First-Time Homebuyer Down Payment Assistance Program

Transcription

1 DRAFT City of American Canyon First-Time Homebuyer Down Payment Assistance Program Policy Guidelines For HOME Grant funds HCD Approved (Date) CC Approved (Date) ATTACHMENT 2

2 Contents 1.0 Program Overview Application Process and Selection The Home Purchase Process Homebuyer Costs Homebuyer Eligibility Current Income Limits for the Area, by Household Size Income Qualification Criteria First-Time Home Buyer Status Credit Status Housing Unit Eligibility Location and Characteristics Condition of the Housing Unit Home Program: Anti-Displacement Policy and Relocation Assistance HOME Program: Proper Notification and Disclosures to Seller Purchase Price Limits Primary Loan Qualifying Ratios Interest Rate Loan Term Impound Account Refinance of the Primary Lender Program Loan Maximum Amount of Program Loan Non-Recurring Closing Costs Determining the Amount of the Program Loan Rate and Terms for Program Loans Loan to Value Ratio Subordinate Financing Program Loan Processing and Approval Loan Processing Completion of Underwriting and Approval of Program Loan Closing Escrow Primary and Program Loan Document Signing Escrow Procedures Program Loan SERVICING Voluntary Payments Prior to Maturity Date Receiving Loan Payments i

3 9.3 Program Loan Repayment Requirements Required Noticing and Restrictions on Changes to Title or Occupancy Annual Loan Monitoring Requests for Subordinations Loan Foreclosure or Short Sale Loan Administration Administrative Requirements Program Outreach and Marketing Dispute Resolution and Appeals Procedure Non-Discrimination Requirements Conflict of Interest Requirements Re-Use Account Plan Re-Use Account Budgeting and Use of Funds HCD Access Attachments... I A. Napa County Income Limits... I ii

4 1.0 PROGRAM OVERVIEW The City of American Canyon (the City ) administers a first-time homebuyer assistance program, known as the First Time Homebuyer Down Payment Assistance Program (the Program ). The Program provides assistance to low income homebuyers in purchasing affordable, eligible homes located within the city limits of the City of American Canyon. That assistance is in the form of deferred payment, silent second priority loans toward the purchase price of housing units that will be occupied by first time homebuyers. The fund that compose the First Time Homebuyer Down Payment Assistance Program is: HOME Program, established by the City of in collaboration with HCD s HOME Investment program. Although these are two separate programs, each with their own source of funding, both programs operate similarly, with important exceptions. The policies that are unique to each program are highlighted throughout this document, and are preceded by the appropriate program name, underlined. The two sources of down payment assistance may be used independently or together depending on the potential homebuyer s need and whether the potential homebuyer meets each source s eligibility criteria. The maximum loan amount from all combined local sources will not exceed $70, or 30% of the property acquisition cost, whichever is less. 1.1 Application Process and Selection A. The Division processes applications for Program assistance on a first-come, first-served basis, based on the date and time of receipt of completed applications by the Division. If and when more completed applications are received and deemed eligible than can be funded with available Program funds, the Division will create a waiting list of applicants who will be contacted when additional funding becomes available. Each applicant must complete an application form which requires sufficient information concerning income, employment, household size, and credit history to establish preliminary eligibility for Program participation. Applications are deemed complete only if all information is completed and the application is signed and dated. B. Once a completed application is received by the Division, (or when the applicant s name comes to the top of the waiting list), their Program eligibility will be verified by the Division. If their eligibility is confirmed, the applicant will be invited to a meeting for an overview of the Program requirements. At the meeting, the application will be reviewed and the potential home buyer given a Preliminary Eligibility Letter for participation in the Program. HOME Program: The potential homebuyer will also be given the following forms and materials: Seller s Lead-Based Paint (LBP) Disclosure, EPA Booklet (Protect Your Family from Lead in Your Home), Seller Certification, and Disclosure to Seller. C. Each applicant must attend a Homebuyer Education class provided by the City of Napa or an approved class provider. At a minimum, the Homebuyer Education classes shall cover: Preparation for homeownership, Financing and Credit Analysis, Loan Closing, Home Maintenance, and Loan Servicing. Applicants must complete the class and receive a certificate of completion prior to close of escrow. Classes are offered at various times throughout the year. Page 1 of 18

5 D. The potential homebuyer is given 90 days to find a qualified home and begin securing a Primary Loan for the housing unit. If during the 90 day time frame the potential homebuyer is unable to purchase a home, an extension may be given after income is re-verified. However, if it appears the potential homebuyer cannot participate in the Program, the reservation of funds expires and the next person on the waiting list is given an opportunity to participate in the Program 1.2 The Home Purchase Process A. The housing unit selection process is conducted by the homebuyers. Prior to making an offer to purchase an eligible housing unit (see Section 3.0), the prospective buyers must provide the seller with the Disclosure to Seller form containing the following provisions: 1. The homebuyer has no power of eminent domain and, therefore, will not acquire the property if negotiations fail to result in an amicable agreement; 2. The homebuyer s offer is an estimate of the fair market value of the housing unit, to be finally determined by a state licensed appraiser; 3. The housing unit will be subject to inspection for local health and safety standards and local building codes; 4. Since the purchase is voluntary, the seller is not eligible for relocation payments or other relocation assistance; 5. The seller understands that the housing unit must be either: currently owner-occupied, newly constructed, a renter purchasing the unit, or vacant for 90 days prior to submission of the purchase offer; and 6. If the seller is not provided with a statement of the above five provisions prior to the purchase offer, the seller may withdraw from the agreement after this information is provided. B. The applicant submits an executed standard form purchase and sale agreement and Primary Lender preapproval letter to the City. The purchase and sale agreement is be contingent on the household and housing unit meeting Program eligibility requirements and receiving Program Loan approval. The Division verifies applicant eligibility, housing unit and loan eligibility, and amount of assistance to be provided consistent with these guidelines. C. The Division provides written notification to applicant of approval or denial with reason stated and, if denied, a copy of the Program s appeal procedures. D. When the Primary Lender requirements are met, Program funds are deposited into escrow upon receipt of required closing instructions and loan documents. E. At the time of escrow closing, the City is named as an additional loss payee on fire, flood, if required, and extended coverage insurance for the length of the loan and in an amount sufficient to cover all encumbrances or full replacement cost of the housing unit. 1.3 Homebuyer Costs Page 2 of 18

6 A. Eligible households must document that they have the funds necessary for down payment and closing costs as required by the Primary Lender and the City. The Program s down payment requirement (below) is in place even if the Primary Lender has a lower down payment requirement. B. Homebuyer funds shall be used in the following order: 1. Down payment minimum requirement: The homebuyer will be required to provide a minimum of 3% of the purchase price of the unit as down payment and closing costs contribution. 2. Fees: To the extent possible after satisfying 1 (above), funds may be used for the appraisal fee; cost of credit report; loan origination fee; discount points customary homebuyer closing costs; the homebuyer s customary portion of the escrow fees (50%); title insurance; and the establishment of impound accounts for property taxes and insurance. 3. Purchase price: After 1 and 2 (above) are satisfied, any balance of homebuyer funds may be applied to either the purchase price or to reduce the interest rate of the Primary Loan. C. The principal amount of the Program Loan, if approved, shall be sufficient to reduce the applicant s monthly housing costs to a ratio within the range allowed by the Program (explained in Section 5.1), after applicant s down payment, approved Primary Loan amount, and other available home buyer assistance programs have been applied toward the purchase price and/or closing costs. The Division will determine the Program loan amount following receipt of a complete application, including primary loan approval, signed purchase contract, and all required forms. In no case shall the Program loan amount exceed the Program s maximum loan amount (described in Section 6). 2.0 HOMEBUYER ELIGIBILITY 2.1 Current Income Limits for the Area, by Household Size All applicants must certify that they meet the household income eligibility requirements for the Program and have their household income documented. The income limits in place at the time of loan approval will apply when determining applicant income eligibility. All applicants must have annual income at or below 80% of the County s area median income (AMI), adjusted for household size as established by HCD. Income limits are published annually by HCD. See Attachment A: Napa County Income Limits Chart. Staff will update the Income Limits annually without seeking City Council approval. 2.2 Income Qualification Criteria The gross annual household income determined by the Division, not that calculated by the Primary Lender, shall prevail in determining the applicant s eligibility for the program and for all Program Loan underwriting purposes, including housing cost ratios. The Primary Lender may use a different method than the Division to calculate the applicant s income or assets. All income sources of all adults, over the age of 18, in the applicant s household will be verified by the Division by reviewing and documenting tax returns, copies of wage receipts (paycheck stubs), retirement and/or benefit checks, bank statements and third-party verification of employment, using forms sent to employers. All documentation shall be dated within six months prior to loan closing and will be kept in the applicant file and held in strict confidence. A. Definition of Household Income Page 3 of 18

7 HOME Program: The Program uses the definition of household income in 24 CFR Part (also known as the Part 5 or Section 8 method) to determine applicants income eligibility for the program: the gross amount of income of all adult household members that is anticipated to be received during the 12-month period following the date the program application is received by the City. Program staff follows HUD s current edition of Income Calculation and Determination for Federal Programs, which explains the Part 5 method of calculating household income. This method defines types of income and assets to be included or not included in the household s income calculation. Special consideration is given to income earned by minors, live-in aides, persons with disabilities, temporarily and permanently absent family members, and adult students living away from home as determined by 24 CFR Part The City will obtain the Primary Lender s underwriting worksheets in order to compare the applicant s annual gross income with the income the Primary Lender used in order to determine program eligibility. The Primary Lender typically underwrites to FHA or conventional guidelines which include past income. The HOME Program evaluates future income. Therefore, the income amounts may not match. If the discrepancy between the two is greater than 10%, the Community Development Director will determine if any misreporting or miscalculating has occurred. NOTE: A non-occupant co-signer may be required to submit income and asset documentation. Cosigners income will not be included in the household income determination. Co-signers are acceptable as long as their names do not appear on the Grant Deed or Deed of Trust. B. Assets An asset is a cash or non-cash item (that is not a necessary item such as furniture and automobiles) that can be converted to cash, including cash, marketable securities, certificates of deposit, money market accounts, publicly traded stocks, life insurance plans with cash value, and personal business holdings. Ownership of assets and investments will not disqualify a household from the Program. However, interest on the cash value of a household s assets will be included when determining household income for purposes of income eligibility. The cash value of an asset is the amount left from the market value after deducting reasonable expenses required to convert the asset to cash, including fees, penalties or sales costs. For households with net assets exceeding $5,000, the calculation of household gross income shall include the greater of: a) actual income, if any, derived from all the net household assets; or b) a percentage of the value of such assets based on the current passbook savings rate, as determined by HCD. If the assets are less than $5,000, no income is counted from assets. Borrowers will not be required to liquidate their assets to qualify for a Program loan. However, it is expected that borrowers invest their own funds first, and only rely on the Program loan as gap financing. Income earned from assets (not the value of assets) is recognized as part of annual income under the Part 5 definition of household income. Page 4 of 18

8 2.3 First-Time Home Buyer Status The Program is only available to first-time home buyers. Documentation of first-time homebuyer status is required for all homebuyers. A first-time homebuyer is a borrower(s) who has not owned a home during the three-year period prior to the purchase of a home with Program assistance. The following individual or individuals may not be excluded from consideration as a first-time homebuyer: 1. A displaced homemaker who, while a homemaker, owned a home with his or her spouse or resided in a home owned by the spouse. A displaced homemaker is an adult who has not, within the preceding two years, worked on a full-time basis as a member of the labor force for a consecutive twelve-month period and who has been unemployed or underemployed, experienced difficulty in obtaining or upgrading employment and worked primarily without remuneration to care for his or her home and family; 2. A single parent who, while married, owned a home with his or her spouse or resided in a home owned by the spouse. A single parent is an individual who is unmarried or legally separated from a spouse and has one or more minor children for whom the individual has custody or joint custody or is pregnant; and 3. An individual or individuals who own or owned, as a principal residence during the three-year period prior to the purchase of a home with assistance, a dwelling unit whose structure is: a. Not permanently affixed to a permanent foundation in accordance with local or state regulations; or b. Not in compliance with state, local, or model building codes and cannot be brought into compliance with such codes for less than the cost of constructing a permanent structure. 2.4 Credit Status The applicant must have a minimum credit score of 620, and may not have filed for bankruptcy or been foreclosed upon during the three years prior to the date of application to the program. 3.0 HOUSING UNIT ELIGIBILITY 3.1 Location and Characteristics A. Housing units to be purchased must be located within the limits of the City of American Canyon. The City will confirm that the housing unit is within the eligible area and review each proposed housing unit to ensure that it meets all eligibility criteria before funding. B. Housing unit types eligible for the Program are new or previously owned single-family detached houses, condominiums, Planned Unit Development or manufactured homes on a single-family lot and placed on a permanent foundation. C. All housing units must be in compliance with State and local codes and ordinances. D. Proof of flood insurance for housing units located within a 100 year flood zone will be required in order to close escrow. E. Housing must be modest, meaning that it may not exceed three bedrooms and two bathrooms unless there are documented extenuating circumstances (e.g. it would create an overcrowding Page 5 of 18

9 situation, there is not a reasonable inventory of homes of this size, etc.) and the Community Development Director approves the exception request. The home should not be larger than necessary to meet the needs of the home buyer household without overcrowding. F. Housing unit size shall be sufficient to meet the needs of the homebuyer household, without overcrowding. Generally, this means not more than two persons per bedroom or living room as stated in HUD s Housing Quality Standards. 3.2 Condition of the Housing Unit A. Unit Inspection An inspection of the property will be completed to determine if the property meets all local building code standards at the time of initial occupancy. Inspections will be conducted by the Housing Specialist (Inspector) responsible for inspections under the Section 8 Rental Assistance Program, or the Housing Rehabilitation Specialist. The inspection of the property will be conducted within the first few weeks of the City s receipt of an executed and accepted purchase agreement. The Housing Inspector will prepare a report showing the condition of the home. Should there be any local building code deficiencies these items will be brought to the attention of both the buyer and the seller. The deficiencies will be required to be remedied prior to the close of escrow transferring title of the property. Upon completion of all work required by the Housing Inspector, a final inspection will be conducted prior to close of escrow. The Housing Inspector will sign off on all required work assuring that each housing unit receiving Program assistance is in compliance with local codes and health and safety requirements at the time of purchase and prior to occupancy. B. HOME Program: Lead-Based Paint All homes built prior to 1978 must pass a lead-based paint hazard inspection in order to qualify for purchase with Program assistance. If the home was built prior to 1978, the Division will retain a certified lead-based paint inspector or risk assessor to test all painted, shellacked, or varnished surfaces to determine the presence or absence of lead. If the test results indicate that unstable lead is present and corrective work is needed, such as encapsulation with new paint, the work must be performed by contractors licensed to do lead-based paint hazard reduction and/or abatement, using work safe methods. If such work is performed, the testing firm will test again after the work is done and provide a clearance letter once the results indicate no hazards are present. The following steps must be taken regarding potential lead hazards: 1. Notification: Program application packages will include the most recent copy of the EPA pamphlet Protect Your family From Lead in Your Home (EPA 747-K ). Applicants will be required to read the pamphlet and sign a certification that they have read it prior to receiving pre-approval for Program assistance. If a home is inspected for lead-based paint, the inspector must provide the applicant with the State Department of Health Services Form If leadbased paint mitigation work is performed, the Division will provide the applicant with the form entitled Visual Assessment and Lead-based Paint Notice of Presumption and Hazard Reduction. 2. Disclosure: Sellers of homes built prior to 1978 must provide prospective buyers with the HUD notice entitled Seller s Lead-based Paint Disclosure prior to accepting a purchase offer from Page 6 of 18

10 the prospective buyer. Buyers shall not submit a purchase offer until they have received this disclosure from the seller or seller s agent. 3. Inspections: The Inspector shall conduct a surface by surface testing of all painted, shellacked, or varnished surfaces to determine the presence or absence of lead in the home in order to identify lead hazards. All lead hazards must be stabilized in accordance with CFR (a) and (b); and a clearance shall be made in accordance with CFR Mitigation: If stabilization is required, the Division must approve the contractor selected to perform the work in order to assure that only those certified to stabilize lead paint are allowed to perform the mitigation. 5. Confirmation of Property Eligibility: Once a pre-approved Program applicant has provided all the required documentation of a home s eligibility and all required inspections have been completed, the Division will: 1) confirm that the home is within the American Canyon city limits, 2) review each proposed home to ensure that it meets all eligibility criteria, and 3) place a completed Lead Compliance Document Checklist in the applicant s file. 3.3 Home Program: Anti-Displacement Policy and Relocation Assistance Only homes that are currently owner occupied, newly constructed, a renter purchasing the unit, or have been vacant for 90 days prior to the acceptance of a contract to purchase, are eligible for purchase under the Program. The Program will not result in the displacement of any persons, households, or families. 3.4 HOME Program: Proper Notification and Disclosures to Seller A. When the prospective home buyer has been determined eligible to purchase a home, the City will give the home buyer the required disclosure forms for distribution to the seller and to the buyer s real estate agent. Any and all property disclosures must be reviewed and signed by the home buyer and seller. B. Prospective buyers must provide the seller with the Disclosure to Seller prior to submitting a written offer to purchase to the seller. This notice will be included in the purchase and sale agreement, and must be signed by all owners on title to the home. C. In order to qualify a non-tenant occupied property, the seller will be required to certify in writing that the property is either owner occupied immediately prior to the receipt of the purchase offer or that the unit has been vacant for at least 90 days immediately prior to the receipt of the purchase offer. 4.0 PURCHASE PRICE LIMITS HOME Program: The maximum purchase price of homes purchased with Program loans shall not exceed the 203(b) Purchase Price Limits published annually by HCD for Napa County. 5.0 PRIMARY LOAN Prior to obtaining a Program loan commitment from the City, a home buyer must provide an approval Page 7 of 18

11 letter for a Primary Loan in the maximum amount the primary lender is willing to loan the home buyer within the Program loan standards (i.e., rates, ratios, amortization schedule, and other minimum loan requirements). 5.1 Qualifying Ratios Fully documented Primary Loans approved for funding by FHA, the VA, or CalHFA, or a large institutional lender that underwrites to CalHFA, Fannie Mae, or FHA standards, will be acceptable to establish the applicant s ability to make payments and dependability of income, in addition to the Program s underwriting standards explained below. Program Loan amounts required to maintain affordability will be determined in two ways: A. Minimum (Front-End) Housing Cost Ratio: The home buyer s monthly housing payment (which includes taxes, insurance, homeowner association fees, etc.) must be at least 30% of the household s gross monthly income. Should primary loan costs fall below 30% of household s gross monthly income, the primary loan amount must be increased and the Program loan amount decreased in order to meet the minimum first mortgage housing cost ratio. B. Maximum (Back-End) Housing Cost Ratio: The home buyer s monthly housing payment plus any monthly consumer debt payments must not exceed 50% of the household s gross monthly income. A family s overall debt ratio must not exceed 50% of the household s gross monthly income. These underwriting criteria are consistent with FHA, Fannie Mae and Freddie Mac. Home buyers whose primary loan costs exceed 40% of the household s gross monthly income are required to obtain a primary loan with one of the above listed Secondary Market Financing agencies. 5.2 Interest Rate The primary loan must be fully amortized and have a fixed interest rate that does not exceed the current market rate. Current market rate is defined as the 90-day posted yield for thirty-year fixed-rate loans, as established by Fannie Mae, plus 100 basis points. No temporary interest rate buy-downs are permitted. A permanent interest rate buy down is permitted as long as it does not cost more than 1% of the loan amount. Program loan funds are not eligible to be used to reduce other debt in an effort to qualify a borrower for a primary loan. The borrower s minimum 3% contribution is also not eligible to reduce other outstanding debt. 5.3 Loan Term The primary loan shall be fixed rate, fully amortized, and have a term all due and payable in no fewer than 30 years. There shall not be a balloon payment due before the maturity date of the program loan. 5.4 Impound Account The home buyer will be required to establish and maintain an impound account for the payment of property taxes and insurance with the primary lender for the life of the Program loan. Page 8 of 18

12 5.6 Refinance of the Primary Lender Subordination or refinance requests shall be processed upon submittal of a written request of the Borrower to the Housing Division. The Community Development Director can approve the request provided it meets the following circumstances: A. The new Primary Loan is a fully amortized loan; B. The principal amount of the refinanced Primary Loan will not exceed the then current balance (plus refinancing and closing costs) of the existing Primary Loan; C. The lender making the refinanced Primary Loan is a bank, credit union or recognized institutional lender approved in advance by the City. D. Any refinance should lower the housing cost of the household with a lower interest rate and the total indebtedness on the property should not exceed the current fair market value or current restricted sales price, unless pre-approved by the Community Development Director. E. If the homeowner wishes to refinance and take out cash equity, the entire principal and accumulated interest of the Program Loan are all due and payable at the time of the refinance. F. The City will not pay any costs incurred with any subordination to a new Primary Loan. All property taxes and liens must be current at the time of subordination. G. The first mortgage lender will be required to submit copies of the borrower s loan application (1003) and loan underwriting worksheet (1008), copy of the appraisal report, and a copy of the preliminary title report. H. The Homeowner s first mortgage costs, including property taxes and insurance, and all other debt must not exceed 50% of the household s gross monthly income. Homeowners whose housing costs exceed 40% of the household gross monthly income must be qualified for a first mortgage loan made under FHA, Fannie Mae, or Freddie Mac underwriting guidelines. I. The escrow company will provide subordination documents for execution by the City and recordation by the escrow company. 6.0 PROGRAM LOAN 6.1 Maximum Amount of Program Loan The maximum subsidy for a Program loan will not exceed $70,000 or 30% of the property acquisition cost, whichever is less, and will not exceed HUD s 221(d)(3) subsidy limits. Under no circumstances will the City provide subsidy to a unit that exceeds the annually published HUD subsidy limits. The buyer will be required to provide a minimum of 3% of the purchase price of the unit as down payment and closing cost contribution. The amount of subsidy will depend on the amount needed by the buyer to maintain affordability of the unit, per Section 5.1 of this document. 6.2 Non-Recurring Closing Costs Non-recurring costs such as credit report, escrow, closing and recording fees, title report and title Page 9 of 18

13 insurance, and title updates and/or related costs may not be included in the Program loan, but may be included in the home buyer s 3% down payment. 6.3 Determining the Amount of the Program Loan The actual amount of a Program loan shall be computed after the applicant has identified a home to purchase and has been pre-qualified for a primary loan in an amount such that their front- and back-end ratios would not exceed the limits specified in Section 5.1. The Program loan shall be made only in the amount needed to allow them to purchase the home ( the affordability gap ) while keeping their housing costs affordable. The primary lender will use their underwriting standards, such as front and back ratios, credit score, and income, and so on to determine the primary loan amount. The Division will verify that the primary loan meets the requirements of Section 6.1 above, and the Program loan amount will be equal to the amount required to bridge the gap, if any, between the acquisition cost (purchase price plus closing costs) minus the down payment, the primary loan, and any other funds available to the buyer. 6.4 Rate and Terms for Program Loans Program loans shall be made in the form of 30 year, deferred payment loans, and shall bear a rate of 3% per annum, simple interest. A home buyer may pay a portion of or the entire deferred payment loan amount at any time without penalty. The HOME Program loan deed of trust shall be in second lien position following the primary loan, unless another public agency is providing deferred financing and must be in second position, in which case the HOME Program loan may be in third lien position. Loans junior to the Program loan must be pre-approved in writing by the Community Development Director prior to closing. Adjustable rate loans may not be used in conjunction with the Program loan. The total amount of all Program Loans, including accrued interest, shall immediately become due and payable: (1) in the event of a default by the borrower under the promissory note and deed of trust, (2) upon transfer of the property, (3) when the borrower no longer occupies the home as his/her principal residence, or (4) at the end of the 30 year term. Failure to declare such amounts due shall not constitute a waiver on the part of the City to declare them due in the event of a subsequent transfer or default. 6.5 Loan to Value Ratio The loan-to-value ratio for a Program loan, when combined with all other indebtedness to be secured by the property, shall not exceed 100 percent of the purchase price. 6.6 Subordinate Financing In order for a low-income household to obtain a home, several funding sources may be required. Subordinate loans may be used to cover mortgage subsidy costs that exceed the Program maximum loan amount. All financing on the property, including primary and subordinate financing may not exceed 100% of the value of the property, unless pre-approved by the Community Development Director. All subordinate liens must have the payments deferred and the term must be for at least as long as the term of the Program loan. Page 10 of 18

14 7.0 PROGRAM LOAN PROCESSING AND APPROVAL 7.1 Loan Processing Once the buyer has received a preliminary eligibility letter from the Program, received loan approval on a primary loan, and identified an eligible home for purchase, the home buyer should submit to the City an accepted property sales contract with proper seller notification. The City will provide the home buyer or their loan officer with all the necessary forms, disclosures, loan documents, and other required information. The buyer should submit to the City a complete packet with all the Program documents executed as well as all the information from the primary lender. The information should include the following: A. Accepted purchase contract with Seller s Disclosure; B. Mortgage application with good faith estimates and Primary Loan disclosures, including the 1003 and 1008 forms; C. Full mortgage credit report and rent verification; D. Copy of the appraisal; E. Current third party income verifications and verifications of assets; F. Home ownership education certificate; G. Property inspection form, and lead-based paint disclosures and test results, if applicable. The primary lender s approval letter and estimated closing cost statement should reflect all the information in the loan package and show any contingencies of loan funding. Reviewing the primary lender s loan underwriting documentation will provide basic information about the qualification of the applicant and substantiate the affordability provided by the Program loan. By reviewing and crosschecking all the primary lender information, the final Program loan amount approved will fall within the affordability parameters of the Program. 7.2 Completion of Underwriting and Approval of Program Loan Upon receipt of all necessary materials, the Division will verify the applicant s income and home buyer certification (review of credit report and income taxes). Documentation of affordability will then be verified and Program loan amount determined. Staff will work with local lenders to ensure qualified participants receive only the benefit from the City s Program needed to purchase the housing unit and that leveraged funds will be used when possible. Once the Program loan approval forms have been completed, the Division staff will submit the application to the Housing Manager for review. The Housing Manager will forward the loan package to the Community Development Director for approval. The Community Development Director will review the loan request and may approve it with or without conditions. Upon approval, a target date for escrow closing will be set and Program funds will be reserved for the home buyer and deposited into escrow when the first mortgage lender is ready to fund, and all other conditions of closing have been met. Page 11 of 18

15 8.0 CLOSING ESCROW 8.1 Primary and Program Loan Document Signing The homebuyer(s) will sign the promissory notes, deeds of trust, and statutory lending notices, truth in lending, and all other required Program documents. The deeds of trust will be recorded with the County Clerk/Recorder at the same time, and the request(s) for copy of notice of default will also be recorded with the County Clerk/Recorder. Prior to escrow closing, the escrow/title company will be required to provide the City with a copy of the primary lender s promissory note and deed of trust to verify loan amount and terms of the loan. The escrow/title company will also be instructed to provide the City with a copy of the grant deed and final escrow settlement statement (HUD-1) immediately upon close of escrow. At the time of escrow closing, the City shall be named as an additional loss payee on the home buyer s fire, flood (if required), and homeowner s insurance policies for the length of the loan term, and in an amount sufficient to cover all encumbrances or full replacement costs of the home. 8.2 Escrow Procedures The escrow/title company shall receive the escrow instructions provided and shall issue California Land Title Association (CLTA) and American Land Title Association (ALTA) policies after closing. The CLTA policy is issued to the homebuyer to protect against failure of title based on public records and against such unrecorded risks as forgery of a deed. The ALTA is issued to each lender providing additional coverage for the physical aspects of the property as well as the homebuyer s title failure. These aspects include anything which can be determined only by physical inspection, such as correct survey lines; encroachments; mechanics liens; mining claims and water rights. The escrow/title company will be instructed as to what may show on the policy; the amount of insurance on the policy (all liens should be covered) and the loss payee (each lender should be listed as a loss payee and receive an original ALTA). 9.0 PROGRAM LOAN SERVICING 9.1 Voluntary Payments Prior to Maturity Date Borrowers may begin making voluntary payments at any time prior to the maturity date of the Program Loan. There is no prepayment penalty on the Program loan. Early payments will be attributed first to any interest then due, then to principal. 9.2 Receiving Loan Payments A. Program loan payments shall be made to: City of American Canyon Finance Department 4381 Broadway, Suite 201 American Canyon, CA Page 12 of 18

16 B. The City will be the receiver of loan payments and recapture funds, maintain a financial recordkeeping system to record payments, and file statements on payment status. Payments shall be deposited and accounted for in the City s Program Income Account, as required by HCD. The City will accept loan payments from Borrowers making payments in full upon sale or transfer of the property. All loan payments are payable to the City of American Canyon. The City may at its discretion, enter into an agreement with a third party to collect and distribute payments and/or complete all loan servicing aspects of the Program. C. The borrower may prepay all or part of the balance due under the Promissory Note; provided, however, that any prepayment in full must include the required accrued interest due at the time of prepayment. D. The City maintains a loan portfolio system that will calculate loan payoffs, and allow staff to process demands including reconveyance of deeds of trust utilizing its established systems. The City maintains records of each loan utilizing its loan portfolio software program. At any time, amounts for loan payoff can be determined as the system tracks deferred interest and any payments that may be made and credited against the loans. 9.3 Program Loan Repayment Requirements Program loans are due (1) in the event of a default by the borrower under the promissory note and deed of trust, (2) upon transfer of the property, (3) when the borrower no longer occupies the home as his/her principal residence, (4) if the homeowner wishes to refinance and take out cash equity, or (5) at the end of the 30 year term. The Program loan will be in default if the borrower fails to maintain required fire or flood insurance or fails to pay property taxes. 9.4 Required Noticing and Restrictions on Changes to Title or Occupancy In all cases where there is a change in title or occupancy or use, the Borrower must notify the City in writing of any change within 30 days of the change. The City will request cooperation from the Borrower to ensure the property is kept in compliance with the original Program terms and conditions such that it remains available as an affordable home for low income families. Changes in title or occupancy must be in keeping with the objective of benefit to low-income households (below 80% AMI. HOME Program loans are not assumable except under the following limited circumstances: A. The transfer of the property to the surviving joint tenant by devise, descent or operation of law, on the death of a joint tenant; B. A transfer of the Property where the spouse becomes an owner of the property; C. A transfer of the Property resulting from a decree of dissolution of marriage, legal separation or from the incidental property settlement agreement by which the spouse becomes an owner of the property; D. A transfer to an existing spouse or child of the Borrower by devise or inheritance following death of the Borrower or; E. A transfer to an inter-vivos trust (or living trust) in which the Borrower is and remains the beneficiary and occupant of the Property. Page 13 of 18

17 9.5 Annual Loan Monitoring The City shall monitor all outstanding loans to ensure adherence to Program requirements including, but not limited to, the following: A. Owner occupancy B. Property tax payment C. Hazard insurance coverage D. Good standing on primary loans E. General upkeep of housing units The City shall mail an annual certification of owner occupancy to each borrower to verify the borrower s compliance with conditions contained in the deed of trust. The borrower must provide all requested documentation and information within the time frame specified by the City. 9.6 Requests for Subordinations The Community Development Director has the authority to approve all refinance and subordination requests of the Primary loan as outlined in Section 5.6 above. The Community Development Director is authorized to execute any necessary documents in conjunction with the refinance and subordination requests. If the Housing Manager determines that one or more of the requirements have not been met, but that extraordinary extenuating circumstances warrant an approval of a particular request, the Housing Manager is authorized to recommend final approval by the Community Development Director. 9.7 Loan Foreclosure or Short Sale A. The City will notify the Borrower upon any condition of loan default under the Program loan including but not limited to the following: 1. Non-payment; 2. Lack of insurance or property tax payment; 3. Violation of rent limitation agreement; 4. Change in title or use without approval; and/or 5. Default on senior loans. If the default situation continues, the City may start formal foreclosure proceedings in order to preserve the affordable housing unit. B. When a senior lien holder starts a foreclosure process and the City is notified via a Request for Notice of Default, the City has the right to reinstate the senior lien holder and preserve the housing unit. The City Manager has authority on all matters related to preservation or release of the City s interest on properties that are pending foreclosure or short sale. The City Manager, or designee, will evaluate each property, conduct a cost and risk analysis and determine the economic feasibility of retaining the City s interest in the property. Page 14 of 18

18 When the property encumbrance exceeds the established restricted sales price, or fair market value, or adequate resources are not available to cure the foreclosure, the City Manager is authorized to allow the foreclosure to proceed, negotiate a short sale and/or release the City s interest in the property. When the property encumbrance is less than or equal to the established restricted sales price, or fair market value, and adequate resources are identified to cure the foreclosure, the City Manager shall take necessary action to preserve the affordable housing unit by promptly bringing the matter to the City Council for action. If the Borrower requests the City to accept a short sale on the property, when the sales price of a home is less than the total amount of liens encumbering the property, the City will first obtain approval from HCD. According to HCD s Short Sale Policy, the City must first submit a short sales package to HCD, prior to the City approving the short sale. Any approval of a short sale will be on a case-by-case basis and only for financial hardship situations. 9.8 Loan Administration City staff maintains a loan portfolio system that will calculate loan payoffs and allow staff to process demands, including reconveyance of deeds of trust, utilizing its established systems. City staff maintains records of each loan, utilizing its loan portfolio software program. At any time, amounts for loan payoffs can be determined, since the system tracks deferred interest and any payments that may be made and credited against the loans ADMINISTRATIVE REQUIREMENTS 10.1 Program Outreach and Marketing All outreach efforts will be made in accordance with state and federal fair lending regulations to assure nondiscriminatory treatment, outreach and access to the Program. No person shall, on the grounds of age, ancestry, color, creed, physical or mental disability or handicap, marital or familial status, medical condition, national origin, race, religion, gender or sexual orientation be excluded, denied benefits or subjected to discrimination under the Program. The City will ensure that all persons, including those qualified individuals with handicaps, have access to the Program. A. The Fair Housing Lender logo will be placed on all outreach materials. Fair housing marketing actions will be based on a Fair Housing Marketing Plan, which conducts a characteristic analysis comparison (census data may be used) of the Program s eligible area compared to the ethnicity of the population served by the Program (includes, separately, all applications given out and those receiving assistance) and an explanation of any underserved segments of the population. This information is used to show that protected classes (age, gender, ethnicity, race, and disability) are not being excluded from the Program. Flyers or other outreach materials, in English and any other language that is the primary language of a significant portion of the area residents, will be widely distributed in the Program-eligible area and will be provided to any local social service agencies. B. Homebuyer education classes shall be provided to all homebuyer applicants to help educate homebuyers about preparing for homeownership, available financing and credit analysis, loan closing and escrow process, and home maintenance and loan servicing. C. The Division will include local real estate agents and primary lenders in Program outreach efforts, Page 15 of 18

19 and work closely with these parties to explain the Program requirements for eligible housing units and homebuyers, and to review Program processes. Local real estate agents and primary lenders will also be encouraged to have their customers participate in the Program. D. HOME Program: Section 504 of the Rehabilitation Act of 1973 prohibits the exclusion of an otherwise qualified individual, solely by reason of disability, from participation under any program receiving Federal funds. The City will take appropriate steps to ensure effective communication with disabled housing applicants, residents and members of the public Dispute Resolution and Appeals Procedure Any applicant denied assistance from the Program has the right to appeal. The appeal must be made in writing and addressed to the Housing Manager who will make a determination in writing within 30 days of receipt of the appeal. Should the applicant be denied this appeal, an appeal may be made to the Community Development Director who will make a final determination in writing within 30 days of receipt of the second appeal Non-Discrimination Requirements The Program will be implemented in ways consistent with the City s commitment to non-discrimination. No person shall be excluded from participation in, denied the benefit of, or be subject to discrimination under any program or activity funded in whole or in part with Federal and/or State funds on the basis of his or her religion or religious affiliation, age, race, color, creed, gender, sexual orientation, marital status, familial status (children), physical or mental disability, national origin, or ancestry, or other arbitrary cause Conflict of Interest Requirements HOME Program: In accordance with Title 24, Section (c) of the Code of Federal Regulations, no member of the governing body and no official, employee, agent, or consultant of the local government, nor any other person who exercises policy or decision-making responsibilities in connection with the planning and implementation of the Program shall directly or indirectly be eligible for this Program. Exceptions to this policy can be made only after public disclosure and formal approval by HCD RE-USE ACCOUNT PLAN 11.1 Re-Use Account All repayments of Program loan principal and interest shall be received by City and deposited into a separate reuse account. The reuse account shall be an interest bearing account into which all earned interest shall be deposited. All funds deposited into the reuse account shall be the property of the City Budgeting and Use of Funds A separate line item for loan repayments under the HOME Program shall be inserted into City s fiscal year budget allocating and approving use of funds for eligible activities. Page 16 of 18

20 All reuse funds shall be expended in accordance with the HOME Regulations and the Standard Agreement between the City and HCD. Funds may be used for: A. Additional mortgage assistance loans. B. Costs of homebuyer education for each first time homebuyer receiving mortgage assistance from the reuse account. C. Loan processing activity delivery fees as applicable HCD Access The City shall allow HCD full access to the reuse account records for the purpose of determining City s compliance with HOME regulations. Page 17 of 18