HRA Meeting Date: April 4, 2024
To: Members of the Housing and Redevelopment Authority
From: Melissa Hanson, Housing Coordinator
Title
HRA to Hold a Public Hearing for the Sale of 2007 Hidden Valley Road.
Body
Action Requested:
HRA to hold a Public Hearing for the sale of 2007 Hidden Valley Road Valley Road to the Rice County Habitat for Humanity and Starfish.
Summary Report:
On February 12, 2024, the HRA held a Special Meeting to discuss the sale of a vacant HRA rental property to Rice County Habitat for Humanity (RCHH) and Starfish.
RCHH is exploring different ways they can keep homeownership affordable to the “next” RCHH participant family. With an eye on innovating, and shooting for the ever moving target known as “permanent affordability”, RCHH and Starfish proposed the following three scenarios for the HRA Board’s consideration (Attachment #1) when determining what to set the sale price at.
Below is an analysis of the scenarios proposed.
Based on their inspection and analysis of the property, RCHH and Starfish believe that the repairs and rehab needed prior to the sale of the property to a participant family, can be completed for approximately $50,000.
The “1st mtg w/ USDA/RD of $175,000” that is used, is for illustrative purposes. The first mortgage is determined on a case-by-case basis and is unknown at this time. RCHH endeavors to ensure that a participant family’s maximum monthly payment (principal, interest, taxes, insurance (PITI), and utilities) does not exceed 30% of the household’s income.
Based on the example with a household annual income of approximately $63,753, or with a full-time (defined as forty (40) hours a week, fifty-two (52) weeks a year) wage earner making $22.77 an hour, would be eligible for a mortgage through the United States Department of Agriculture (USDA) and Rural Development (RD) of $175,000.
The examples also assume:
• Household monthly income of $5,312.75;
• 30% of household monthly income $1,593.83;
• Estimated annual taxes of $4,000;
• Estimated annual insurance of $1,800;
• Estimated annual escrow needed $5,900;
• Monthly escrow needed $491.67;
• A thirty-three (33) year fixed rate loan at 5.125%;
• Principal payment $917
• PITI $1,408.67
• $1,593.83 - $1,408.67 remain for utilities $185.16
Option A
• HRA to donate ($0) the property As-Is to Rice County Habitat;
• When Habitat sells to Family 1, Habitat will not request Down Payment Assistance from the Northfield HRA;
• Through the proposed Option A, Habitat would net $125,000 ($175,000 from the loan, minus $50,000 for rehab). The $125,000 would be put in a restricted Starfish fund and only be used for acquisition/rehab of future Starfish properties in Northfield. The HRA would seed the Starfish program;
• Finance Package for Family 1 under Option A:
o Purchase by Family in 2024:
§ Sales price $250,000 (assumed appraised value)
§ 1st mtg w/ USDA/RD $175,000 (only mtg owner pays)
§ 2nd mtg with RCHFH $75,000 (0% deferred)
§ Shared Appreciation Agreement of 1% rise each year based on the 1st mtg and a deed restriction that requires the house to be sold back to Habitat.
o Sale by Family 1 in 2039 (15 years later)
§ Loan balance $129,190
§ Equity $45,810 ($175k - $129,190)
§ 1% Appreciation ($175,000) $26,250 (15 years, 1% @ year)
§ Equity Family 1 keeps $72,060
• Sale to Family 2 in 2039
o Sales price $201,250 ($175k base price + $26,250 Family 1 appreciation)
Option B
• HRA sells the property As-Is to Rice County Habitat for $114,762.50. This is the amount that HRA paid for the tax forfeiture and rehab costs;
• When Habitat sells to Family 1, Habitat will not request Down Payment Assistance from the Northfield HRA;
• Through proposed Option B, Habitat would net $10,238.50. ($175,000 from the loan, minus $50,000 for rehab, minus $114,762.50 purchase price to HRA). The $10,238.50 would be put in a restricted Starfish fund and only be used for the acquisition/rehab of future Starfish properties in Northfield. The HRA would seed the Starfish program;
• Finance Package for Family 1 Under Option B:
o Purchase by Family in 2024:
§ Sales price $175,000
§ 1st mtg w/ USDA/RD $175,000 (only mtg owner pays)
§ 2nd mtg with RCHFH $75,000 (0% deferred)
§ Shared Appreciation Agreement of 1% rise each year based on the 1st mtg and a deed restriction that requires the house to be sold back to Habitat.
o Sale by Family 1 in 2039 (15 years later)
§ Loan balance $129,190
§ Equity $45,810 ($175k - $129,190)
§ 1% Appreciation ($175,000) $26,250 (15 years, 1% @ year)
§ Equity Family 1 keeps $72,060
• Sale to Family 2 in 2039
o Sales price $201,250 ($175k base price + $26,250 Family 1 appreciation)
Option C
• HRA sells the property As-Is to Rice County Habitat for $223,500. This is the 2023 tax assessed value;
• When Habitat sells to Family 1, Habitat will direct Family 1 to apply for Down Payment Assistance from Northfield HRA;
• Through proposed option C, Habitat will need to have cash of $273,500 and is unsure that the house will appraise at that amount. ($223,500 purchase price plus $50,000 for rehab= $273,500)
• Finance Package for Family 1 under Option C:
o Purchase by Family in 2024:
§ Sales price $273,500 (appraised value)
§ 1st mtg w/ USDA/RD $175,000 (only mtg owner pays)
§ 2nd mtg with HRA (DPA) $25,000 (0% deferred)
§ 3rd mtg with Habitat $61,500 (terms not provided)
§ 4th mtg with Three Rivers $12,000 (terms not provided)
o Sale of Family 1 in 2039 (15 years later)
§ Loan balance $129,190
§ 2nd mtg with HRA(DPA) $25,000
§ 3rd mtg with Habitat $61,500
§ 4th mtg with Three Rivers $12,000
§ Total owed by Family 1 $227,690
§ Equity $45,810 ($175k - $129,190)
§ 1% Appreciation ($273,500) $41,025 (15 years, 1% @ year)
§ Equity Family 1 keeps $86,835
• Sale to Family 2 in 2039
o Sales price $314,525 ($273,500 + $41,025 Family 1 appreciation)
At the February 12, 2024, Special Meeting, the HRA expressed to staff their desire to pursue a purchase agreement based on Option B, $114,762.50 - This is the amount that HRA paid for the tax forfeiture and rehab costs. At the end of the meeting, a request was made that staff provide an analysis of the rental income that HRA received from 2007 Hidden Valley. Attachment #2 is the staff analysis of the profit/loss for the Hidden Valley rental property through the time it became vacant. The HRA has never received enough income from rent to cover repairs or expenses from 2007 Hidden Valley. With Option B, the HRA will seed the Starfish program with $10,238.50. The $10,238.50 would be put in a restricted Starfish fund and only be used for the acquisition/rehab of future Starfish properties in Northfield.
Attachment #3 is the Purchase Agreement based on Option B.
Attachment #4 is the Resolution by the HRA approving the sale and dispensing the review of the sale by the Northfield Planning Commission.
Staff is requesting the HRA hold a Public Hearing pursuant to MN State Statute 469.029 Disposal of Property. (Attachment #5)
Alternative Options:
N/A
Financial Impacts:
The HRA could choose to:
• Deposit the proceeds of the sale to HRA Reserves;
• Deposit the proceeds of the sale to the Local Housing Trust Fund;
• Not sell the property to Rice County Habitat for Humanity;
• List the property on the open market;
• Not sell the property and continue to hold it as an asset and rent it.
Tentative Timelines:
January - request received from Star Fish and Rice County Habitat for Humanity
February - Special meeting of the HRA Board to consider offers.
April - Public Hearing
April/May - Close with RCHH