Challenging Markets, Innovative Financing

Posted by Matthew Brian Hersh on October 13, 2011

A contract-for-deed program making headway in North Minneapolis offers another look at how using the CLT model to offer potential homeowners once saddled with bad credit can turn into an opportunity to attain a permanently affordable home, while taking on the accountability of owning a home.

Project: Reclaim, a collaboration between the faith-based nonprofit Urban Homeworks and the City of Lakes Community Land Trust sells restored homes to low- and moderate-income homeowners who suffer from credit challenges or from tightening financing guidelines. The homes are sold through a low-interest contract for deed with a portion of the interest placed into a reserve account for the homeowner to use as a down payment when it’s time to refinance.

The houses are rehabbed, owned, and sold by Urban Homeworks, and the land is then put in a trust administered by CLCLT to preserve affordability by placing limits on the “eventual sale price of the house,” according to a recent article in The Star Tribune:

Buyers make an initial $2,000 down payment, and their loans come with a 3 percent interest rate, much of which goes in a reserve account to help with refinancing. After the contract period — usually two to three years — is up, the contract principal amount is reduced by about $30,000 to help that borrower qualify for a new mortgage.

But first, according to the report, the program has an evaluation and education process for potential homeowners involved in the program:

[F]amilies are evaluated to make sure they are in a position to eventually get a traditional bank loan and that they’re willing to engage in an education process aimed at helping them avoid foreclosure, which has hit so many of their North Side neighbors.

The article goes on to say that a “third of the houses in some parts of the neighborhood are either vacant, in foreclosure or for sale” in Minneapolis’s North Side.

And this isn’t the only program of its kind in Minneapolis, or even in the North Side, for that matter. Shelterforce recently highlighted CLCLT’s Homebuyer Initiated Program (HIP). This program uses the CLT model of affordability preservation but with a twist: buyers can pick their home and bring it into the land trust. Staci Horwitz, CLCLT’s project director, reports:

HIP offers two kinds of grants to help households at or below 80 percent of the area median income (AMI) in purchasing market-rate single-family homes of their choice in Minneapolis. The HIP affordability investment grant fills the financial gap between an affordable mortgage and the cost of a market-rate home. HIP buyers below 50 percent of AMI are eligible for up to $60,000; 51 to 60 percent, up to $40,000; and 61 to 80 percent, up to $25,000. The total affordability investment, however, does not exceed a buyers total contribution.

To date, the program has brought 50 homes into the CLT, and once again, potential homebuyers must be educated. In order to qualify for the program, a buyer is required to attend orientation and a workshop, and must secure mortgage financing from a CLCLT partner lender.

We’ve spent a lot of time looking at the community land trust model of preserving housing affordability and will continue do to so. Are you involved in, or are you aware of innovative financing initiatives in your community? Let’s hear about them!

About the author more »

Matthew Brian Hersh proudly served as senior editor at Shelterforce from March 2008 to October 2012. He studied English at Rutgers University and has spent his professional career in journalism, policy, and politics. He displays many of the trappings of a New Jersey sports fan: dispirited Mets fan, former Nets fan before they left the state, and normally satisfied Giants fan. Hersh lives in Highland Park, NJ with his wife and two children.

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