Summary: This bill recognizes and protects the important role played by public and private programs to subsidize the cost of homes so that they are affordable for purchase by persons of modest means. As it stands, affordable homes can be sold or foreclosed on without the consent of the invested, subsidizing program. Some affordable homeowners have also exploited the system by not living in the home and renting it at market value. This type of activity removes the affordability of the home.
This bill creates an optional, legal framework that allows affordable homes to remain affordable. The bill sets up a legal system so that a buyer and seller of an affordable home can preserve the rights of both parties by agreeing to a contract similar to that of a mortgage. The legislation makes it possible to establish an optional contract for affordable homes that will enable them to insure that properties stay in the affordable housing market and are occupied by those in need of affordable housing. The Senate passed the bill during the 2011-2012 legislative session.
Why This Matters: It is important that persons of modest means have an opportunity for an ownership stake in their home. Subsidy programs exist to make an investment in homes that bring their cost down to so that they are affordable to low and moderate-income buyers. The current law does not protect the affordability of the homes through the transfer of ownership through sale. Removing this loophole will address the risks for subsidy programs and will help to maintain the availability of affordable homes.
Furthermore, subsidy programs are typically funded by public money. This bills allows the public investment to be maintained in the affordability of a home.
What this bill would do: This bill will provide the option for invested subsidy programs to have a fundamental property right in the form of a statutory housing covenant (SHC) with the homeowner. This agreement will enable the subsidy program to:
- Directly and efficiently enforce occupancy rules in order to eliminate renting at market value.
- Protect the affordable status of a home by foreclosing against mortgages written above the affordable value of the house (affordable value = market value – subsidy) and homeowners who violate their obligations. The SHC reinforces that the subsidy program is merely holding a restriction and that compliant homeowners are not otherwise beholden.
- Require a Certificate of Compliance issued by the subsidy program such that they can insure the eligibility of the homeowner and affordable price of the home. This will help to prevent mortgagees from making costly errors in loaning either too much money or to ineligible owners.
- Purchase the property at full affordable value in the event of foreclosure in order to retain the home in the affordable market.
- Standardize and make transparent the obligations of the subsidy program and homeowner in the form of the SHC to make such transactions better understood and efficient.
- Be the senior interest on a title ahead of mortgages and other interests. This will protect the subsidy program’s interest in the event of sale or foreclosure and facilitate the amending of titles.
View the full text of the bill and track its history here.