  In addition, mortgage broker fees funded by City loan proceeds may not exceed 1.0% of the first trust deed loan amount.

B)  Costs of necessary repairs to the property, if any, may not be paid from loan proceeds.  All repairs required under the TORCA approval or by lender must be completed prior to close of escrow unless otherwise allowed under the Charter Amendment.

Loan Terms

Term: The term of a Shared Appreciation Loan will be a maximum of twenty years, but no longer than the term of all other financing, including seller financing and private institutional lender financing. Upon request by the Borrower, the City may, at its sole discretion, provide one ten year extension of the term of the loan to borrowers whose incomes do not exceed 120% percent of the median income one year prior to the date the loan matures.

For conventional lenders that require secondary market involvement to make a fixed rate loan, a thirty year term may be provided.

Down payment:  The Borrower must make a down payment equal to at least three percent (3%) of the Assisted Unit's purchase price.  In addition, where the Borrower has funds available for this purpose, the Borrower must pay closing costs.  (Where such funds are not available, eligible closing costs up to $4000 may be included in the amount of the City loan.)  Gifts may be used to provide up to 1% of the required 3% down payment if this is acceptable to the conventional lender.

Repayment:  The principal amount of the City's loan is due and payable on the earlier of twenty years (or thirty years if applicable), or upon resale, transfer, or default.  In addition, the Borrower must pay to the City, as contingent interest, a share of the appreciation of the unit equal to the amount of the City loan divided by the Original Purchase Price, multiplied by the Appreciation of the unit.  Transfers to a Borrower's spouse, transfer of title in conjunction with divorce, and transfers of title by a Borrower's death to a surviving joint tenant shall not require repayment as long as the Borrower's successor assumes the loan and all loan terms. 

The principal amount of the City's loan shall be due and payable even in the event that there is no appreciation on the unit, or the appreciation is negative.

Restrictions:

1. The Borrower shall occupy the Assisted Unit as their primary residence. A unit shall not be rented or used primarily for commercial purposes.

2. The Borrower shall not pledge the Assisted Unit as security without the prior written consent of the City

3. Units shall be resold at no less than 95% of fair market value. If so required by the City, the Borrower shall provide an appraisal at time of resale to document fair market value

4. The Borrower may make improvements to the Assisted Unit. However, only the value of documented, permanent capital real estate or fixture improvements to the property for which the Borrower received prior City approval under this program shall be deducted from the Resale Price of the Assisted Unit for the purpose of calculating appreciation. The value of capital improvements shall be determined by the City.

5. Loans are not assumable, except in cases of transfer to a spouse or domestic partner, transfer to a spouse or former spouse in conjunction with a divorce or transfer of title by a Borrower's death to a surviving joint tenant.

6. In order to deter speculation, in the event that the unit is sold within three years of the date of purchase, Borrower will be required to pay an additional portion of the unit's appreciation. This amount shall be equal to 30% of the appreciation in the event that the unit is sold within one year, 20% of the appreciation in the event the unit is sold within two years, and 10% of the appreciation in the event that the unit is sold within three years of purchase. This amount shall be in addition to the contingent interest due on the loan. However, in no circumstance shall the total amount due to the City as contingent interest under this provision exceed 100% of the appreciation of the appreciation of the unit.
   The Housing Manager shall develop criteria under which the City may waive this provision due to hardship.

Underwriting Guidelines

Borrowers shall demonstrate that they lack sufficient assets to purchase the unit without City financial assistance. A Borrower is unable to acquire the unit without City financial assistance if:

1. the monthly cost for payment of principal, interest, taxes, homeowner association fees and insurance of the combined loans being obtained by the Borrower from a private financial institution and/or the seller would exceed thirty-three percent (33%) of the household's gross monthly income; and
2. the household's assets do not exceed the total of the following:
   1. the amount necessary to pay the estimated closing costs and down pay-ment for the unit to be purchased;
   2. the amount necessary to pay six (6) months of the monthly housing costs (principal, interest, taxes, insurance, and homeowner association fees) associated with the unit to be purchased; and
   3. ten thousand dollars ($10,000).

These underwriting guidelines may be adjusted to conform to the underwriting standards utilized by the private institutional lender which is providing financing to a Borrower under this Program.

Underwriting Definitions

Assets: For the purposes of the Program, "asset" means the value of a household's savings and any equity in stocks, bonds, real property, or other forms of capital investment. "Asset" does not include items reasonably necessary for the personal use of the household, such as personal effects, furniture, appliances, automobiles, and real or personal property used in a business or undertaking which is the primary source of livelihood for the household. Assets also do not normally include the value of life insurance, pensions, IRA accounts or other retirement funds. However, in order to allow TORCA loan program applicants the ability to satisfy minimum down payment require­ments, accessible retirement deposits such as IRA or 401K can be considered as funding sources if requested by the applicant (after discounting for applicable penalties).

Creditworthiness: The City may, in its sole discretion, decline an application for a loan where staff has reasonably determined that the Boer's income, employment history, or creditworthiness is not sufficient to ensure repayment of all proposed loans being sought for the Assisted Unit.

Front-End Ratio: A front-end ratio is defined as the monthly cost of housing (payment of principal, interest, taxes, homeowner association fees, and insurance) as a percent of the household’s gross monthly income. Thirty-three percent (33%) front-end ratio is targeted for fixed-rate mortgages. Any departure from the ratio must receive prior Housing Division approval based on factors such as credit history, reserve levels, or the ratio of total obligations to income. In any event, the ratio may not be less than twenty-eight percent (28%).

Loan to Value Ratio: The total amount of all loans secured by the Assisted Unit, including the City's loan, shall not exceed 97% of the appraised value of the Assisted Unit. An appraisal of the Assisted Unit shall be provided by the Borrower and shall be subject to City approval. Wherever feasible, the City shall utilize appraisals prepared by or for private lending institutions providing financing for the Assisted Unit.

Prepayment of the City Loan: Borrowers may prepay the City loan at any time. However, upon prepayment, the Borrower must pay to the City the principal and contingent interest, as well as any applicable interest due under the anti-speculation provision of these Guidelines.

Price Test: The price of an Assisted Unit must be comparable to or below the price of similar units in the same building. The Borrower must take advantage of seller discounts when­ever feasible.

Refinancing of Senior Financing: If the Borrower desires to refinance the primary debt or borrow any additional funds after the initial purchase of the Assisted Unit, the City shall review and approve the terms and conditions of the proposed loan and the proposed use of the proceeds. The City reserves the right to prohibit such refinancing if staff reasonably determine that it will adversely affect the City's interests. In no case shall the Borrower be allowed to increase the amount of total debt on the Assisted Unit.

Reserves: To safeguard buyer ability to service debt, a minimum reserve level of two months of total housing costs is required (total housing cost based on aggregate amount paid for principal, interest, taxes, homeowner association fees, and insurance).

Seller Credits: The Applicant must take advantage of seller discounts or credits when available. Such credits must first be applied to non-recurring closing costs if required by the Lender to conform with their underwriting standards. To ensure that the buyer makes the largest possible down payment in accordance with his income and available assets, the City will determine how any seller credits shall be applied. For example, seller credits can be used toward closing costs, purchase price reduction, interest rate buy down, or down payment assistance.

Seller Financing: The City shall review seller financing proposals on an individual basis. The City reserves the right to reject a loan application if staff reasonably determines that the terms of the seller financing would adversely affect the City's interests.

Senior Financing: The City reserves the right to review and approve or disapprove the terms of all senior financing. Any senior loan must be made on a fixed rate basis; variable payment or adjustable rate loans shall not be allowed.

Student Status: As long as the student applicant is self-supporting, can demonstrate income eligibility and is not a dependent of a third party, an applicant may be a student. A student is defined as a person who is carrying a full or part-time course load (as defined by the institution) at an institution with a degree or certificate program.

Transaction Cost Limits: City loan proceeds used to fund transaction costs may not exceed: 1) $4000 for non-recurring closing costs (excluding prepaid interest) and 2) 1.0% of the first trust deed loan amount for mortgage broker fees.

Appraiser: A holder of a valid Real Estate Appraiser Certificate from the state of California.

Appreciation: The Resale Price minus closing costs, real estate commissions, and any other normal and customary costs incurred by the Borrower in selling the Assisted Unit, minus the Original Purchase Price of the unit and normal and customary closing costs incurred by the Borrower in purchasing the unit; minus the value of any capital improvements for which the Borrower received prior City approval under this Program.

Assisted Unit: A unit for which the City provides a City Loan.

Borrower: That person or persons who have title to and occupy the Assisted Unit and have entered into a Shared Appreciation Loan with the City.

City Loan: A loan made pursuant to the Tenant Ownership Charter Rights Amendment (TORCA) and these guidelines, including any amendments thereto.

Eligible Borrower: Low and moderate income households who are currently residing in a building which has undergone Tenant Participating Conversion (TPC). Members of the City Council, persons employed by the City's Resource Management Department, City Manager's Office, City Council or family members of such persons are not eligible to participate in the program. The immediate relatives of the seller of the unit, including the spouse, child, parent, grandparent, brother, sister, father-in-law, mother-in-law, son-in-law, daughter-in-law, aunt, uncle, niece, nephew, sister-in-law, and brother-in-law, are not eligible to participate in the program.

Loan Term: The City loan term is 20 years. However, a 30 year term is available for those lenders which require secondary market involvement to make a fixed rate loan.

Low Income Household: Persons and families whose incomes do not exceed eighty percent (80%) of the median gross income for Los Angeles County, adjusted for family size, as determined by the Secretary of Housing and Urban Development and under Section 8(f)(3) of the United State Housing act of 1937, as amended or, if programs under Section 8(f)(3) are terminated, eighty percent (80%) of the median gross income determined under the method used by the Secretary following such termination.

Moderate Income Household: Persons and families whose incomes do not exceed one hundred twenty percent (120%) of the median gross income for Los Angeles County, adjusted for family size, as determined by the Secretary of Housing and Urban Development and under Section 8(f)(3) of the United State Housing act of 1937, as amended or, if programs under Section 8(f)(3) are terminated, one hundred twenty percent (120%) of the median gross income determined under the method used by the Secretary following such termination.

Maximum Loan Amount: The maximum loan amount is based on both the household income, number of bedrooms in a unit and household size as displayed below:

*Household size limitation would not apply to Long Term Tenants defined as tenants who have continu­ously lived in the building containing the Assisted Unit since November 27, 1995.

A single, elderly, disabled or handicapped loan applicant supported by a live-in attendant (providing at least 8 hours of care daily) who is determined to be essential to the applicant's care or well being qualifies as a two person household.

**The maximum household size per unit is consistent with the Standards of the City of Santa Monica Housing Authority. The City may waive the maximum household size criteria for good cause based on administrative discretion.

Original Purchase Price: The amount paid by the Borrower to purchase the unit, not including fees such as title fees, escrow fees, loan origination fees and other closing costs.

Program: The Shared Appreciation Loan Program adopted by the City pursuant to the Tenant Ownership Rights Charter Amendment (TORCA).

Resale Price: The amount for which the Assisted Unit is sold by the Borrower. In the case of a matured loan or a loan prepayment (where there has been no transfer or sale), the Resale Price shall be equal to the fair market value of the property. To determine the fair market value of the Property for this purpose, the City and the Borrower shall endeavor to agree upon an Appraiser. If the parties are unable to agree within ten (10) days, the Lender shall have an appraisal made by an appraiser of its choice to establish the fair market value. The Borrower may also, at Borrower's expense, have an appraisal made by an appraiser of the Borrower's choice to establish the market value. If agreement cannot be reached, the average of the two appraisals shall be deemed to be the fair market value.

Tenant Participating Conversion: Any conversion to tenant ownership implemented under Section 2000 et. seq. of the Santa Monica City Charter.

Unit: Housing unit that has been converted through the TORCA process which is currently occupied by applicant and intended for purchase as a condominium.

Application Submittal & Review Procedures

APPLICATION SUBMITTAL AND REVIEW PROCESS:

1. Applicants may obtain an information package from the Housing Division at (310) 458-8702 or from the Planning Counter in Room 111 at Santa Monica City Hall, located at 1685 Main Street.
2. Housing Division staff or private lenders approved by the City are available to answer general questions about program requirements or application procedures. Applicants are strongly encouraged to participate in a “first time home buyer” education class.
3. Private lenders can prequalify interested applicants for a bank loan.
4. Applicants may submit applications for assistance only if their building has received final map approval from the City.
5. Prior to submitting a loan request to a lender, applicants should contact the City to obtain an Inspection Certificate. This involves unit inspection and proof of occu­pancy. (See Attachment A.)
6. Upon completion of the City Inspection Certificate (see Attachment A), applicant can submit all required lender and City forms to the lender, who will commence underwriting and verifications. The applicant will notify the City that they have submitted a loan application to the lender (See Attachment 6).
7. Upon issuance of the lender's commitment letter, the completed lender credit file will be forwarded by the lender to the City for review of borrower eligibility and underwriting of the City loan. The completed credit file should include: - Copy of purchase agreement; - Evidence of the building's Tenant Participating Conversion approval (i.e. condominium conversion); - Verification of income (most recent W2 form or acceptable verification from an employer); - Two previous years' federal and state income tax returns.
8. Completed applications submitted by lender(s) to the City will be considered on a first come first served basis; however, City loan funds will be allocated between low income Borrowers and moderate income Borrowers as required by the City Charter. In addition, a total of twenty-five percent of the TORCA funds will be set aside for households which resided in a unit in a building undergoing conversion at the time of Planning Commission approval (or City Council approval where applicable). Half of these funds, (12.5% of the total funds available) shall be set aside for low income households meeting this criterion, and half of these funds (12.5% of the total funds available) shall be set aside for moderate income households meeting this criterion. In the event that adequate funds are not available to fund all loan applications, priority shall be given to households which resided in a building undergoing conversion at the time of Planning Commission approval (or City Council approval where applicable) of the application for Tenant Participating Conversion.
9. If the Borrower is eligible to receive a TORCA loan, a notification letter will be pre­pared by Housing Division staff and reviewed and signed by the Housing Manager. The letter shall state the maximum Program assistance amount reserved for the Borrower, and a list of additional conditions, documents, and steps that must be completed by the Borrower in order to close the loan.
10. All Borrowers shall be required to provide the City with title insurance in a form and substance acceptable to the City and shall name the City as additionally insured on hazard insurance policies, which shall be in amounts acceptable to the City.
11. Upon fulfillment of all conditions, City staff, will prepare City loan documents for execution and transmit the documents to escrow. Escrow shall work with the Borrower to coordinate the simultaneous closing of the City and private lender loans.
12. The Director of the Resource Management Department or his designated repre­sen­tative shall authorize release of the TORCA loan funds into the escrow account established for the loan closing with instructions for disbursement.

Further information regarding the City of Santa Monica's TORCA Shared Appreciation Loan Program is available from the Housing Division or at the Planning Counter in Room 111 at Santa Monica City Hall, located at 1685 Main Street.

For Further Information, Contact Housing & Redevelopment Division

This page was last modified on 01/30/2008