HomeMy WebLinkAboutItem 4.07 BMR Purch De MarcusG~~,t OF DO~~'L
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19~~,82 STAFFREPORT CITY CLER
``c~ ~~~ DUBLIN CITY COUNCIL File #^ d- 2 K
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DATE: June 1, 2010
TO: Honorable Mayor and City Councilmembers
FROM: Joni Pattillo, City Manager
SUBJE T• Authorization to Purchase a Below Market Rate Unit at 5501 De Marcus
Boulevard, Number 364
Prepared By: Jeri Ram, Community Development Director and John Bakker, City
Attorney
EXECUTIVE SUMMARY:
The City Council will review a budget change to purchase and prepare a below market rate unit
at 5501 De Marcus Boulevard, Number 364, for resale with the proceeds returning to the City's
Affordable Housing Fund.
FINANCIAL IMPACT:
The circumstances resulting in the City ownership of the unit were not known at the time the
Fiscal Year 2009-2010 Budget was adopted. Staff has prepared a Budget Change in the
amount of $277,250 which will be funded from unappropriated Affordable Housing Fund
Reserves. Costs associated with the resale of the unit are anticipated to occur in Fiscal Year
2010/2011 and will be included in the Housing Operating Budget.
RECOMMENDATION:
Staff recommends that the City Council approve the Budget Change and authorize the City
Manager to execute the necessary documents. ~ ~ _
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S bmitted By Re 'ewe By:
Community Development Director Assistant City Manager
Page 1 of 3 ITEM NO. '~T-.7 ~
DESCRIPTION:
To further the City's goal of increasing the production of affordable residential units, the City's
Inclusionary Zoning Ordinance (Inclusionary Ordinance) requires developers of residential
development projects consisting of 20 or more units to construct 12.5% of the units in the
project as below market-rate units ("BMR Units"). The BMR Units must be reserved for
occupancy by, and at prices affordable to, low- and moderate-income households for 55 years.'
Purchasers of ownership BMR Units are required to execute a Resale Restriction and Option to
Purchase Agreement ("Resale Restriction Agreement") with the City, which is recorded against
the unit.
The Resale Restriction Agreement imposes occupancy and resale restrictions on BMR Units to
prevent initial and subsequent purchasers from using the unit for purposes incompatible with
the Inclusionary Ordinance and realizing unwarranted gains from sales of BMR Units at
unrestricted prices. In addition, the Resale Restriction Agreement grants the City an option to
purchase the BMR Unit upon the occurrence of certain events.
City's Option to Purchase BMR Units:
To ensure that the BMR Units remain affordable, the Resale Restriction Agreement grants the
City an option to purchase the BMR Unit for the restricted price. The City has the right to
exercise the option upon the occurrence of any of the following events: (1) receipt of notification
of the owner's intent to sell the BMR Unit; (2) any actual, attempted, or pending sale, lease or
other transfer of the unit; (3) any actual, attempted, or pending encumbrance of the unit; (4)
recordation of a Notice of Default and/or a Notice of Sale; (5) commencement of a judicial
foreclosure proceeding or execution by the owner of a Deed in lieu of foreclosure; (6)
commencement of a bankruptcy proceeding or action; or (7) a violation by owner of any
provision of the Resale Restriction Agreement. The City may assign its option to another
government entity, a non-profit affordable housing provider or to a low- or moderate-income
household
Authorization to Purchase Unit
The owner of the unit at 5501 De Marcus Boulevard, #364 ("the McGowen Unit") purchased the
unit on September 28, 2007 for $229,503. The owner obtained a$229,503 mortgage from DHI
Mortgage Company, LTD., L.P. and a$6,808 second mortgage from California Housing
Finance Agency (CaIHFA) to complete the acquisition. The unit is a moderate-income, three-
bedroom, two-bath unit in the Elan development, which was built by DR Horton. On September
24, 2009, the City received a Notice of Default that indicates that the owner of the Subject Unit
has failed to make payments on the mortgage and owed $17,692.09 as of August 26, 2009.
The recordation of the Notice of Default is the first step that a lender/mortgagor takes to sell the
property at a foreclosure sale. As indicated above, the City's receipt of the Notice of Default is
an "Option Event," which gives the City the right to exercise the option to purchase the unit at a
specified price. In the present circumstance, the City has the right to purchase the unit for
$243,869 (referred to as the "option price").
~ Previously, the Inclusionary Ordinance required that some for-sale BMR units be set aside for very low-income households. So,
there are some very low-income BMR units in existence.
Page 2 of 3
The City Council authorized Staff to pursue this real estate transaction at a Closed Session on
February 16, 2010. On March 29th the City gave notice to the owner and the lenders, Wells
Fargo and California Housing Finance Agency (the lenders) that the City was exercising its
option to purchase the unit. The City has opened escrow at California Title Company pursuant
to the Resale Restriction Agreement and Staff is currently working with the lenders to pursue a
"short sale" for the unit.
During the escrow time period, Staff has been performing due diligence on the purchase of the
unit to determine the unit's conditions, necessity for repairs and budget for purchase and resale
of the unit.
Although the purchase price of the unit is $243,869 the proposed Budget for the ownership
costs (Land plus Building) is $252,369. This includes the cost of Title Insurance and the
estimated cost to remove the second mortgage held by the California Housing Finance Agency
(CALFHA). In addition Staff is recommending an appropriation of $12,650 in Contract Services
and an additional contingency of $12,231. The proposed 2010/2011 Budget will include
approximately $20,550 in budgeted expenditures that will potentially be required to resale the
unit. The total projected outlay by the City is $297,800 ($277,250 in Fiscal Year 2009/2010 and
$20,500 in Fiscal Year 2010/11). Provided the estimated sales price of $323,000 is achieved
the transaction will generate net revenue of $25,200 for the Affordable Housing Fund.
In order to proceed with the purchase and resale of the unit it is necessary for the City Council
to formally approve the exercise of the option to purchase the unit, resell it and approve a
budget adjustment for Fiscal Year 2009 - 2010 to allocate the funds from the Affordable
Housing Fund to purchase the unit.
NOTICING REQUIREMENTS/PUBLIC OUTREACH:
Not required.
ATTACHMENTS:
Budget Change Form
Page3of3
CITY OF DUBLIN ~ ~~ ~
BUDGET CHANGE FORM FY 2009 / 2010
CHANGE FORM #
New Appropriations (City Council Approval Required): Budget Transfers:
X From Unappropriated Reserves (*) _ From Budgeted Contingent Reserve (1001.1901.81101)
'`Affordable Housing Funds Within Same Department Activity
_ From New Revenues Between Departments (City Council Approval Required)
Other - -'
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Name: EXPENSE - AFFORDABLE
HOUSING FUNDS - (Below Market
Unit )- Building $ 176,658
GL Account #: 2901.5701.73104
Name: EXPENSE - AFFORDABLE
HOUSING FUNDS - (Below Market
Unit )- Land
GL Account #: 2901.5701.73105 $ 75,711
Name: EXPENSE - AFFORDABLE
HOUSING FUNDS -(Below Market
Unit )- Contract Services $ 12 650
~
GL Account #: 2901.5701.64001
Name: EXPENSE - AFFORDABLE
HOUSING FUNDS -(Below Market
Unit )- Contract Services $ 12 231
~
(Contingency)
RFA~nN FnR Ri in~~-r ~un n~r-~ CHITI~\/. A_ _ 1 GL Account #: 2901.5701.64001
.-_. ._ _. .. ~. , ~„~~~ , ~, ,~, ~~` L,,, , ~,.,..,, ~,d, ~ ~r tne Hrroraapie Housing Inclusionary Program deed
restrictions are included in the event the property goes into default. The City has the ability to purchase the
property. The City Council exercised its right to purchase a unit at 5501 De Marcus Boulevard #364
(Assessors Parcel # 986-38-25). This was not an anticipated expenditure when the Budget was adopted and
funds are available in the Affordable Housing Fund reserves. The intent is to resell the unit and all proceeds
will revert to the Affordable Housing Fund. The Total Appropriation is $277,250 which includes the projecteci
purchase price, transaction expenses, and minor repairs to prepare the unit for resell.
Fin Mgr/ASD:
City Mana
As Appro~
Mayor:
Posted By:
Si~nature
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e'City Co~
Signature
Signature
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Signature
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Date: ~~ y5~ 1~
Date:05/2..~i~v
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Date:
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ATTACHMENT # 1