Recapture Policy

Question:
At what point in the process of rehabilitating a house should I place a security instrument on the homeowner's property?
Answer:
As a best business practice, we recommend that you secure the property prior to starting rehabilitation. This is the same practice that any home improvement contractor would follow. It prohibits the home owner from selling his or her house while construction is in process without resolving the debt incurred using public funds. Before your contractor starts repairs, have the home owner sign a security agreement for the amount of the contractor's bid. To be fair to the home owner and to be mindful of careful spending of public funds, you should always file an updated security instrument when the final cost of repairs is actually less than initially anticipated. In some instances, however, change orders will increase the final cost of the rehabilitation. You can choose to file an updated security instrument that accurately records the larger repair amount, especially if the additional amount is several hundred dollars or more. You can, however, choose to simply leave the original security instrument in place and provide the extra SHIP funds in the form of a grant. (This is a different policy than federal programs like CDBG or HOME, which require the security instrument to accurately document the final cost of repairs).

Question:
Can we award both grant funds and also deferred payment loans on a single unit?
Answer:
Yes. It is common, for instance to make the amount spent on the actual activity a deferred payment loan, while making the cost of fees to cover the filing the security instrument (lien) a grant.

Question:
Do any SHIP communities have due upon sale clauses attached to their SHIP assistance? What are the advantages and disadvantages of due upon sale? Isn't the administrative burden of due upon sale rather onerous?
Answer:
Many communities have due upon sale clauses in their down payment assistance programs. There are many advantages to such an arrangement, the biggest being that you are establishing a program where, over time, funds will constantly be reinvested into the SHIP program. Even if the note is not repaid for 15 years, the purchasing power of the assistance provided will still be around half of what it was at the time of the original assistance. Due upon sale can be less of an administrative burden than notes which are satisfied after a certain length of time. Many communities in which the assistance is forgiven over time have second mortgages that must be satisfied by the local government. This takes time, and an elaborate tickler file. With due upon sale, the second mortgage is recorded, and can be virtually forgotten. When the property is sold, the title company notifies the city that a check will be forthcoming. There are also some disadvantages with due upon sale, not the least of which is what happens if the home is sold, and the proceeds from the sale are not enough to cover both the first and second mortgage. This situation can be addressed by having the second mortgage state that the second mortgage reverts to an unsecured note if the net proceeds from the sale are not enough to satisfy the first mortgage. Another issue is the local jurisdiction's philosophy toward affordable housing. Is it the public sector's role to provide low-income families with decent safe and affordable housing, or is it the public sector's role to also provide people with the potential for future equity. One unavoidable consequence with due upon sale clauses is that they have the potential to leave people with very little equity at the time of sale. This is an issue that the local jurisdiction must resolve for itself.

Question:
When SHIP is invested in rental housing property, does the local SHIP office have to monitor the property for 15 years? Is there a way to do this without monitoring? What happens if the property is sold before 15 years?
Answer:
You must monitor a SHIP assisted rental property for a minimum of 15 years to ensure that income-eligible tenants occupy the units assisted with SHIP funds. These monitoring requirements are outlined in the Section 420.9075(3)(e), F.S. The only way that your SHIP office would not have to monitor is if the Florida Housing Finance Corporation (FHFC) has also provided funding to finance this property. During its 2000 session, the Florida Legislature added new language to the SHIP statute which states "to the extent the FHFC provides the same monitoring and determination," the SHIP jurisdiction 'may rely on such monitoring and determination of tenant eligibility." Sometimes the requirements for SHIP and the FHFC's program differ, however. For example, a SHIP-funded unit may rent to a SHIP eligible recipient with an income as high as 120% of the area median income, while FHFC requirements may require tenants to have incomes at or below 60% of the area median income. Local SHIP staff will have to monitor any program compliance that is not monitored specifically by Florida Housing’s staff.

Question:
My community's SHIP second mortgage states that if the property is sold, refinanced, or transferred, the owner or estate must repay the entire amount of the loan. There is nothing specific about paying off the loan at the end of 30 years, however. If one of our homebuyers lived in a home for 30 years and paid off the first mortgage, does he or she have to pay back the funds borrowed from SHIP?
Answer:
Section 95.281(1)(b), F.S., states that a lien without a specified term automatically terminates after 20 years, unless it is renewed by the lien holder. In this case, the lien had no term and was not renewed after 20 years. Therefore, no SHIP assistance would be repaid.(01.6)

Question:
One of the homeowners that we have previously assisted is requesting that the city subordinate its SHIP second mortgage on her house. What are some of the reasons why homeowners request subordinations? What is the subordination policy of the SHIP program?
Answer:
There is no SHIP rule or statute that addresses this subordination issue. Each SHIP jurisdiction has the responsibility of formulating its own subordination policy. Put the policy in writing to fairly address all subordination requests. The Florida Housing Coalition recommends that local governments subordinate a SHIP loan if doing so will lower the homeowner’s interest rate, lower the home owner’s monthly housing cost, or increase the affordability of the housing. Furthermore, it is important to require any refinancing to lower the monthly payment by an amount that will allow the closing costs and fees to be recovered within a specified, reasonable number of years. Finally, the Coalition strongly advises against allowing recipients to receive cash back from refinancing.
There are several reasons why homeowners request a SHIP subordination. Some wish to make room for a debt consolidation loan. Such a loan commonly secures credit card obligations, car loans and similar debt with the equity in the property. In most cases, the equity in the house is primarily SHIP funds from the down payment assistance. SHIP funds are intended to help provide affordable housing, not secure consumer debt. Since debt consolidation loans do nothing to lower monthly housing costs, this type of subordination request should be denied.
In other instances, homeowners may be working with a predatory lender whose refinancing proposal will only lower the mortgage interest rate by a fraction of a percentage, while charging the homeowner excessive fees. In this scenario, the monthly mortgage payment will go down, but only slightly. It will take a long time for this slight monthly savings to make up for the upfront fees charged. This is why SHIP administrators should require refinancing to produce interest rate reductions that are significant enough to compensate for closing costs and fees within a short timeframe.
Other homeowners may be faced with a growing household. The houses they purchased are no longer big enough for their families, and the homeowner may want to add a room onto the home with a home improvement loan. Even though this loan will increase the homeowner’s overall housing costs, it may still be the most affordable option for addressing the changing housing needs of the household. After helping the homeowner consider options, a SHIP administrator may conclude that it is best to subordinate the SHIP loan.