SHARED EQUITY POLICY
City Council
".".~""""..,,..~.enda Cov...!~_Memorandum ._.,,_,"_~
Tracking Number: 1,644
Actual Date: 10/20/2005
Subject / Recommendation:
Review of the City of Clearwater's "Shared-Equity Policy" pertaining to the City's Affordable
Housing Programs.
Summary:
In our rapidly appreciating real estate market, it has become necessary for the City to design
certain elements into our Housing programs to prevent borrowers from capitalizing on the City's
investment in the short-term (7 years). We have designed a Shared Equity Policy to prevent
City of Clearwater Housing Program borrowers from using the City's assistance to profit by
selling their home in the short term, at the City's expense. In most cases, if it were not for the
City's assistance, many, if not all, of the clients that we serve would not be able to purchase the
homes.
An example would be, if the City were to provide $25,000 of Down Payment Assistance (DPA) for
a household to purchase a $150,000 home. They finance $120,000, and put $5,000 down.
They keep the home for two years, and if we assume, on the conservative side, 15%
appreciation per year. They sell the home for approximately $200,000, payoff their first
mortgage and the City's loan and make approximately $50,000 in profit.
This policy would initially apply to loans that the City provided to households for down payment
assistance (DPA), infill housing and new construction loans. By building an "Equity Sharing"
provision into our loan documents, the amount of appreciation that a household can obtain is
graduated over a time period. Our policy would have a time period of seven (7) years. If they
sell during the first several years, the City would get the majority of the appreciation and as
they progressed into the seven year period, they would get the majority of appreciation.
We must continue to develop new tools to expand our toolkit to produce and preserve housing
for our lower income populations. While at the same time, we must be good stewards of public
funds and prevent misuse of a public benefit, for a private gain.
Originating: Economic Development and Housing
Section. Consent Agenda
Category: Other
Public Hearing: No
Financial Information:
IyQ..e..;. Other
Bid Required? No
Bid Exceptions:
Other
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Other Contract?
Policy
City Council
".",..~...~enda Cove,r Memorandum
In Current Year Budget?
No
BudQet Adjustment:
No
Review Approval
Geraldine Camoos
Rod Irwin
Cvndie Goudeau
Bill Horne
10-06-2005 17: 14: 19
10-07-2005 16:04:26
10-10-2005 16:20:53
10-10-2005 16: 11 :23
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Draft 10.03.05
SHARED EQUITY PROVISION
Special Provisions: The Mortgagor agrees that ifit were not for the Mortgagee's funds,
the Mortgagor would not have been able to purchase the above-described property.
Accordingly, the following Special Provisions will apply to this mortgage in terms of
future rights to appreciation associated with the mortgaged property:
A. The parties agree that the Mortgagee, the City of Clearwater, or its successor shall
be entitled to a portion of any appreciation that is realized on the mortgaged
property in the following manner:
1. If the Mortgagor sells, transfers, rents, and/or refinances the property, or if
the property ceases to be the principle homestead property of the
Mortgagee, during the first year, and through year seven, the percentage of
appreciation as calculated and outlined in Section A 2 of this special
provision directly below shall be returned to the Mortgagee.
2. The amount of appreciation shall be determined by taking sales price, less
applicable closing costs, less original owner investment, less any
outstanding liens, less eligible improvements to property, less the
outstanding principal balance on the City of Clearwater Mortgage. The
remainder shall be considered appreciation and the applicable portion shall
be returned to the City dependent on the year ofthe sale as follows:
1. Year One
11. Year Two
111. Year Three
IV. Year Four
v. Year Five
VI. Year Six -
V11. Year Seven -
75% of appreciation
50% of appreciation
50% of appreciation
40% of appreciation
30% of appreciation
20% of appreciation
10% of appreciation
3. In the event there is no Net Appreciation or Net Appreciation is a negative
number, the amount of the original loan will still be due and payable.
4. In the event there are insufficient proceeds to payoff the City of
Clearwater Mortgage, the proceeds that are available, after deducting out
applicable closing costs, will be sufficient. In cases where there are non-
sufficient proceeds to repay any amount to the City, the City will release
the obligation on the borrower.
B. Throughout the thirty (30) year life of the mortgage, if the Mortgagee should sell,
refinance, rent, refinance, transfer ownership, or if the property ceases to be the
principle homestead residence of Mortgagee, the entire original loan balance, plus
the applicable equity during the first seven years, is due and payable to the City of
Clearwater.
Draft- 09.19.05
Draft 10.03.05
C. If the Mortgagee pays off the City of Clearwater Mortgage during the first five (5)
years, the City will not record our satisfaction until after the fifth (5th) year.
D. If a borrower desires to pay off their loan during the first seven (7) years, and if
they are not refinancing and/or selling the property, the borrower will be
responsible for obtaining an appraisal to determine the value at that time.
Draft- 09.19.05
.-.