Regular 1.U.
Regular City Council Meeting
- Meeting Date:
- 03/22/2010
- TITLE
- Resolution Approving City Administrator Signature Authority to Implement the Neighborhood Stabilization Program
- PRESENTED BY:
- Brenda Beckett
- Department:
- Planning & Community Services
Presentation:
PROBLEM/ISSUE STATEMENT
The Montana Department of Commerce (MDOC) received notification from the U.S. Department of Housing and Urban Development (HUD) regarding a $19.6 million funding award to implement the Neighborhood Stabilization Program (NSP) in 2009 throughout the State of Montana. Funding for this program was made available through the Housing and Economic Recovery Act of 2008 and can be used to acquire and redevelop foreclosed properties that might otherwise become sources of abandonment and blight within communities. The complete Neighborhood Stabilization Plan, approved by City Council in January 2009, can be viewed online: http://ci.billings.mt.us/index.aspx?NID=500.
The City of Billings applied for NSP funding in July 2009 and was approved for the program in December 2009. The City received the final contract to implement the program on January 25, 2010. As the projects would be approved by MDOC on a first-come-first-served basis, there is no definite contract amount identified and the City will be competing with other entities across the state to secure funding.
The City is required to submit contract amendments to MDOC to obligate funding on a project-by-project basis, indicating property address and estimated costs in order to secure funding. The City must obligate all funding via contract to be utilized in the NSP program by September 19, 2010 and must expend all funding obligated by March 19, 2013.
All foreclosed properties considered by staff for purchase through this program will have undergone a publically advertised Trustee Sale. The City of Billings would only pursue acquisition of a property if the property was acquired at the Trustee Sale by the mortgage holder.
Staff has become aware of significant limitations with mandated time limits to acquire foreclosed properties subsequent to the Trustee Sale date. Following a Trustee Sale, federal agencies require that the property be deeded back to the mortgage insurer within 30 days of the date of the Trustee Sale.
Specifically, HUD operates the Federal Housing Administration (FHA), which insures Montana Board of Housing loans. If a property was purchased with an FHA-insured loan, the Montana Board of Housing’s duly appointed Successor Trustee has a maximum of 30 days from the date of the Trustee Sale to deed the property back to HUD. If the property is not deeded back to HUD within the time limit, the Montana Board of Housing will not be protected from financial loss due to the foreclosure. Similarly, the Department of Veterans Affairs requires the foreclosed property be deeded back within 15 days of the Trustee Sale date.
The following example illustrates the current process time restraints staff is experiencing while attempting to implement NSP:
• February 1, 2010 - Trustee Sale is held, home is purchased by the mortgage holder. With this example, the property would need to be committed by March 2, 2010.
• February 2, 2010 - Mortgage holder notifies the City of opportunity, and City staff reviews preliminary information on the home, including vacancy date, remaining mortgage owed, location of the property for target areas, etc.
• February 5, 2010 - City staff orders a property inspection, including estimates of needed repairs (5-7 day return, weather permitting for roof inspections).
• February 12, 2010 - Inspection report is completed; estimates do not exceed the lead-based paint demolition threshold of $25,000.
• February 15 through 19, 2010 - Staff reviews the property on-site, completes the Environmental Review Record process (including historic and lead based paint reviews).
• February 22, 2010 - An appraisal (14 day return) and title commitment (up to 5 day return) is ordered for the property.
• February 25, 2010 - Title commitment reveals clean title with no unknown liens. Staff prepares preliminary property set-aside checklist for MDOC staff to tentatively reserve funding and begins work on the City Council memo. The next available date for memo completion is March 4 with Council action scheduled for March 22, 2010.
• March 2, 2010 - Property commitment deadline - missed.
In order to effectively implement the NSP program, staff is requesting the City Administrator be granted authority to execute Buy/Sell documents to facilitate the acquisition of eligible, foreclosed properties up to $150,000 in total payout to obtain the property. Subsequent to the acquisition of the property, repairs of up to $25,000 would be made to rehabilitate the unit to bring it to Housing Quality Standards. Units requiring more than $25,000 in rehabilitation would be eligible for demolition and land-banking. The parcels would then be made available to organizations interested in building affordable housing with long-term periods of monitored affordability.
The following example illustrates the process requested by staff to implement NSP (February 1 through 25, 2010 is the same as the last example):
• February 25, 2010 - Title commitment reveals clean title with no unknown liens. Staff prepares property set-aside checklist for MDOC staff to tentatively reserve funding and reviews with the City Administrator. If found to be an appropriate project, the City Administrator signs a letter of commitment, contingent on appraisal and 1% discount. Property commitment deadline (March 2, 2010) has been met.
• March 8, 2010 - Appraisal is completed for the property. A 1% appraisal discount is negotiated for the sales price as per NSP rules. Buy / Sell Agreement (dependent on when the appraisal is received).
• March 9 through 12, 2010 - Staff prepares final report for MDOC to firmly commit funding (required 10 days in advance of closing). If not previously completed, a Buy / Sell Agreement is drafted and executed.
• Closing is scheduled following MDOC final approval of the project.
The City of Billings applied for NSP funding in July 2009 and was approved for the program in December 2009. The City received the final contract to implement the program on January 25, 2010. As the projects would be approved by MDOC on a first-come-first-served basis, there is no definite contract amount identified and the City will be competing with other entities across the state to secure funding.
The City is required to submit contract amendments to MDOC to obligate funding on a project-by-project basis, indicating property address and estimated costs in order to secure funding. The City must obligate all funding via contract to be utilized in the NSP program by September 19, 2010 and must expend all funding obligated by March 19, 2013.
All foreclosed properties considered by staff for purchase through this program will have undergone a publically advertised Trustee Sale. The City of Billings would only pursue acquisition of a property if the property was acquired at the Trustee Sale by the mortgage holder.
Staff has become aware of significant limitations with mandated time limits to acquire foreclosed properties subsequent to the Trustee Sale date. Following a Trustee Sale, federal agencies require that the property be deeded back to the mortgage insurer within 30 days of the date of the Trustee Sale.
Specifically, HUD operates the Federal Housing Administration (FHA), which insures Montana Board of Housing loans. If a property was purchased with an FHA-insured loan, the Montana Board of Housing’s duly appointed Successor Trustee has a maximum of 30 days from the date of the Trustee Sale to deed the property back to HUD. If the property is not deeded back to HUD within the time limit, the Montana Board of Housing will not be protected from financial loss due to the foreclosure. Similarly, the Department of Veterans Affairs requires the foreclosed property be deeded back within 15 days of the Trustee Sale date.
The following example illustrates the current process time restraints staff is experiencing while attempting to implement NSP:
• February 1, 2010 - Trustee Sale is held, home is purchased by the mortgage holder. With this example, the property would need to be committed by March 2, 2010.
• February 2, 2010 - Mortgage holder notifies the City of opportunity, and City staff reviews preliminary information on the home, including vacancy date, remaining mortgage owed, location of the property for target areas, etc.
• February 5, 2010 - City staff orders a property inspection, including estimates of needed repairs (5-7 day return, weather permitting for roof inspections).
• February 12, 2010 - Inspection report is completed; estimates do not exceed the lead-based paint demolition threshold of $25,000.
• February 15 through 19, 2010 - Staff reviews the property on-site, completes the Environmental Review Record process (including historic and lead based paint reviews).
• February 22, 2010 - An appraisal (14 day return) and title commitment (up to 5 day return) is ordered for the property.
• February 25, 2010 - Title commitment reveals clean title with no unknown liens. Staff prepares preliminary property set-aside checklist for MDOC staff to tentatively reserve funding and begins work on the City Council memo. The next available date for memo completion is March 4 with Council action scheduled for March 22, 2010.
• March 2, 2010 - Property commitment deadline - missed.
In order to effectively implement the NSP program, staff is requesting the City Administrator be granted authority to execute Buy/Sell documents to facilitate the acquisition of eligible, foreclosed properties up to $150,000 in total payout to obtain the property. Subsequent to the acquisition of the property, repairs of up to $25,000 would be made to rehabilitate the unit to bring it to Housing Quality Standards. Units requiring more than $25,000 in rehabilitation would be eligible for demolition and land-banking. The parcels would then be made available to organizations interested in building affordable housing with long-term periods of monitored affordability.
The following example illustrates the process requested by staff to implement NSP (February 1 through 25, 2010 is the same as the last example):
• February 25, 2010 - Title commitment reveals clean title with no unknown liens. Staff prepares property set-aside checklist for MDOC staff to tentatively reserve funding and reviews with the City Administrator. If found to be an appropriate project, the City Administrator signs a letter of commitment, contingent on appraisal and 1% discount. Property commitment deadline (March 2, 2010) has been met.
• March 8, 2010 - Appraisal is completed for the property. A 1% appraisal discount is negotiated for the sales price as per NSP rules. Buy / Sell Agreement (dependent on when the appraisal is received).
• March 9 through 12, 2010 - Staff prepares final report for MDOC to firmly commit funding (required 10 days in advance of closing). If not previously completed, a Buy / Sell Agreement is drafted and executed.
• Closing is scheduled following MDOC final approval of the project.
ALTERNATIVES ANALYZED
1) Approve the City Administrator’s signature authority to purchase foreclosed homes up to $150,000 on behalf of the City;
2) Do not approve the City Administrator’s signature authority to purchase foreclosed homes up to $150,000.
2) Do not approve the City Administrator’s signature authority to purchase foreclosed homes up to $150,000.
FINANCIAL IMPACT
No match is required to access NSP funding through MDOC. Administration funding totaling five percent of approved project activities is allowed to be submitted for reimbursement. The MDOC has the ability to reimburse the City for expenditures within a 30-day timeline, and this is acceptable to the Finance Department, provided the City undertake approximately two projects at a time.
RECOMMENDATION
Staff recommends that Council approve the City Administrator’s signature authority to execute Buy/Sell Agreements for eligible, vacant, foreclosed properties up to $150,000 for the Neighborhood Stabilization Program via resolution.