City of Tacoma Single Family Homeowner Occupied Rehabilitation Loan Program Services

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1 PROGRAM GUIDELINES AND STANDARD OPERATING PROCEDURES City of Tacoma Single Family Homeowner Occupied Rehabilitation Loan Program Services Under the Single Family Homeowner Occupied Rehabilitation Services Program (Program), for the repair or replacement of components of the house not in compliance with Housing Quality Standards (HQS) and Uniform Physical Conditions Standards (UPCS). Funds Utilized the Program: CDBG only Property Qualification: 1. Property must be owner occupied. Homeowner will sign a clause on the application form certifying the property is the principal residence. 2. Homes that are for sale are not eligible for the program. 3. Property must be a traditional single-family dwelling that is owned fee simple (mobiles homes, condos, attached townhomes, or duplexes are allowed). A Title Policy will be ordered to verify ownership. This program is unable to assist income generating properties such as group homes, adult care homes, duplexes and rentals. 4. Property must be located within the city limits of Tacoma. 5. Property must be capable of being brought into compliance in accordance with the Housing Quality Standards set for by HUD, within the loan limitations of the program. 6. Rehabilitation will focus on addressing needed safety, health and energy repairs within the financial limitations of the program. Property must be capable of being brought into compliance in accordance with the Housing Quality Standards established by HUD, within the loan limitations of the Program. 7. Combined Loan-to-Value (CLTV) may not exceed 125% unless otherwise authorized by the TCRA. TCRA has the authority to exceed the 125% limit on a case-by-case basis where an emergency situation may exist. 8. Property must have no more than two liens in place at the time of application. The TCRA loan will take no more than third lien position. Borrower (aka Homeowner) Qualification: 1. The Homeowner(s) must have title ownership. All title holders are required to sign Loan Documents. 1

2 2. The taxable income level of the homeowner(s) and all household members over 18 years of age must not be greater than 80% of the median income established by HUD for the Tacoma/Pierce County, adjusted for household size. a. Household income is defined as the Adjusted Gross Income, or any income reportable on IRS Form 1040 for Federal Individual Tax purposes. b. Income must be recertified prior to loan closing if the date the funds are to be committed, will exceed 6 months from the original income certification date. Homeowner(s) will be disqualified for assistance if the new verification indicates the income is greater than the maximum of 80% of the median income. c. Acceptable Income Eligibility Documentation: Wage Statements Unemployment Compensation Statements Bank Statements reflecting Direct Deposit of identified income Social Security Entitlement/Award Letter Employment Verification Forms 3. The combined anticipated taxable income of the homeowner(s) and all household members over 18 years of age may not exceed 80% of the median income established by HUD for the Tacoma/Pierce County area, adjusted for household size. 3. The homeowner(s) agrees to occupy the home as his/her primary residence for the life of the loan. Failure to do so without prior Tacoma Community Redevelopment Authority (TCRA) Board approval will result in the acceleration of the note and the outstanding loan balance will be called due. 4. The homeowner(s) agrees to maintain Fire and Hazard Insurance on the dwelling, listing the Tacoma Community Redevelopment Authority as a Mortgagee, until the loan is paid off. 5. Total of liquid assets may not exceed $30, Liquid assets are defined to include, but are not limited to: Checking, savings and money market accounts, brokerage accounts, assets easily converted to cash, or any source of income that is not reported on IRS Form An exception to this will be if the homeowner(s) is dependent on the income from the asset(s) and the total household income does not exceed the program limits. 6. Total of Non liquid assets may not exceed $100, Non liquid assets are defined to include, but are not limited to: Real estate (other than the primary residence), 401k, IRA, CD, Trust, value of life insurance, or other non-liquid retirement accounts. 7. Must be current on all mortgage payments, property taxes and property insurance. 8. Must not have received any direct grant or loan in the amount of $5,000 or above from the City or TCRA for a period of 60 months prior to the submission of a loan application. Also, if the Qualified Homeowner has received the full amount their benefit of the maximum Program threshold, then they are precluded from receiving additional benefits for 60 months*. *This excludes any City/TCRA funded program for services rendered for $500 or less. Rebuilding Together South Sound Year Round and Conservation Sewer Loan Program are exempt. 2

3 Procedure: 1. Application: The homeowner(s) complete an application form including information regarding the property to be assisted, household income, and expenses. It is reviewed for content and program eligibility. 2. Inspection: The Operating Agency staff person will examine the existing housing conditions and complete a scope of work with the estimated costs involved to cure the referenced components. Pictures of the exterior and interior are taken and a preliminary environmental review is addressed including historical significance. If constructed prior to 1978, a lead-based paint risk assessment will be required. A work write-up is prepared and sent to the City s Contract and Program Auditor (Contract and Program Auditor), acting as monitoring and financing agent, for review and approval. Upon its approval, the work write-up is sent to the homeowner(s) via either certified mail or hand delivery. If the home has any crawl space access, and if deemed necessary by the Proposer, a Wood Destroying Organism (Pest Inspection) Report will be required. Only items that will affect the safety and/or health of the occupant or improve the energy efficiency of the house will be considered. These items include, but are not limited to those identified in Attachment B to these procedures. 3. Loan Process: The Operating Agency staff person forwards a letter to the homeowner(s) indicating the estimated cost and waits for their approval to proceed. Once received, all necessary documents are ordered. An appointment is made for Operating Agency staff person and homeowner to discuss the list of specifications, explaining how each problem will be corrected during the course of rehabilitation. 4. Rehab Cost Verification: The Operating Agency staff person submits the rehab scope of work and cost estimate to the Contract and Program Auditor who then forwards it to the Construction Manager to perform a third party cost estimate and verification of cost analysis. Should the proposed costs exceed a 10% variance threshold, the scope of work is sent back to the Operating Agency for an explanation and/or justification. Also, it is the responsibility of the Operating Agency staff to review and document the license and debarment status of the chosen contractor and sub-contractor s hired to perform work on the project. The contract is between the homeowner(s) and contractor with the Contract and Program Auditor acting as monitoring and financing agent. Individuals performing work that disturbs paint above de minimis on pre 1978 homes (and child occupied facilities) need the proper RRP credential. 5. TCRA Consideration: If the loan amount exceeds $30,000.00: The Contract and Program Auditor will present the loan to the Board for approval. 6. Pre-Construction Conference: After the loan is approved, the commitment letter is sent, income may be recertified (refer to item 2b under Borrower Qualification ), and an appointment is made with the homeowner. During this meeting; the homeowner(s) and Operating Agency staff review the construction contract. The contract agreement is signed. After the 3 day Right of 3

4 Rescission has passed and the notice to proceed is signed and processed, construction may begin. 7. Contractor Award: Prior to a contract award being given and/or rehabilitation work commencing on a home, the Developer will verify through the System for Awards Management System (SAMS) the debarred and/or suspended status of all contractors and subcontractors for consideration to perform work on projects included in the rehab loan program. Ineligible contractors or sub-contractors listed on HUD's consolidated list shall not be employed or awarded contracts while under ineligible status. 8. Loan Signing: Following the pre-construction conference, the Operating Agency staff prepares the loan documents (disclosure statement, promissory note, deed of trust, loan agreement, right to rescind and request for notice) and forwards final executed and recorded documents to the Contract and Program Auditor. After the rescission period, the notarized Deed of Trust and Request for Notice is forwarded to the title company for recording and placement of the lien against the property. 9. Rehabilitation Inspections: Progress inspections will be made by the Construction Manager during the course of construction, to include all change orders. The homeowner(s) and Contract and Program Auditor must approve any release of payments to the contractor. Quality of workmanship disputes will be resolved between the homeowner and contractor. If necessary an arbiter may be involved. No change in the amount of the contract, schedule of completion or in the work description will be made without a written, signed change order. The contractor must provide a warranty and/or guaranty for all new products installed and lien releases from himself, the General Contractor and all sub-contractors, prior to disbursement of the final payment. Operating Agency staff will be responsible for identifying and resolving any warranty discrepancies. 10. Draw Request Process: Project expenses shall be paid based on draw request vouchers for actual expenses incurred or paid submitted by the Operating Agency to the Contract and Program Auditor on forms acceptable to the TCRA, with adequate and proper documentation of eligible costs incurred in compliance with 24 CFR and necessary for HUD IDIS disbursement requirements. All such expenses shall be in conformance to the approved Project budget. Budget revision and approval shall be required prior to payment of any expenses not conforming to the approved Project budget. The Developer will be required to provide the TCRA with back-up for each draw request to include, but (may) not be limited to the following items: (i) Contractor and/or sub-contractor invoice(s) (ii) SAMS printout verifying debarment status for each contractor and/or subcontractor performing work and (iii) Copies of all applicable City permits that have been finalized and/or status of those for jobs in process through use of the Cities gov.me online resource. 4

5 (iv) Homeowner s written acceptance of work. Failure to provide the previously requested items will result in a delay in TCRA reimbursement to the Developer for the costs incurred. Upon the homeowner s approval, Operating Agency s and TCRA staff s acceptance of the work the Contract and Program Auditor will approve progress payments and final payment, withholding such sums as provided by the Contract until all the conditions of the Contract are met as follows: (i) Predetermined percentages of the Contract upon satisfactory completion of that portion of the work, less the agreed upon retainage; and (ii) of: the balance within 30 days after satisfactory completion and after receipt (B) A written acceptance of the Work by the Borrower; (B) (C) A written lien waiver and acceptance of final payment from the Contractor; Written lien waivers from all subcontractors; and (D) A current endorsement of the title insurance policy in form acceptable to the TCRA. 11. Loan Closeout: After rehabilitation work is complete (or during), the Operating Agency staff will prepare a disposition of funds statement indicating all expenditures. Any undisbursed loan funds will be used to reduce the outstanding principal balance of the loan. 10. Loan Payoff: After payment is received, the canceled note and reconveyed deed of trust will be sent to the title company for recording. Loan Terms: 1. The minimum rehabilitation loan amount is $5, The maximum rehabilitation amount is $30, The interest rate is 0%. Depending on the condition and income status of the homeowner(s) outlined above, the loan may be set up as: 5

6 a. Deferred : 0% interest rate and no payments for a term up to 20 years. b. Repayment : A fixed monthly payment of at least 10% of a homeowner s discretionary income will be required until the loan is paid off. Under the Hardship Rule ; if the homeowner(s) household income is at or less than 50% of the area median income, is a senior citizen (65 years of age), and/or is permanently disabled, the homeowner(s) would then qualify for 0% deferred, up to 20 years. The TCRA Administrator has the authority to make an exception to this rule. Exceptions will be made on a case-by-case basis. 3. Sale, refinance, transfer, failure of borrower to occupy as principal place of residence, or noncompliance with the loan agreement will cause this loan to be in default. Sale or transfer includes actual or attempted sale by contract, assignment, lease, rental or other conveyance of the property to a person other than the borrower, whether by gift or value. Upon the death of the borrower, an heir can apply to assume the existing loan balance but must go through the loan qualifying process and be approved by either the TCRA Administrator or TCRA Board, depending on the dollar amount of the remaining balance of the loan. 4. Upon default, all sums owing on the Note will bear interest at twelve percent simple interest (12%) per annum from the date of default. The interest will be assessed on a case-by-case basis and at the discretion of the TCRA. 5. Miscellaneous Costs and Restrictions: Title Insurance Credit Report Recording of Documents Contingency Funds Appraisal (if required) Lead Paint Risk Assessment (If home built prior to 1978) and Clearance Test Follow up (if assessment positive) Pest Inspection (if required) Appliance Allowance (if necessary) Reconveyance of Documents Other Fees as indicated on the Disclosure Statement Collection/Attorney Fees (if necessary) 6. Once the loan is placed in service, City staff will conduct random inspections of the property. Should the property fail to meet minimum maintenance standards, a notice of failure to comply will be issued providing 30 days for correction. A second failure to comply will result in the outstanding balance of the loan being declared in default and immediately due and payable. Eligible Rehabilitation Work: The following types of improvements are permitted; work conducted to be primarily for the correction of health and safety code violations and related habitability issues: Roof replacement; 6

7 Exterior and interior painting; Window replacement; Carpet replacement and/or flooring replacement; Heating and air system replacements; Electrical work; Sewer repair or sewer installation; Termite repairs; Onsite exterior concrete flatwork such as sidewalks, driveways, curbs, gutters, hand railings or ramps; Door or window screens repairs or replacements; Tub, shower, toilet repairs or replacements; Foundation or structural repairs Energy Efficient appliances Ineligible Rehabilitation Work: 1. Non-essential or luxury improvements such as area rugs, furniture, fencing, unattached garages (exceptions may apply), and non-essential appliances. 2. Adding an addition to the property, unless due to handicap accessibility issues. 3. Reconfiguration of interior walls, unless due to handicap accessibility issues. 4. Work done as cosmetic improvements only, this includes landscaping and removal of garbage/debris, unless required to eliminate structural and/or health related issues. Ineligible Properties: 1. Manufactured or Mobile Homes not on a permanent foundation (defined as personal property). 2. Properties with any action pending by Tacoma Public Works, Police, or Utilities Departments. 7

8 3. Indications of poor maintenance not attributable to the low income status of the homeowner or a physical inability to properly maintain the home or site. 4. Evidence of unsanitary conditions; severe damage to floors, furnishings or structure, caused from continued neglect by persons or animals. 5. Illegal or improper use of the property when such use constitutes a health or safety hazard or is a continued visual detriment to the neighborhood. 6. Properties which are economically not feasible to rehabilitate, for example those houses with a rehabilitation budget in excess $30,000 and no other sources of funds to complete the project outside of the City/TCRA contribution. 7. Properties with reverse mortgage loans. 8