Question:
An applicant has a 17 year old son who works. His income is excluded right now, but do I start counting it once he turns 18 sometime in the next 12 months?
Answer:
Yes. You correctly note that you do not count the employment income of children under the age of 18 years, as required by 24 Code of Federal Regulations (CFR) Part 5F (c)(1). Once the applicant's son turns 18, however, count the employment income for the remainder of months in the next 12 month period for which you are estimating annual household income. For example, an administrator may estimate a household's income on March 1st, 2011. The applicant's son will turn 18 in June, 2011. The administrator will not count the son's income until June, but will count his employment income from the date of his birthday until February 28th, 2012.
Question:
An applicant is separated, but not divorced. Do I count the income of the estranged spouse who is no longer living in the house as part of household income?
Answer:
Florida law does not legally recognize separation. When an applicant is married and separated, count the estranged spouse’s income as part of the annual household income. Consult with your city or county attorney to determine if the spouse should sign any SHIP recapture provisions. This is the rule that also applies to cases of temporary separation when a spouse does not live in the house due to military service, attendance in college, offshore work, or other instances where a family member is temporarily residing in another location. In some situations, it seems clear that the applicant has no plan to reunite with the estranged spouse and the separation is permanent. In such a case, the applicant is essentially divorced for purposes of SHIP income eligibility determination. The spouse’s income should not be counted as part of the annual household income, and the spouse should not be counted as a household member. The Florida Housing Finance Corporation’s compliance division has noted that local housing administrators have the discretion to determine if an applicant’s separation is permanent. In making this determination, the administrator should obtain as many details as possible to document that the SHIP recipient’s separation is permanent. In cases of permanent separation, for example, the applicant and the estranged spouse maintain separate residences and file separate tax returns. Documentation that the separation has been ongoing for a long time further strengthens the case that the separation is permanent. The Florida Housing Coalition and the compliance division at the Florida Housing Finance Corporation (call 850 488-4197) are available for consultation on this subject. In cases where a separated applicant is requesting SHIP assistance with purchasing a house, Florida’s joint property laws should be considered. Unless legally divorced, the State’s laws will likely entitle the estranged spouse to legal claim of ownership of the new house being purchased. SHIP administrators should ensure that applicants are aware of this.
Question:
An applicant's adult son is reluctant to sign an affidavit of unemployment. On the affidavit, the applicant indicates whether or not he is seeking employment. If he is looking for work, the form asks what rate of pay he anticipates he will receive with his new job. Do I have to wait until the individual gets a job before I can fully count anticipated income and determine if the household is income eligible for assistance?
Answer:
He is not required to sign an affidavit of unemployment. Administrators can use the information on the applicant's signed SHIP application to as the sole documentation that an adult living in the household is unemployed. Several local jurisdictions across the state may currently be using an "unemployed affidavit" form. This is not a requirement of the SHIP program. You should, however, check for and document all sources of income that the unemployed adult is providing to the household, including social security and unemployment compensation. In addition, if the applicant is a home buyer, you can verify the employment information provided in the SHIP application compared to the first mortgage lender's application. Administrators determine income eligibility by annualizing only sources of income that are currently verifiable. Even if an unemployed individual anticipates that he or she will soon secure a new job, it is not necessary to delay the income certification process until this occurs and can be documented. If, however, you learn that an unemployed member of the household has started a new job before the household has received SHIP assistance, you are obligated to count and verify the income from this employment.
Question:
Anticipated Gross Annual Income: Just how much do we have to anticipate?
Answer:
The SHIP program calculates anticipated income rather than past income, and there is a reason for this. It was thought to be better for the applicant not to be penalized based upon previous circumstances which may have changed significantly. Consider, for example, an applicant who is starting his/her life over after a divorce and now has only one wage-earner in the household.
How do you document an applicant’s income before it is received? Project what an applicant’s income will be over the next 12 months. Annualize current income. As far as the rule is concerned, what someone is currently earning is what they will be earning over the next 12 months. It does not matter that they received a three percent raise last April - you do not assume that they will get another raise next April. The only exception to this is if you have verification that an application's income is about to change, such as an employer verifying that the applicant will receive a $0.50 per hour raise in four weeks. In this case, you would calculate four weeks at their current rate, and 48 weeks at their new rate, and add the two numbers together. The sum is the anticipated annual income.
In some instances, the information provided by an employer on the Verification of Employment (VOE) form may seem to contradict information available from a pay stub. The stub may indicate, for example, that overtime is a regular income source, while the VOE does not include any income from overtime. Remember that pay stubs are not the proper documentation for determining an applicant's income in the next 12 months. Pay stubs are not required to be included in a SHIP applicant's files. However, when they are included in there and when they provide information about overtime that contradicts what you are reading on a VOE form, you should contact the employer and amend the VOE form with some explanation for the discrepancy in information.
Question:
How should I estimate overtime? Should I use the information I have from what is reported on the household’s income tax return?
Answer:
Do not use a tax return to obtain overtime estimates. It only provides information about past overtime earned and you need an estimate of overtime to be earned in the next 12 months. Instead, you must rely on the estimated overtime information provided to you by the employer on the Verification of Employment form. Verification forms are the primary source documentation for determining an applicant’s annual income. The questions on this verification form should ask the employer to estimate all of the earned income that the applicant is expected to receive during the next twelve months. The form should include a question specifically asking about the amount of overtime that is expected to be earned. For some jobs, it is easy for the employer to provide an estimate for future overtime, based on the applicant’s past history of receiving overtime and the employer’s knowledge of future work to be performed. In other cases, however, an employer may indicate on the verification form that it is not possible to estimate future overtime. In such a case, you may wish to call the employer, explain the importance of fully estimating the applicant’s income, and request that he or she make an informed guess about overtime earnings. If the employer is still not able to provide an estimate of overtime after this discussion, however, do not count any overtime earnings.
Question:
Do I count earned income tax credits as a source of income when determining the household's annual income?
Answer:
No. This subject is addressed in HUD Handbook 4350.3, one of the guidebooks to outline the federal regulations that govern income qualification topics for the SHIP program. Section B of the handbook lists what income sources are excluded from annual income. Item 19(i) states:"19. Income excluded by Federal statute: Any earned income tax credit to the extent it exceeds income tax liability. (26 U.S.C. 32(j))"
Question:
Do I delay the income eligibility process until the applicant learns whether or not she is hired for the new job?
Answer:
It is not necessary to delay the income eligibility process. Proceed with the collection of income verification forms and then sign an income certification form if the household is currently income eligible. You may learn that the applicant has received a higher paying job at some time before the applicant has been assisted with SHIP funds (i.e. before the applicant has signed a rehabilitation contractor's construction contract, or the applicant has closed on a loan, or before SHIP funds have been provided for some other form of assistance to the household). In such a case, you are obligated to re-verify and re-certify the applicant's income to determine if the household is still eligible for assistance.
Question:
I know that I only count the first $480.00 of earnings for each full-time student in a household who is 18 years old or older. What if the student is receiving Social Security Disability as income? Does this rule still apply or do I count the full amount of the disability benefit?
Answer:
The rule to which you are referring is outlined in 24CFR, Section 5.609(6)(4). It only directs you to count the first $480.00 of employment earnings for full time students. Social Security Disability, on the other hand, is a source of entitlement income. 24CFR notes that you must include in your income calculations "the full amount of periodic amounts received from Social Security, annuities, insurance policies, retirement funds, pensions, disability or death benefits, and other similar types of periodic receipts" for all family members. So you must count the full amount of the Disability payment in this case.
Question:
An applicant was income certified a year and a half ago for our jurisdiction’s Purchase Assistance Program and is now applying for the Single Family Rehabilitation Program. Does the applicant have to be re-income certified?
Answer:
The SHIP monitors and Florida Housing’s compliance staff indicate that an applicant
must receive assistance within one year of the date of the Income Certification Form. Therefore, a re-certification of income will depend on the date of the Income Certification Form associated with the Purchase Assistance Program and the schedule of the rehabilitation work to be completed. It sounds like a re-certification will need to be completed.
Question:
I understand the policy for documenting child support income. Most of our applicants have initiated a file with the Child Support Enforcement Office, which provides a printout of the money it has collected for those people who have initiated files with their office. This printout often shows that no money has been collected. The Child Support Enforcement office can only provide this printout for individuals who have initiated a file with their office. For this reason, can I use this printout as the documentation that the applicant’s child support is not being received and that the applicant has made every attempt possible to collect it?
Answer:
Yes, you can use this printout. The Coalition has discussed this issue with the compliance office at the Florida Housing Finance Corporation. FHFC staff confirmed that the Child Support Enforcement Office’s printout is acceptable documentation that a file has been initiated and that child support is not being received. Briefly stated, the SHIP program requires that the full amount of court-ordered child support be counted as household income regardless of the amount being received. This is true unless you can document that the applicant has exhausted all legal means of obtaining the support. If all legal means have been exhausted, then the actual amount received is counted as income. Your question pertains to the specific documentation that you must collect to document that child support is not being collected and that all legal means of obtaining the support have been exhausted. In Florida, there are two methods available to pursue child support that is not being received–filing a contempt of court hearing or establishing a file with the office of Child Support Enforcement. Either option meets the requirement of exhausting all legal means. If an applicant is pursuing the first option, the applicant must provide the SHIP office with documentation that a contempt of court hearing has been scheduled. If the applicant is pursuing the matter through Child Support Enforcement, adequate documentation is the printout mentioned above or a letter from the Child Support Enforcement Office stating that the applicant has initiated a file. By including any of this documentation in your file, you are demonstrating that the applicant has exhausted all legal means of attempting to obtain the child support. If, after all legal means have been exhausted, the support is still not being received, it is not included as income.
Question:
Should I count non-court ordered child support as a source of income? If I do count it, what documentation would be acceptable to verify this income source? Answer:
You should count non-court ordered child support only when the household is actually receiving it regularly. Document the income source by having the provider of the child support complete a verification form for regular cash contributions. This process is in contrast to the policy for court ordered child support, which states that the full amount of court ordered child support must be included in household income whether or not it is regularly received by the household. The difference in these policies results from the court’s involvement in court ordered child support. A divorce decree is a legal document mandating the payment of child support. A household that is not receiving court ordered child support has legal recourse to force payment of the support. They can schedule a contempt of court hearing or contact the Department of Revenue’s Child Support Enforcement office (the contact phone number is 1 (800) 622-5437). Court ordered child support that is not being received can only be disregarded once you document that a household has exhausted legal means for trying to obtain the support. In contrast, there is no legal document associated with non-court ordered child support. If it is not being received, it is simply not a source of income to be included in overall household income.
Question:
If a person does not live in a unit to be assisted, but his or her name appears on the deed as a co-owner, do we count his or her income toward the computation for income eligibility?
Answer:
No, unless the co-signer is an estranged spouse, because the State of Florida does not recognize legal separations. The income guidelines state that if someone is permanently removed from the household, you do not have to count his or her income, but the applicant must provide proof that the spouse is no longer a part of the household by providing a copy of the divorce decree or restraining order. In the case of a parent or other relative who co-owns the unit but does not legally reside there, use only the incomes of those persons residing in the unit. However, if a lien is to be placed on the property in the amount of SHIP assistance, consult with your city or county attorney, since you may likely want the co-owner to sign the lien as well as the resident co-owner.
Question:
Is combat pay counted as part of household income?
Answer:
It is not counted. This issue is address in Chapter 25, Part 5 of the Code of Federal Regulations, commonly referred to as “24CFR”. The Code is used by almost all SHIP communities to outline the income sources that are and are not included in the calculation of annual household income when calculating SHIP income eligibility. Section 5.609 (b)(8) specifically notes that household income must include “all regular pay, special pay and allowances of a member of the Armed Forces (except as provided in paragraph (c)(7) of this section). Paragraph (c)(7) then outlines that “the special pay to a family member serving in the Armed Forces who is exposed to hostile fire” is not included as part of household income.
Question:
One of my SHIP home buyer applicants is participating in a housing authority Section 8 Homeownership Voucher program. Through this program, the housing authority will pay a certain portion of the monthly mortgage payment. Do I count this mortgage contribution as a source of income when determining the household's annual income?
Answer:
No. Staff at the Florida Housing Finance Corporation reviewed the information provided by Fannie Mae and HUD for the Section 8 Homeownership Voucher program. The information included a recapture agreement with a loan forgiveness clause that the applicant must sign to receive the Section 8 subsidy. The compliance staff concluded that this mortgage contribution is a deferred payment loan and that it should be excluded from annual income. The main intent of the Section 8 Homeownership Voucher program is to help increase the affordability of a low income home buyer's mortgage payment. Counting the mortgage payment subsidy as a source of income might simply defeat the purpose of enabling an applicant to receive additional assistance from SHIP, since the additional income may push the applicant's income beyond the eligible range.
Question:
One of our applicants is seasonally employed. His employer has verified that he will work six months during the next 12 months. He has had a similar work schedule for several years. In the past, he has collected unemployment benefits in the other months of the year. However, since he is currently working for the employer and is not currently collecting unemployment, this is not a verifiable source of income. Should I still count the unemployment benefits as a source of income during the next 12 months, based on what I know about his income from past tax returns and past unemployment payment documentation?Answer:
Normally you would annualize income based only on what the applicant is currently collecting. During the 2000 session, the Florida Legislature changed the definition of "annual gross income" in Section 420.9071(4), F.S. from "projecting the prevailing annual rate of income" to calculating income by "annualizing verified sources of income" for the household as the amount to be received during the 12 months following the effective date of the determination. However, the compliance office of the Florida Housing Finance Corporation recognizes that the applicant in your situation will likely receive unemployment payments some time in the next 12 months. If the seasonal employer can provide a statement verifying the applicant's start and stop dates of employment, and you have tax returns from prior years verifying the amount of unemployment benefits, you may use these sources to calculate his anticipated income.
Question:
Income from a Business: A husband and wife are applying for purchase assistance, and their scheduled closing is ten days from now. The wife has a regular job and the husband is starting up a business. He anticipates that the business will soon become profitable, but it is currently not earning income. How do I document this situation and how much income should I count from this business?
Answer:
You should count no income from the business, since it is currently not earning a profit.
On any given day when we work to complete the income qualification process, we are simply taking a ‘snapshot in time’ of household income. Income increases or decreases with some regularity—the wife may soon receive a raise, or may lose her job. The business may soon turn a profit, or may fail for lack of income. Your task is simply to document the current situation. Currently, you cannot estimate any particular income from the business in the next 12 months. Consider a similar situation: an applicant’s 18-year-old son has recently graduated and is looking for a job. Although he tells you that he anticipates locating a job earning $25 an hour, he is currently unemployed and there is no guarantee that he will earn that anticipated wage. Guidance on this matter is provided in the definition of “annual gross income” in the SHIP Statute, which notes “counties and eligible municipalities shall calculate income by annualizing verified sources of income for the household.” The son cannot verify income from a job that he does not yet have. Similarly, your applicant cannot verify business income based on the current documentation of the business. You cannot count any business income to be earned in the next 12 months. In your situation, you should finish the income qualification process today and complete an income certification form. Count only the sources of household income that can be verified today, complete your income eligibility determination, and move on to preparing the applicants for their closing.
Question:
An applicant is applying for purchase assistance. I have signed his income certification
form and have provided an award letter indicating that he is a moderate income applicant with a household income of 81% of the area median income (AMI). We provide moderate income homebuyers with a maximum of $30,000 of purchase assistance,while low-income households may receive up to $40,000. Before the date of his closing, I received the new income limits chart from Florida Housing. The area median income for my county has increased slightly, and the applicant earns 79% of the new area median income. This applicant’s income has not increased or decreased at all since my initial intake and verification of income. However, should I now count him as a low-income household, and is he eligible for up to $40,000 of down payment assistance?
Answer:
Yes, the applicant’s household is low-income on the day when you provide assistance,
and is eligible for the higher level of down payment assistance. During the beginning months of each year, Florida Housing Finance Corporation distributes new income guidelines for purposes of determining income eligibility. You should use the new, updated income limits as soon as they are received, regardless of which allocation year the assistance comes from. The income limits charts are based on information on median family income provided by HUD. The latest estimates of median family income are based on 2000 Census data on family incomes. This has been updated annually since 2005 using Census American Community Survey data from approximately three million households to identify changes in state median family incomes.
Remember that it is likely that this situation is uncommon. Comparing the two most recent years of income limits charts, the area median income generally increases slightly by less than $2000 from year to year. In some unusual cases, AMI decreases. Because of the relatively small change in AMI, it should be uncommon for an applicant to be eligible for a different amount of assistance once the new income guidelines are received—even if your SHIP program offers a graduated series of maximum awards for
different income categories.
The SHIP income limits establish the maximum income for households that can be assisted. Yet each jurisdiction must identify the level of income where the market fails to meet each citizen’s need for affordable housing. If you believe that the income levels provided to you by Florida Housing do not adequately assist you in targeting assistance to those most in need, your commission can place additional restrictions on the local SHIP program. You may discover that even moderate-income households experience financial difficulty with housing costs. They may not qualify for enough mortgage money to purchase an average priced home in your community, for example. On the other hand, you may conclude that moderate-income households do not experience hardships, once you have considered the relationship between housing costs and income levels. Some communities have written their Local Housing Assistance Plans to indicate that SHIP assistance is only available to Low and Very Low-income households, not those with Moderate Incomes.
Question:
A staff person in our housing assistance department is income eligible and needs foreclosure assistance. Is there any rule that would prevent her from applying for SHIP assistance?
Answer:
This is not an uncommon question as it appears that similar cases have occurred in other jurisdictions. To avoid any concerns about conflict or favoritism, make sure that the applicant is held to the same application standards and overall qualification process as any other applicant. In addition, it is recommended that Personnel Policies and Procedures are reviewed since some jurisdictions prohibit employees from benefiting from their assistance programs.
Assets & Other Qualification Topics
INCOME QUALIFICATION PROCESS: ASSETS AND OTHER TOPICS
Question:
Is a monthly payment of $1,500 from a 401K retirement account included among sources of household income when calculating the income eligibility of an applicant?
Answer:
The 401K is an asset owned by the applicant. The monthly payment is, therefore, income from an asset. The monthly payment will be included as income unless the applicant can demonstrate that the amounts received do not exceed the amount of the original 401K investment. HUD Handbook, 43350.3, Section 5-6 (N) addresses the topic of “Withdrawal of Cash or Assets from an Investment.” The withdrawal of cash or assets from an investment received as periodic payments should be counted as income unless an applicant can document that the amounts withdrawn are reimbursement of amounts invested. When an applicant is making regular withdrawals from an account in which he/she has made an investment, the withdrawals will count as income only after the amount invested has been totally paid out. An example to consider is as follows:
Josefina and Rodrigo Gomez have received $300 a month from an annuity for 9.5 years. The Gomez’s paid $36,000 for the annuity when they purchased it years ago. Six months after the current annual recertification becomes effective, the Gomez’s will have reclaimed the full amount of their investment. For the second 6 months of the coming year, therefore, the owner will include the $300 monthly payment from the annuity as income. Remember, this $300 monthly payment is income from an asset and must be documented properly. On the income certification page, list the 401K among the household’s assets on the bottom of the first page. List the cash value of this retirement account and then list the actual income from the asset. In this case, $300 x 6 months= $1,800.
Question:
I am documenting an applicant’s assets for purposes of determining his income eligibility. The applicant has a retirement account into which his employer makes contributions. The money in this account cannot be withdrawn until the applicant leaves this job. Since the applicant could conceivably quit his job in the upcoming 12 months, should I count the retirement account as an asset?
Answer:
Do not count this retirement account as an asset. The answer to this question is addressed directly in Chapter 5 of the HUD Handbook 4350.3. Section G provides a helpful guide for documenting and counting a wide variety of assets. Section G-4 specifically addresses retirement accounts. It notes that “balances held in retirement accounts are counted as assets if the money is accessible to the family member… Amounts that would be accessible only if the person retired are not counted… While an individual is employed, count only amounts the family can withdraw without retiring or terminating employment.”
Question:
I have discovered that an applicant recently gave $1500 cash gifts to each of her three adult children. Do I count the amount of these cash gifts as one of the applicant’s assets? Is this considered an “asset disposed of for less than fair market value”?
Answer:
Yes, in this case you will count the cash gifts provided to these adult children as an asset of this household. This issue is outlined in the HUD Handbook 4350.3, Chapter 5. Look in the section entitled 5-7 “Calculating Income from Assets” and refer to subsection G. 6, which notes that “any asset that is disposed of for less than its full value is counted, including cash gifts”. You must consider this section for any asset that the applicant has deposed of during the past two year. There is even an example that follows this section that describes cash gifts provided to adult children. The Handbook indicates that you must count these cash gifts if they amount to more than $1000 in value.
Question:
A SHIP client has an IRA rollover account which provides her with $300 on income each month. I am accustomed to recording IRAs as assets, but is this case different? Should I record this $300 of monthly income among other sources of regular income, like social security payments or employment income? Or should I count the IRA as both an asset and a regular income source?
Answer:
At first glance, this scenario might seem to be a case where you have to record the IRA as both an asset and as a source of a steady stream of income. Yet you should only record the IRA as an asset. On the first page of the income certification form, list the cash value of the IRA. You must also record the actual income from the asset—in this case, the actual income is the $300 monthly payment that the applicant receives from the IRA. If the total value of this and the applicant’s other assets is over $5000, you will also need to calculate the imputed income from this asset. In the end, you will record either the actual income or the imputed income (whichever is greater) as one of the household’s sources of income on the second page of the income certification form. In most cases, like the one you discuss, the amount of actual income paid by the IRA will be a larger sum of money than the imputed income from the asset, so the actual income will be reported on the second page of the income certification form as the income from this asset.
Question:
Please help me calculate the annual income from a SHIP applicant who has a 401K retirement account. The applicant is retired and she withdraws $1500 monthly from the retirement account. The current account balance for the 401K is $30,000. Is this the figure I should use for the cash value of the 401K asset? Or should the cash value be less, to take into account that $18,000 will be paid to the applicant over the course of a year?
Answer:
The cash value of this 401K asset is the anticipated balance of the account at the end of the year, including interest earned. The answer to this question comes directly from Chapter 5 of HUD Handbook 4350.3, which outlines the income qualification process for the SHIP program. The
Coalition can provide you with a free electronic copy of the HUD Handbook, if you would like to request this lengthy document. Section 1, Part 5-7 of the Handbook addresses the calculation of
income from assets. In this section, item G. “Calculating Income from Specific Assets” provides the answer to your first question about the cash value as part of the following example:
“Stephen King is retired. Each month he withdraws $1,000 from his IRA account. The balance in his IRA account is $200,000. The balance in his IRA at the end of the year, including interest earned, will be $194,000. That is the amount that should be counted as an asset” (HUD Handbook, Section 1, Part 5-7, G. 2. b. (2)).
Question:
An applicant has guardianship of a grandchild. There is a savings account that the applicant does not have access to unless a court order is provided. Do I count the savings account as an asset?
Answer:
No, HUD 4350.3 requires you to only count assets for which the person has access. In this
case, the applicant does not have access even though they he/she has guardianship of the child.
Question:
An applicant has custody of her children for only part of the year. Do I count the children as part of the number of individuals in the household?
Answer:
You count the children in the household if they live with the applicant for 50 percent or more of the year. Properly document this with school records, court documents, or other records that indicate that the child's permanent address is with the applicant. If an applicant has joint custody of his or her children for 50 percent of the year, you can count the children as a household member. Each parent in a joint custody arrangement has significant expenses for children. They must provide clothing, a bed and perhaps a room, food and other items for the children. For this reason, the children should be included among the members in a household.
Question:
An increasing number of employers are not directly responding to our verification for employment forms. Instead, these employers subcontract this income verification activity to a company that requires SHIP administrators to pay a fee for receiving verification information. On occasion, I have to call a 1 (900) telephone number to contact the verification company. How should I proceed with my verification process in cases like these?
Answer:
The SHIP program requires that the primary source of income eligibility documentation is third party verification forms. It should be a priority to receive third party income verification in written form or—if necessary—oral confirmation over the phone. Fortunately, SHIP administration expenses can be used to pay for any fees associated with paying for this information—including telephone fees for a (900) telephone number to contact a verification company. These fees are a cost of properly implementing the SHIP program and are, therefore, eligible administrative expenses. Some SHIP communities have had success in getting a verification company to waive this fee, since the information is being requested to assist by a “social service organization” offering assistance to an employee. If, for some reason, you are not physically able to make a (900) telephone call from your office, other options are available. Recruit your applicant to help you. He or she may be able to appeal to a supervisor to fill out the verification form. Alternatively, you may be able to get the needed verification information by phone from the supervisor. On rare occasions, none of these options is available. As an absolute last resort, use whatever written documentation is available—including pay stubs and tax returns—to document an applicant’s employment income. You must fully document in the applicant’s file all of your attempts to obtain third party verification.
Question:
How do we treat assets when computing annual income?
Answer:
All income from assets must be added to anticipated annual income, regardless of the cash value or combined cash value of the asset(s). If the value of a single asset or combined value of multiple assets is greater than $5000, then an imputed value is taken (multiply value by 2 percent) and then compared to actual income earned - the higher number is then added to the other forms of income to get the total anticipated annual income. If the value of an asset or combined assets does not exceed $5000 and the actual income is not known, then the amount of asset income added to annual income is zero. In all cases, always document the file that the calculation was done both ways.
Question:
If an applicant owns a second home which is occupied by relatives, and receives no rents on the home, is it counted as an asset when computing total household income?
Answer:
Yes. All real property is counted as an asset. The value of this second home must be listed among other assets on the first page of the SHIP income certification form. In this case, no rent is received, so indicate that there is no income from this asset.
Question:
One of the applicants for my rehabilitation strategy has a second home that she rents out. I know that this second home is considered an asset and that the rent she collects is the actual income derived from this asset. Should I deduct the mortgage payments and maintenance costs that the applicant pays from this source of asset income and only count the net income after expenses? Answer:
Yes. HUD has recently provided clarification on how to treat income from rental property. Appendix 15 of the newly revised HUD Handbook 4350.3 addresses this issue. It notes that you can use the IRS’s Schedule E of the 1040 form as a guide for subtracting expenses from gross rent. Schedule E outlines a variety of expenses that can be deducted from gross rent payments, including mortgage interest paid to banks, taxes, insurance, cleaning and maintenance, repairs, advertising and utilities. These are, therefore, the expenses that can be deducted from gross rent payments to be received in the 12 months. Refer to section 15-C (M) of the Handbook appendix for a list of acceptable documents to collect to verify this asset income. These materials will document the applicant’s recent rental expenses and help estimate expenses for the next 12 months. It is likely that the largest expense will be mortgage interest that is paid to banks. Look at the bank amortization schedules provided by your applicant to calculate the exact amount of interest that will be paid in the next 12 months. Rely on reasonable estimates to calculate the deductions for taxes, insurance, repairs and other expenses.
The income from rental properties should be handled in a different manner if the applicant receives a majority of her income from rental property management. Exhibit 5-2 in Chapter 5 of the HUD Handbook addresses this scenario, “NOTE: If the person’s main business is real estate, then count any income as business income under paragraph 5-6 G of the chapter. Do not count it both as an asset and business income.” (HUD Handbook 4350.3, Ch. 5, Exhibit 5-2 (A)(3)).
Remember, once you have calculated the actual income from the rental property asset, you will have to compare this to the "imputed income" if the total value of the applicant’s assets exceed $5,000. The cash value of a rental property asset is its market value minus reasonable costs that would be incurred in selling or converting the asset to cash. You must also subtract the remaining mortgage on the rental property to derive the cash value.
Question:
When I work to determine the income eligibility of an applicant, I sometimes find
situations when I am unsure whether or not to count certain individuals as household members in order to properly determine the size of the household. Where can I look
for guidance when these questions come up?
Answer:
It is important to accurately determine the size of a household, since the household’s income eligibility is adjusted for family size. The income eligibility level is lower for households having fewer than four people, for example, and higher for households having more members.
You start the process of determining household size by reviewing the household members that the applicant has listed on the application form. Count individuals who will permanently live in
the household during the next 12 months as household members, unless given guidance to the contrary. You count individuals even if they are not relatives of the applicant—for example, an
applicant may have a boyfriend who lives in the house. He is a household member and his income must be included in the calculation of overall household income.
Chapter 3 of the HUD Handbook 4350.3 provides written guidance on many situations where you may be unclear about whether or not to count an individual. Section 3-6, subsection E, provides a list of types of individuals to count or exclude as household members. This section notes, for example, that household members include children who are away at school but who live with the family during school recesses. In addition, count children with joint custody arrangements who are present in the household 50% or more of the time, and document the custody with a divorce decree or written statements from the parents. Conversely, the Handbook notes that you will not count foster children or foster adults, since they are only temporarily living with the household. “Unborn children” of pregnant women are counted as part of the household, as well as children in the process of being adopted. Some household members may be counted even if they are temporarily absent from the home for a work assignment, training or some other reason. The Handbook even outlines a case involving persons permanently confined to a hospital or
nursing home. This is the only instance in which the Handbook gives the SHIP applicant a choice as to whether or not to include the person as part of the household. Naturally, if the person is
counted, then his or her income will be added to overall household income.
The Handbook discusses at some length the status of a live-in aide. Such a person resides with one or more elderly persons, near-elderly persons, or persons with disabilities, but is not considered a household member. The aide is excluded even if he or she is a family member, so long as the aide can demonstrate that he or she “is not obligated for the support of the person(s) and would not be living in the unit except to provide the necessary supportive services.”
One final scenario should be considered. In some situations, an applicant is planning to get married sometime in the 12 months following receipt of SHIP assistance. Staff at the Florida Housing Finance Corporation has indicated that a fiancée who is not currently living with the applicant should not be counted as a household member. The fiancée is not counted because the upcoming marriage has not yet happened and cannot be verified. However, there is an exception to this policy. If the SHIP applicant is buying a home and has applied for a first mortgage along with the fiancée, then the SHIP administrator now has sufficient documentation to demonstrate that the fiancée will reside in the house. In this case the fiancée is counted as a household member. Determining the correct size of an applicant’s household can sometimes be a complicated matter. Refer to Section 3-6 (E) of the HUD Handbook 4350.3 for written guidance. In addition, the Florida Housing Coalition is available for consultation on this subject. Call (850) 488-4197 with your questions.
Question:
Our community is still providing assistance with our 2009/2010 SHIP allocation dollars. When calculating an applicant's income eligibility, should we use the 2009 income limit chart for our area, or the more recent chart that we have received?
Answer:
Always use the most recent, updated income chart to calculate an applicant's eligibility for the SHIP program. The new income guidelines are distributed by the Florida Housing Finance Corporation (usually between February and April of each year) and should be used as your new, updated guidelines as soon as they are received, regardless of which allocation year the assistance comes from. Some communities use SHIP funds for rental strategies that require them to check tenants for income eligibility each year for fifteen years. In these cases also, the newest income guidelines should be used each year when annual re-certification takes place.
Question:
What is the "120 day clock?" Does the letter of commitment legally require a SHIP jurisdiction to provide assistance even if the applicant’s change in income now places him or her above the level of income eligibility?
Answer:
The "120 day clock" refers to the period of time during which third party income and asset verification forms are considered to be up-to-date and valid. The HUD Handbook 4350.3 recognizes that verification forms can only be considered accurate and current for a certain length of time: "Verifications are valid for 90 days from the date received. If the information is orally updated by the source, these verifications may stand for an additional 30 days. You may not rely on verifications that are more than 120 days old." Source: HUD Handbook 4350.3, Chapter 3 Section 2 Subsection C. Part 3-32 a. (2) If more than 120 days passes from the time that you have received a verification form, you must get a new, updated verification form.
Here are activities that will "stop the 120 day clock." Any one of the following activities will enable you to turn your attention from getting current household income information to proceeding with the other activities involved in helping the applicant. The 120 day clock will stop when: 1.The local government issues an award letter (also called a letter of commitment) to the applicant after a certification form has been executed. This letter will encumber SHIP funds to this specific household, or 2.The local government and applicant sign a construction contract to proceed with rehabilitation services on the applicant's home.
Once an award letter is issued or a rehabilitation contract is executed, the 120 day clock stops and you do not have to obtain new, updated verification forms, even if you have not completed your assistance to the client within 120 days. You never again have to ask the applicant income-related questions. Of course, an applicant can also be fully assisted within the 120 day period. In such a case, it is also possible to verify income, certify a household as income eligible, and then not issue a commitment letter, but assist an applicant and fully expend SHIP funds before 120 days expires. In such a case, the 120 day rule is moot.
On occasion, an application may provide information that the household size or income has changed since the 120 day clock stopped. In such instances, contact the Florida Housing Coalition or the compliance office at the Florida Housing Finance Corporation to determine on a case by case basis whether or not to re-calculate the applicant's income and eligibility.
Learning More About The “120 Day Clock”
Please help me clarify my understanding of the “120 day clock” used during the SHIP income qualification process. My co-worker believes that an award letter stops the 120 day clock, but that the income qualification work she has completed for a household only remains updated and accurate for the next 12 months. Is this true?
Answer:
Your co-worker’s approach is considered a “best business practice.” To understand why,
it is important to first review the role of the “120 day clock.” The “120 day clock” refers to the period of time during which third party income and asset verification forms are considered to be up-to-date and valid. If more than 120 days passes from the time that you have received a verification form, you must get a new, updated verification form. For a more detailed explanation of the 120 day clock, read the SHIP FAQ on the Coalition’s Web site: www.flhousing.org. Often, a SHIP administrator will issue the eligible applicant an award letter to “stop the clock” and allow the administrator to proceed with the other activities involved in helping the applicant. Remember, however, that you must re-calculate income eligibility if you learn about a change in household income before the applicant has been assisted with SHIP funds—even if you have already issued an award letter. Now consider your question: What if an applicant has still not received SHIP assistance a year after receiving an award letter? It is a “best practice” for SHIP staff to re-verify that a household is income eligible for SHIP assistance if more than 12 months have elapsed since the city presented the household with an award letter. This makes sense: ultimately, you can only provide assistance to income eligible households. Income can change in a year–you would be wise to re-verify that an applicant is still eligible if he or she has been waiting for such a long period of time.
Follow-Up Question: I understand the best practice that you describe. However, adopting this practice would greatly affect the way we implement our local SHIP program. When we receive a new SHIP allocation each summer, we accept a larger number (over 50) of new applications for assistance. We determine each applicant’s income eligibility on the front end and issue award letters. With so many households requesting assistance, however, some people with award letters will not receive assistance for well over a year. How can we avoid the extra and required work that you describe for re-calculating a household’s eligibility?
Answer:
In the future, you could implement an alternative practice: Place people on a waiting list, but do not complete the formal income verification and certification process on all these applicants at one time. Instead, perform the income qualification process on the first five or 10 people on this list, and provide them assistance in a timely manner. When you are almost finished assisting them, perform the income qualification process on the next handful of applicants on the list... and so on. In this manner, you will issue award letters only to the applicants who will receive assistance within the next month or two. With less time transpiring between the determination of income eligibility and the provision of SHIP assistance, it will be less likely that the applicant’s income has changed. This should reduce the time you devote to updating and re-calculating an applicant’s income eligibility. Explain to those put on the waiting list that they have not been approved for SHIP funding until the formal income qualification process is complete.
Question:
In a previous SHIP Clip answer, you outlined a scenario when an administrator learns that an applicant’s income has changed after a letter of commitment was provided but before the applicant received SHIP assistance. You noted that a SHIP administrator is obligated to re-verify and re-certify the applicant’s income to determine if the household is still eligible for assistance. What about the letter of commitment in such a case? Does this letter legally require a SHIP jurisdiction to provide assistance even if the applicant’s change in income now places him or her above the level of income eligibility? After all, the applicant was income eligible for SHIP assistance on the date when the letter of commitment was signed and mailed.
Answer:
The Florida Housing Finance Corporation’s legal counsel has concluded that SHIP jurisdictions should deny assistance to applicants discovered to be income ineligible after a Commitment Letter has been issued. Ultimately, it is most important for administrators to ensure that all households receiving SHIP assistance are income eligible. This is stated in section 420.9075 (4)(j) of the SHIP Statute, which notes that “the benefit of assistance provided through the State Housing Initiatives Partnership Program must accrue to eligible persons occupying eligible housing.” Even after you have signed an income certification form and issued an award letter indicating that an applicant is income eligible, you may receive new information indicating that household income has changed. An applicant may inform you that she has just received a raise or lost her job. Alternatively, the applicant’s first mortgage lender may inform you that the applicant has a second job that you did not know about. In all such cases, you must document the new income information with a verification form and re-calculate income eligibility if you learn about a change in household income before the applicant has been assisted with SHIP funds (i.e. before the applicant has signed a rehabilitation contractor’s construction contract, or the applicant has closed on a loan, or before SHIP funds have been provided for some other form of assistance to the household).
This is not to say that a SHIP administrator needs to actively look for changes in an applicant's income once the income certification form is signed. Rather, the administrator must act on any information that is brought to him or her from any source. The Florida Housing Finance Corporation’s legal counsel has reviewed a sample letter of commitment and has concluded that such a letter could not legally force a SHIP jurisdiction to provide assistance to a household that is discovered to be income ineligible before assistance is provided. The legal council does, however, recommend that SHIP administrators add a sentence to the letter to give applicants notice of this aspect of the income qualification process. The letter should note that a household’s annual income will be re-calculated based on changes all the way up until the date when assistance is provided.
Question:
Is a monthly payment of $1,500 from a 401K retirement account included among sources of household income when calculating the income eligibility of an applicant?
Answer:
The 401K is an asset owned by the applicant. The monthly payment is, therefore, income from an asset. The monthly payment will be included as income unless the applicant can demonstrate that the amounts received do not exceed the amount of the original 401K investment. HUD Handbook, 43350.3, Section 5-6 (N) addresses the topic of “Withdrawal of Cash or Assets from an Investment.” The withdrawal of cash or assets from an investment received as periodic payments should be counted as income unless an applicant can document that the amounts withdrawn are reimbursement of amounts invested. When an applicant is making regular withdrawals from an account in which he/she has made an investment, the withdrawals will count as income only after the amount invested has been totally paid out. An example to consider is as follows:
Josefina and Rodrigo Gomez have received $300 a month from an annuity for 9.5 years. The Gomez’s paid $36,000 for the annuity when they purchased it years ago. Six months after the current annual recertification becomes effective, the Gomez’s will have reclaimed the full amount of their investment. For the second 6 months of the coming year, therefore, the owner will include the $300 monthly payment from the annuity as income. Remember, this $300 monthly payment is income from an asset and must be documented properly. On the income certification page, list the 401K among the household’s assets on the bottom of the first page. List the cash value of this retirement account and then list the actual income from the asset. In this case, $300 x 6 months= $1,800.
Question:
I am documenting an applicant’s assets for purposes of determining his income eligibility. The applicant has a retirement account into which his employer makes contributions. The money in this account cannot be withdrawn until the applicant leaves this job. Since the applicant could conceivably quit his job in the upcoming 12 months, should I count the retirement account as an asset?
Answer:
Do not count this retirement account as an asset. The answer to this question is addressed directly in Chapter 5 of the HUD Handbook 4350.3. Section G provides a helpful guide for documenting and counting a wide variety of assets. Section G-4 specifically addresses retirement accounts. It notes that “balances held in retirement accounts are counted as assets if the money is accessible to the family member… Amounts that would be accessible only if the person retired are not counted… While an individual is employed, count only amounts the family can withdraw without retiring or terminating employment.”
Question:
I have discovered that an applicant recently gave $1500 cash gifts to each of her three adult children. Do I count the amount of these cash gifts as one of the applicant’s assets? Is this considered an “asset disposed of for less than fair market value”?
Answer:
Yes, in this case you will count the cash gifts provided to these adult children as an asset of this household. This issue is outlined in the HUD Handbook 4350.3, Chapter 5. Look in the section entitled 5-7 “Calculating Income from Assets” and refer to subsection G. 6, which notes that “any asset that is disposed of for less than its full value is counted, including cash gifts”. You must consider this section for any asset that the applicant has deposed of during the past two year. There is even an example that follows this section that describes cash gifts provided to adult children. The Handbook indicates that you must count these cash gifts if they amount to more than $1000 in value.
Question:
A SHIP client has an IRA rollover account which provides her with $300 on income each month. I am accustomed to recording IRAs as assets, but is this case different? Should I record this $300 of monthly income among other sources of regular income, like social security payments or employment income? Or should I count the IRA as both an asset and a regular income source?
Answer:
At first glance, this scenario might seem to be a case where you have to record the IRA as both an asset and as a source of a steady stream of income. Yet you should only record the IRA as an asset. On the first page of the income certification form, list the cash value of the IRA. You must also record the actual income from the asset—in this case, the actual income is the $300 monthly payment that the applicant receives from the IRA. If the total value of this and the applicant’s other assets is over $5000, you will also need to calculate the imputed income from this asset. In the end, you will record either the actual income or the imputed income (whichever is greater) as one of the household’s sources of income on the second page of the income certification form. In most cases, like the one you discuss, the amount of actual income paid by the IRA will be a larger sum of money than the imputed income from the asset, so the actual income will be reported on the second page of the income certification form as the income from this asset.
Question:
Please help me calculate the annual income from a SHIP applicant who has a 401K retirement account. The applicant is retired and she withdraws $1500 monthly from the retirement account. The current account balance for the 401K is $30,000. Is this the figure I should use for the cash value of the 401K asset? Or should the cash value be less, to take into account that $18,000 will be paid to the applicant over the course of a year?
Answer:
The cash value of this 401K asset is the anticipated balance of the account at the end of the year, including interest earned. The answer to this question comes directly from Chapter 5 of HUD Handbook 4350.3, which outlines the income qualification process for the SHIP program. The
Coalition can provide you with a free electronic copy of the HUD Handbook, if you would like to request this lengthy document. Section 1, Part 5-7 of the Handbook addresses the calculation of
income from assets. In this section, item G. “Calculating Income from Specific Assets” provides the answer to your first question about the cash value as part of the following example:
“Stephen King is retired. Each month he withdraws $1,000 from his IRA account. The balance in his IRA account is $200,000. The balance in his IRA at the end of the year, including interest earned, will be $194,000. That is the amount that should be counted as an asset” (HUD Handbook, Section 1, Part 5-7, G. 2. b. (2)).
Question:
An applicant has guardianship of a grandchild. There is a savings account that the applicant does not have access to unless a court order is provided. Do I count the savings account as an asset?
Answer:
No, HUD 4350.3 requires you to only count assets for which the person has access. In this
case, the applicant does not have access even though they he/she has guardianship of the child.
Question:
An applicant has custody of her children for only part of the year. Do I count the children as part of the number of individuals in the household?
Answer:
You count the children in the household if they live with the applicant for 50 percent or more of the year. Properly document this with school records, court documents, or other records that indicate that the child's permanent address is with the applicant. If an applicant has joint custody of his or her children for 50 percent of the year, you can count the children as a household member. Each parent in a joint custody arrangement has significant expenses for children. They must provide clothing, a bed and perhaps a room, food and other items for the children. For this reason, the children should be included among the members in a household.
Question:
An increasing number of employers are not directly responding to our verification for employment forms. Instead, these employers subcontract this income verification activity to a company that requires SHIP administrators to pay a fee for receiving verification information. On occasion, I have to call a 1 (900) telephone number to contact the verification company. How should I proceed with my verification process in cases like these?
Answer:
The SHIP program requires that the primary source of income eligibility documentation is third party verification forms. It should be a priority to receive third party income verification in written form or—if necessary—oral confirmation over the phone. Fortunately, SHIP administration expenses can be used to pay for any fees associated with paying for this information—including telephone fees for a (900) telephone number to contact a verification company. These fees are a cost of properly implementing the SHIP program and are, therefore, eligible administrative expenses. Some SHIP communities have had success in getting a verification company to waive this fee, since the information is being requested to assist by a “social service organization” offering assistance to an employee. If, for some reason, you are not physically able to make a (900) telephone call from your office, other options are available. Recruit your applicant to help you. He or she may be able to appeal to a supervisor to fill out the verification form. Alternatively, you may be able to get the needed verification information by phone from the supervisor. On rare occasions, none of these options is available. As an absolute last resort, use whatever written documentation is available—including pay stubs and tax returns—to document an applicant’s employment income. You must fully document in the applicant’s file all of your attempts to obtain third party verification.
Question:
How do we treat assets when computing annual income?
Answer:
All income from assets must be added to anticipated annual income, regardless of the cash value or combined cash value of the asset(s). If the value of a single asset or combined value of multiple assets is greater than $5000, then an imputed value is taken (multiply value by 2 percent) and then compared to actual income earned - the higher number is then added to the other forms of income to get the total anticipated annual income. If the value of an asset or combined assets does not exceed $5000 and the actual income is not known, then the amount of asset income added to annual income is zero. In all cases, always document the file that the calculation was done both ways.
Question:
If an applicant owns a second home which is occupied by relatives, and receives no rents on the home, is it counted as an asset when computing total household income?
Answer:
Yes. All real property is counted as an asset. The value of this second home must be listed among other assets on the first page of the SHIP income certification form. In this case, no rent is received, so indicate that there is no income from this asset.
Question:
One of the applicants for my rehabilitation strategy has a second home that she rents out. I know that this second home is considered an asset and that the rent she collects is the actual income derived from this asset. Should I deduct the mortgage payments and maintenance costs that the applicant pays from this source of asset income and only count the net income after expenses? Answer:
Yes. HUD has recently provided clarification on how to treat income from rental property. Appendix 15 of the newly revised HUD Handbook 4350.3 addresses this issue. It notes that you can use the IRS’s Schedule E of the 1040 form as a guide for subtracting expenses from gross rent. Schedule E outlines a variety of expenses that can be deducted from gross rent payments, including mortgage interest paid to banks, taxes, insurance, cleaning and maintenance, repairs, advertising and utilities. These are, therefore, the expenses that can be deducted from gross rent payments to be received in the 12 months. Refer to section 15-C (M) of the Handbook appendix for a list of acceptable documents to collect to verify this asset income. These materials will document the applicant’s recent rental expenses and help estimate expenses for the next 12 months. It is likely that the largest expense will be mortgage interest that is paid to banks. Look at the bank amortization schedules provided by your applicant to calculate the exact amount of interest that will be paid in the next 12 months. Rely on reasonable estimates to calculate the deductions for taxes, insurance, repairs and other expenses.
The income from rental properties should be handled in a different manner if the applicant receives a majority of her income from rental property management. Exhibit 5-2 in Chapter 5 of the HUD Handbook addresses this scenario, “NOTE: If the person’s main business is real estate, then count any income as business income under paragraph 5-6 G of the chapter. Do not count it both as an asset and business income.” (HUD Handbook 4350.3, Ch. 5, Exhibit 5-2 (A)(3)).
Remember, once you have calculated the actual income from the rental property asset, you will have to compare this to the "imputed income" if the total value of the applicant’s assets exceed $5,000. The cash value of a rental property asset is its market value minus reasonable costs that would be incurred in selling or converting the asset to cash. You must also subtract the remaining mortgage on the rental property to derive the cash value.
Question:
When I work to determine the income eligibility of an applicant, I sometimes find
situations when I am unsure whether or not to count certain individuals as household members in order to properly determine the size of the household. Where can I look
for guidance when these questions come up?
Answer:
It is important to accurately determine the size of a household, since the household’s income eligibility is adjusted for family size. The income eligibility level is lower for households having fewer than four people, for example, and higher for households having more members.
You start the process of determining household size by reviewing the household members that the applicant has listed on the application form. Count individuals who will permanently live in
the household during the next 12 months as household members, unless given guidance to the contrary. You count individuals even if they are not relatives of the applicant—for example, an
applicant may have a boyfriend who lives in the house. He is a household member and his income must be included in the calculation of overall household income.
Chapter 3 of the HUD Handbook 4350.3 provides written guidance on many situations where you may be unclear about whether or not to count an individual. Section 3-6, subsection E, provides a list of types of individuals to count or exclude as household members. This section notes, for example, that household members include children who are away at school but who live with the family during school recesses. In addition, count children with joint custody arrangements who are present in the household 50% or more of the time, and document the custody with a divorce decree or written statements from the parents. Conversely, the Handbook notes that you will not count foster children or foster adults, since they are only temporarily living with the household. “Unborn children” of pregnant women are counted as part of the household, as well as children in the process of being adopted. Some household members may be counted even if they are temporarily absent from the home for a work assignment, training or some other reason. The Handbook even outlines a case involving persons permanently confined to a hospital or
nursing home. This is the only instance in which the Handbook gives the SHIP applicant a choice as to whether or not to include the person as part of the household. Naturally, if the person is
counted, then his or her income will be added to overall household income.
The Handbook discusses at some length the status of a live-in aide. Such a person resides with one or more elderly persons, near-elderly persons, or persons with disabilities, but is not considered a household member. The aide is excluded even if he or she is a family member, so long as the aide can demonstrate that he or she “is not obligated for the support of the person(s) and would not be living in the unit except to provide the necessary supportive services.”
One final scenario should be considered. In some situations, an applicant is planning to get married sometime in the 12 months following receipt of SHIP assistance. Staff at the Florida Housing Finance Corporation has indicated that a fiancée who is not currently living with the applicant should not be counted as a household member. The fiancée is not counted because the upcoming marriage has not yet happened and cannot be verified. However, there is an exception to this policy. If the SHIP applicant is buying a home and has applied for a first mortgage along with the fiancée, then the SHIP administrator now has sufficient documentation to demonstrate that the fiancée will reside in the house. In this case the fiancée is counted as a household member. Determining the correct size of an applicant’s household can sometimes be a complicated matter. Refer to Section 3-6 (E) of the HUD Handbook 4350.3 for written guidance. In addition, the Florida Housing Coalition is available for consultation on this subject. Call (850) 488-4197 with your questions.
Question:
Our community is still providing assistance with our 2009/2010 SHIP allocation dollars. When calculating an applicant's income eligibility, should we use the 2009 income limit chart for our area, or the more recent chart that we have received?
Answer:
Always use the most recent, updated income chart to calculate an applicant's eligibility for the SHIP program. The new income guidelines are distributed by the Florida Housing Finance Corporation (usually between February and April of each year) and should be used as your new, updated guidelines as soon as they are received, regardless of which allocation year the assistance comes from. Some communities use SHIP funds for rental strategies that require them to check tenants for income eligibility each year for fifteen years. In these cases also, the newest income guidelines should be used each year when annual re-certification takes place.
Question:
What is the "120 day clock?" Does the letter of commitment legally require a SHIP jurisdiction to provide assistance even if the applicant’s change in income now places him or her above the level of income eligibility?
Answer:
The "120 day clock" refers to the period of time during which third party income and asset verification forms are considered to be up-to-date and valid. The HUD Handbook 4350.3 recognizes that verification forms can only be considered accurate and current for a certain length of time: "Verifications are valid for 90 days from the date received. If the information is orally updated by the source, these verifications may stand for an additional 30 days. You may not rely on verifications that are more than 120 days old." Source: HUD Handbook 4350.3, Chapter 3 Section 2 Subsection C. Part 3-32 a. (2) If more than 120 days passes from the time that you have received a verification form, you must get a new, updated verification form.
Here are activities that will "stop the 120 day clock." Any one of the following activities will enable you to turn your attention from getting current household income information to proceeding with the other activities involved in helping the applicant. The 120 day clock will stop when: 1.The local government issues an award letter (also called a letter of commitment) to the applicant after a certification form has been executed. This letter will encumber SHIP funds to this specific household, or 2.The local government and applicant sign a construction contract to proceed with rehabilitation services on the applicant's home.
Once an award letter is issued or a rehabilitation contract is executed, the 120 day clock stops and you do not have to obtain new, updated verification forms, even if you have not completed your assistance to the client within 120 days. You never again have to ask the applicant income-related questions. Of course, an applicant can also be fully assisted within the 120 day period. In such a case, it is also possible to verify income, certify a household as income eligible, and then not issue a commitment letter, but assist an applicant and fully expend SHIP funds before 120 days expires. In such a case, the 120 day rule is moot.
On occasion, an application may provide information that the household size or income has changed since the 120 day clock stopped. In such instances, contact the Florida Housing Coalition or the compliance office at the Florida Housing Finance Corporation to determine on a case by case basis whether or not to re-calculate the applicant's income and eligibility.
Learning More About The “120 Day Clock”
Please help me clarify my understanding of the “120 day clock” used during the SHIP income qualification process. My co-worker believes that an award letter stops the 120 day clock, but that the income qualification work she has completed for a household only remains updated and accurate for the next 12 months. Is this true?
Answer:
Your co-worker’s approach is considered a “best business practice.” To understand why,
it is important to first review the role of the “120 day clock.” The “120 day clock” refers to the period of time during which third party income and asset verification forms are considered to be up-to-date and valid. If more than 120 days passes from the time that you have received a verification form, you must get a new, updated verification form. For a more detailed explanation of the 120 day clock, read the SHIP FAQ on the Coalition’s Web site: www.flhousing.org. Often, a SHIP administrator will issue the eligible applicant an award letter to “stop the clock” and allow the administrator to proceed with the other activities involved in helping the applicant. Remember, however, that you must re-calculate income eligibility if you learn about a change in household income before the applicant has been assisted with SHIP funds—even if you have already issued an award letter. Now consider your question: What if an applicant has still not received SHIP assistance a year after receiving an award letter? It is a “best practice” for SHIP staff to re-verify that a household is income eligible for SHIP assistance if more than 12 months have elapsed since the city presented the household with an award letter. This makes sense: ultimately, you can only provide assistance to income eligible households. Income can change in a year–you would be wise to re-verify that an applicant is still eligible if he or she has been waiting for such a long period of time.
Follow-Up Question: I understand the best practice that you describe. However, adopting this practice would greatly affect the way we implement our local SHIP program. When we receive a new SHIP allocation each summer, we accept a larger number (over 50) of new applications for assistance. We determine each applicant’s income eligibility on the front end and issue award letters. With so many households requesting assistance, however, some people with award letters will not receive assistance for well over a year. How can we avoid the extra and required work that you describe for re-calculating a household’s eligibility?
Answer:
In the future, you could implement an alternative practice: Place people on a waiting list, but do not complete the formal income verification and certification process on all these applicants at one time. Instead, perform the income qualification process on the first five or 10 people on this list, and provide them assistance in a timely manner. When you are almost finished assisting them, perform the income qualification process on the next handful of applicants on the list... and so on. In this manner, you will issue award letters only to the applicants who will receive assistance within the next month or two. With less time transpiring between the determination of income eligibility and the provision of SHIP assistance, it will be less likely that the applicant’s income has changed. This should reduce the time you devote to updating and re-calculating an applicant’s income eligibility. Explain to those put on the waiting list that they have not been approved for SHIP funding until the formal income qualification process is complete.
Question:
In a previous SHIP Clip answer, you outlined a scenario when an administrator learns that an applicant’s income has changed after a letter of commitment was provided but before the applicant received SHIP assistance. You noted that a SHIP administrator is obligated to re-verify and re-certify the applicant’s income to determine if the household is still eligible for assistance. What about the letter of commitment in such a case? Does this letter legally require a SHIP jurisdiction to provide assistance even if the applicant’s change in income now places him or her above the level of income eligibility? After all, the applicant was income eligible for SHIP assistance on the date when the letter of commitment was signed and mailed.
Answer:
The Florida Housing Finance Corporation’s legal counsel has concluded that SHIP jurisdictions should deny assistance to applicants discovered to be income ineligible after a Commitment Letter has been issued. Ultimately, it is most important for administrators to ensure that all households receiving SHIP assistance are income eligible. This is stated in section 420.9075 (4)(j) of the SHIP Statute, which notes that “the benefit of assistance provided through the State Housing Initiatives Partnership Program must accrue to eligible persons occupying eligible housing.” Even after you have signed an income certification form and issued an award letter indicating that an applicant is income eligible, you may receive new information indicating that household income has changed. An applicant may inform you that she has just received a raise or lost her job. Alternatively, the applicant’s first mortgage lender may inform you that the applicant has a second job that you did not know about. In all such cases, you must document the new income information with a verification form and re-calculate income eligibility if you learn about a change in household income before the applicant has been assisted with SHIP funds (i.e. before the applicant has signed a rehabilitation contractor’s construction contract, or the applicant has closed on a loan, or before SHIP funds have been provided for some other form of assistance to the household).
This is not to say that a SHIP administrator needs to actively look for changes in an applicant's income once the income certification form is signed. Rather, the administrator must act on any information that is brought to him or her from any source. The Florida Housing Finance Corporation’s legal counsel has reviewed a sample letter of commitment and has concluded that such a letter could not legally force a SHIP jurisdiction to provide assistance to a household that is discovered to be income ineligible before assistance is provided. The legal council does, however, recommend that SHIP administrators add a sentence to the letter to give applicants notice of this aspect of the income qualification process. The letter should note that a household’s annual income will be re-calculated based on changes all the way up until the date when assistance is provided.
Eligible Use & Proper Expenditure
Question:
Are relocation expenses eligible SHIP costs? Is there a limit on the amount of relocation costs per family we can spend, or are there any standards for what should be spent?
Answer:
Yes, relocation expenses are eligible costs under the SHIP program if expended in conjunction with a rehabilitation assistance program. What you spend for temporary relocation will depend upon your local policies. You should decide in advance what will be paid as reasonable and customary in terms of temporary shelter and moving expenses and incorporate it as policy so as to avoid potential abuses.
Question:
Can I help an applicant more than once with the SHIP program?
Answer:
There is nothing in the SHIP rule or statute that specifically addresses this issue. It is a local policy decision. Many local communities have added a provision to their LHAP noting that an applicant cannot be assisted more than once with the SHIP program. If only one-time assistance is available, however, it is important to consider if the SHIP assistance provided is thorough and fully addresses an applicant’s needs. If an applicant purchases an existing home, for example, are there resources available to make needed repairs, or might the applicant be back soon to apply for assistance from your rehabilitation strategy. Similarly, when providing rehabilitation services, you should review the initial home inspection and consider whether repair priorities—including health hazard concerns, code violations, upgrading of electrical systems, and even energy efficiency—can be addressed with one-time assistance. As you consider limiting applicants to one-time assistance, you may need to increase your per unit subsidy level and other policies in order to ensure that a one-time recipient of services has been comprehensively assisted. This issue and many other policy considerations are discussed in two of the Coalition’s workshops entitled “A Quantitative Analysis of the SHIP Program” and “Enhancing Your Housing Strategies”. Refer to the workshop section of the Coalition’s website, www.flhousing.org, to learn when these trainings will be offered next.
Question:
Can SHIP funds be used for demolition and site clearance?
Answer:
Yes, as long as an eligible unit which serves an eligible household is moved to or constructed on the site. At the end of every project, we must be able to document specific housing assistance offered to a specific household. Therefore, demolition may only be part of a larger project to then construct housing on the cleared land after demolition.
Question:
The local lender has notified one of our SHIP awardees that there is a shortage in his escrow account. The notice was given after closing and the lender now wants to increase the monthly payment to cover the shortage. Can SHIP funds be used to pay for a shortage in the escrow account for a homebuyer?
Answer:
SHIP funds can be used to pay for any and all costs associated with closing, unless otherwise specified in the local HAP. Since the closing has already occurred, it would be difficult to award these funds without another closing. Minimum escrow balances are mandated by Federal laws and/or the mortgage agreements. Since the lender made the error, you should encourage the homeowner to negotiate a more reasonable amount for escrow. Since the increased monthly mortgage payment may result in putting the homeowner in a potential default position on the first mortgage, the lender should be agreeable to alternative arrangements.
Question:
Is the installation of central air conditioning an eligible SHIP expense?
Answer:
Yes. In most parts of Florida air conditioning is a necessity for the health and safety of the occupants living in the units. Previous experience with housing programs that do not allow for the installation of air conditioning has shown that people will find a way to cool their home. This often means the purchase of very old, very inefficient window units. These window air conditioners can greatly increase a family's monthly utility bills, drastically reducing a family's ability to meet their other monthly bills.
Question:
Funds have been encumbered for housing rehabilitation, and some funds have been spent on a first draw from the contractor. The housing activity is not complete. Are the funds expended?
Answer:
No, funds are only encumbered until the rehabilitation activities are completed, the work is inspected, the contractor is paid, and the unit is occupied by an eligible person. Refer to the definition of “expenditure” in the SHIP Rule, 67-37.002 (8), which notes that funds are considered expended "when the project is completed as evidenced by documentation of final payment to the contractor and release of all lien waivers, issuance of the certificate of occupancy by the local building department, and occupancy by an eligible person or eligible household.”
Question:
Please explain: "First Dollar In, First Dollar Out?"
Answer:
The SHIP rule requires that all program funds from a SHIP distribution be spent within 3 years of their initial receipt. Exceptions to this expenditure deadline are very limited. Many communities have Housing Assistance Plans that continue paying for the same strategies from one distribution to another. In these instances, SHIP administrators should consider spending all of the money from a distribution before moving on to subsequent years' distributions.
Question:
There are leftover funds in an escrow account that were not used on a project. The funds were allocated from the 2008/2009 cycle. The bank wants to give the funds back to the SHIP program. Can we take the funds? What should we do with them?
Answer:
The bank should cut the County a check for the leftover funds and the funds need to be re-allocated to a SHIP recipient, to be spent on eligible activities within the expenditure deadline of three years from the date when your community first started receiving its allocation. In this case, for example, the 2008/2009 allocation was first received on July 1, 2008 and must be expended no later than June 30, 2011.
Question:
What are the time limits on expenditure of interest earned on our local trust fund account?
Answer:
Interest earned falls under the same time limits as all other SHIP funds. The interest earned must be spent within 24 months from the end of the applicable State fiscal year in which the interest was earned. The "applicable State fiscal year" is determined by when the interest was earned. For example, the bank interest collected in the local housing trust fund from July 1, 2010 to June 30, 2011 is associated with the 10/11 SHIP distribution. It must be spent by June 30, 2011 which is 24 months from the end of the 10/11 State fiscal year.
Are relocation expenses eligible SHIP costs? Is there a limit on the amount of relocation costs per family we can spend, or are there any standards for what should be spent?
Answer:
Yes, relocation expenses are eligible costs under the SHIP program if expended in conjunction with a rehabilitation assistance program. What you spend for temporary relocation will depend upon your local policies. You should decide in advance what will be paid as reasonable and customary in terms of temporary shelter and moving expenses and incorporate it as policy so as to avoid potential abuses.
Question:
Can I help an applicant more than once with the SHIP program?
Answer:
There is nothing in the SHIP rule or statute that specifically addresses this issue. It is a local policy decision. Many local communities have added a provision to their LHAP noting that an applicant cannot be assisted more than once with the SHIP program. If only one-time assistance is available, however, it is important to consider if the SHIP assistance provided is thorough and fully addresses an applicant’s needs. If an applicant purchases an existing home, for example, are there resources available to make needed repairs, or might the applicant be back soon to apply for assistance from your rehabilitation strategy. Similarly, when providing rehabilitation services, you should review the initial home inspection and consider whether repair priorities—including health hazard concerns, code violations, upgrading of electrical systems, and even energy efficiency—can be addressed with one-time assistance. As you consider limiting applicants to one-time assistance, you may need to increase your per unit subsidy level and other policies in order to ensure that a one-time recipient of services has been comprehensively assisted. This issue and many other policy considerations are discussed in two of the Coalition’s workshops entitled “A Quantitative Analysis of the SHIP Program” and “Enhancing Your Housing Strategies”. Refer to the workshop section of the Coalition’s website, www.flhousing.org, to learn when these trainings will be offered next.
Question:
Can SHIP funds be used for demolition and site clearance?
Answer:
Yes, as long as an eligible unit which serves an eligible household is moved to or constructed on the site. At the end of every project, we must be able to document specific housing assistance offered to a specific household. Therefore, demolition may only be part of a larger project to then construct housing on the cleared land after demolition.
Question:
The local lender has notified one of our SHIP awardees that there is a shortage in his escrow account. The notice was given after closing and the lender now wants to increase the monthly payment to cover the shortage. Can SHIP funds be used to pay for a shortage in the escrow account for a homebuyer?
Answer:
SHIP funds can be used to pay for any and all costs associated with closing, unless otherwise specified in the local HAP. Since the closing has already occurred, it would be difficult to award these funds without another closing. Minimum escrow balances are mandated by Federal laws and/or the mortgage agreements. Since the lender made the error, you should encourage the homeowner to negotiate a more reasonable amount for escrow. Since the increased monthly mortgage payment may result in putting the homeowner in a potential default position on the first mortgage, the lender should be agreeable to alternative arrangements.
Question:
Is the installation of central air conditioning an eligible SHIP expense?
Answer:
Yes. In most parts of Florida air conditioning is a necessity for the health and safety of the occupants living in the units. Previous experience with housing programs that do not allow for the installation of air conditioning has shown that people will find a way to cool their home. This often means the purchase of very old, very inefficient window units. These window air conditioners can greatly increase a family's monthly utility bills, drastically reducing a family's ability to meet their other monthly bills.
Question:
Funds have been encumbered for housing rehabilitation, and some funds have been spent on a first draw from the contractor. The housing activity is not complete. Are the funds expended?
Answer:
No, funds are only encumbered until the rehabilitation activities are completed, the work is inspected, the contractor is paid, and the unit is occupied by an eligible person. Refer to the definition of “expenditure” in the SHIP Rule, 67-37.002 (8), which notes that funds are considered expended "when the project is completed as evidenced by documentation of final payment to the contractor and release of all lien waivers, issuance of the certificate of occupancy by the local building department, and occupancy by an eligible person or eligible household.”
Question:
Please explain: "First Dollar In, First Dollar Out?"
Answer:
The SHIP rule requires that all program funds from a SHIP distribution be spent within 3 years of their initial receipt. Exceptions to this expenditure deadline are very limited. Many communities have Housing Assistance Plans that continue paying for the same strategies from one distribution to another. In these instances, SHIP administrators should consider spending all of the money from a distribution before moving on to subsequent years' distributions.
Question:
There are leftover funds in an escrow account that were not used on a project. The funds were allocated from the 2008/2009 cycle. The bank wants to give the funds back to the SHIP program. Can we take the funds? What should we do with them?
Answer:
The bank should cut the County a check for the leftover funds and the funds need to be re-allocated to a SHIP recipient, to be spent on eligible activities within the expenditure deadline of three years from the date when your community first started receiving its allocation. In this case, for example, the 2008/2009 allocation was first received on July 1, 2008 and must be expended no later than June 30, 2011.
Question:
What are the time limits on expenditure of interest earned on our local trust fund account?
Answer:
Interest earned falls under the same time limits as all other SHIP funds. The interest earned must be spent within 24 months from the end of the applicable State fiscal year in which the interest was earned. The "applicable State fiscal year" is determined by when the interest was earned. For example, the bank interest collected in the local housing trust fund from July 1, 2010 to June 30, 2011 is associated with the 10/11 SHIP distribution. It must be spent by June 30, 2011 which is 24 months from the end of the 10/11 State fiscal year.
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.
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.
Homebuyer & Rehabilitation Strategy questions
HOME BUYER STRATEGY TOPICS
Question:
A lender is requiring a purchase assistance applicant to have a family member co-sign on the first mortgage loan. The co-signer is simply doing this to aid the applicant; he will not live in the home being purchased. Is this a permitted practice? Should I count the co-signer as a household member, count his income, and have him sign the SHIP mortgage?
Answer:
There is nothing in the SHIP statute or rule that prohibits co-signers. It is not uncommon for SHIP-assisted buyers to have co-signers. Co-signers are not household members, so their income will not be counted in household income when determining income eligibility. There is one exception: the co-signer’s income must be counted if he or she is the spouse of the applicant. In all other cases, you should document that the co-signer maintains a separate residence. Another important issue must be considered. Check who owns the home once it is purchased. Naturally, the co-signer’s name and signature will be included on the first mortgage, since the co-signer is assuring the first mortgage provider that he or she will assume mortgage payments if the applicant fails to stay current on the mortgage. However, the co-signer should not be included on the title to the house. Ownership of the house must be fully in the SHIP applicant’s name.
Question:
May we provide our down payment assistance on a construction-perm loan?
Answer:
Yes. If you do provide the assistance at the construction loan closing, which is before the unit is built, you cannot count funds as expended until the unit is finished and occupied.
Question:
I have a question about first-time homebuyer status. We have a divorced applicant who still co-owns a home with her ex-husband, even though she doesn't live in it. The divorce decree gives the home to the ex-husband, but her name is still on the mortgage and loan note. She is applying to the SHIP program for down payment assistance. Can we consider her a first-time homebuyer, and should we give her assistance with purchasing a new home?
Answer:
The SHIP Statute and Rule do not define "first-time homebuyer" and this is not a fundamental requirement of the SHIP program. The local government has the flexibility to establish a first-time buyer policy and a definition must then be created locally. Many communities with such a policy include displaced homemakers and divorced persons in their local definition. If you decide to consider a person in this situation for assistance as a first-time homebuyer, remember that if the balance of the first home is shown as a debt on her credit report, she may be responsible for the balance if something happens which prevents the ex-husband from repaying the loan amount of the first mortgage. This may result in an increase of her debt ratio and place her in a potentially dangerous situation for default on her current mortgage if she does not have enough income to cover both the original mortgage note and the mortgage amount of her current residence. Lenders consider each applicant on a case by case basis, and as a general rule, if the first mortgage lender is willing to provide financing, then SHIP assistance should be considered favorably.
Question:
I met another SHIP administrator who has used the “safe harbor limits” provided by the U.S. Department of Treasury to set a $220,000 maximum sales price or value limit for her community. How can a SHIP jurisdiction justify setting such a high price? It is just not affordable.
Answer:
In recent years, many communities have increased the maximum sales price or value
limit for their SHIP programs. Your question illustrates a common misconception of the maximum
limit, which is not intended to represent an “affordable” home value. Instead, it indicates the house sales price at and below which SHIP eligible homebuyers may find an adequate supply of homes to purchase.
First, some background information is needed. The SHIP Statute requires jurisdictions to set an upper limit on the value of a home that will be considered “eligible housing” for purposes of SHIP
assistance. This requirement is outlined in section 420.9075 (4)(c) of the SHIP Statute: “The sales price or value of new or existing eligible housing may not exceed 90 percent of the average area purchase price in the statistical area in which the eligible housing is located.” The SHIP
Rule further addresses this topic in section 67-37.007 (4)(d) 6: “The local government at its discretion may set the sales price or value below the 90 percent benchmark. The maximum area purchase price used must be that established by the U.S. Department of Treasury or that calculated in accordance with Section 420.9075(4)(c), F.S.”, which states that the “average area
purchase price may be that calculated for any 12-month period beginning not earlier than the fourth calendar year prior to the year in which the award occurs.” A SHIP jurisdiction, therefore, has the flexibility to justify its maximum purchase price or value based on one of three sources: A local study of sales price levels in the past 12 months, Florida Housing’s bond study—which reports recent price levels for Florida’s metropolitan statistical areas, or the U.S. Department of
Treasury’s data, called the “safe harbor limits.” If a SHIP jurisdiction needs a copy of either of the latter two studies, they can request them from the Coalition by calling (850) 878-4219.
A community’s maximum sales price or value should be set at a realistic level to represent the sales price at which there are an adequate number of homes to buy. Affordable housing professionals do not have the power to control the sales price of homes—housing prices are established by the interaction of buyers and sellers in the open market. For the most part, we rely on the private sector to build the single family houses that low-income buyers will purchase with assistance. There must be an adequate supply of homes for these buyers to purchase, and
so the actual price of available homes for sale must be considered when setting the maximum sales price or value. As housing prices rise, communities must increase their maximum sales prices. If they do not raise this price to keep up with the market, SHIP eligible buyers will not
be able to find any homes to purchase. The market is not producing houses at a price
that SHIP eligible buyers can afford. This is why the SHIP subsidy is needed. It is the combination of a buyer’s first mortgage money and this subsidy that makes the equation of home purchase truly affordable. As housing prices continue to outpace the annual increase in household incomes, it will take larger levels of subsidy to keep this equation affordable. Call the Florida Housing Coalition for additional assistance on considering the level at which to set your community’s maximum sales price or value.
Question:
Housing sales prices are on the rise, and our jurisdiction needs to increase its maximum purchase price. When will Florida Housing Finance Corporation release another bond study with average sales prices for my area that I can use to justify an increase to our maximum purchase price?
Answer:
Regardless of when Florida Housing next issues another sales price study, a study is not absolutely required to justify an increase to your jurisdiction’s purchase price. In the past several years, the U.S. Department of Treasury has regularly issued updated versions of its “safe harbor limits”. These are the figures referenced in section 67-37.007 (4)(d) 6 of the SHIP Rule, which states “the maximum area purchase price used must be that established by the United States Department of Treasury.” The SHIP Statute requires jurisdictions to set an upper limit on the value of a home that will be considered “eligible housing” for purposes of SHIP assistance. This requirement is outlined in section 420.9075 (4)(c) of the SHIP Statute:
“The sales price or value of new or existing eligible housing may not exceed 90 percent of the average area purchase price in the statistical area in which the eligible housing is located…. The average area purchase price may be that calculated for any 12-month period beginning not earlier than the fourth calendar year prior to the year in which the award occurs”.
A SHIP jurisdiction, therefore, has the flexibility to justify its maximum purchase price or value based on one of three sources: a local study of sales price levels in the past 12 months, Florida Housing’s bond study—which reports recent price levels for Florida’s metropolitan statistical areas, or the U.S. Department of Treasury’s safe harbor limits. If a county or city opts to pay for a local average home price study, Florida Housing must approve the methodology for this study. To obtain a copy of the most recent safe harbor limits, call the Coalition at 1 (800) 677-4548. Set your community’s maximum sales price or value at a realistic level that represents the sales price at which there are an adequate number of homes to buy. If this sales price is set too low, a SHIP homebuyer may be unable to locate a home in the local housing market. When housing prices rise or fall, communities must adjust their maximum sales prices accordingly.
Caution your commission, staff and applicants against the belief that your maximum sales price or value represents the local price tag for an “affordable house.” On the contrary, this price level is unaffordable—the price simply indicates the current value of modest homes in the local market. Several housing markets in Florida are not producing houses at a price that SHIP eligible buyers can afford—this is why they need SHIP subsidy. It is the combination of a buyer’s first mortgage money and this subsidy that makes the equation of home purchase truly affordable.
Question:
SHIP’s definition of “affordable”is confusing to me. Does it state that housing costs must be less than 30 percent of the homebuyer’s monthly income?
Answer:
The answer to this question is no, and it reveals a lesson about a central concept defined in the
SHIP Statute. The definition of “affordable” is in the definition section of the SHIP Statute. It means that “monthly rents or monthly mortgage payments including taxes and insurance do not
exceed 30 percent of that amount which represents the percentage of the median annual gross income for the households as indicated in subsection (19), subsection (20), or subsection (28).” This definition makes reference to the 19th, 20th and 28th definitions in the SHIP Statute, which respectively address the definitions of a low-income, a moderate-income and a very low-income household. Each definition cites a percentage—80 percent in the case of low-income, for example—that represents the maximum percentage of the area median income that a household can earn and still qualify to be in that income category. Now reconsider the definition of “affordable.” When addressing a low income household, for example, affordable means that housing costs do not exceed 30 percent of that amount which represents 80 percent of area median income. This definition is similar but distinct from another way that housing professionals commonly talk about affordable. We commonly talk about devoting up to 30 percent of a household’s income to housing costs. We might, for example, discuss the mortgage payment of
a low-income family earning 60 percent of the area median income. If we know that 60 percent of the monthly area median income is $1500, we would calculate that monthly housing cost of no more than about $450 is affordable for the family under consideration. Using the SHIP definition of affordable, however, we would conclude that an even higher housing cost is consistent with the definition in the statute. Considering the income of the same family, the SHIP definition would conclude that a housing cost of up to $600 is affordable. Although the household in this example has income equivalent to 60 percent of the area median income, SHIP’s definition of affordable housing for a low-income family means that housing costs do not exceed 30 percent of that amount which represents 80 percent of area median income. In this example, 80 percent of the monthly area median income is $2,000 and 30 percent of this income is $600.
Question:
Follow-up question: I understand what you are saying. In fact, SHIP’s definition of
“affordable” continues on with an additional sentence that notes that “it is not the intent to limit an individual household’s ability to devote more than 30 percent of its income for housing.” How does this second half of the definition relate to what you are saying above about affordability?
Answer:
The final part of the definition notes that “housing for which a household devotes more than 30
percent of its income shall be deemed affordable if the first institutional mortgage lender is satisfied that the household can afford mortgage payments in excess of the 30 percent benchmark.” This brings up the other important lesson in the definition. It indicates that a SHIP administrator may rely on the guidance of a mortgage officer who concludes that a specific buyer can afford monthly payments that are higher than 30 percent. After all, lenders are in the business of assessing risk on the loans they offer. It is conceivable that a lender could approve a mortgage payment representing 32 percent, 34 percent or maybe 36 percent of a buyer’s monthly income; some buyers can demonstrate that they have consistently and successfully made high rent payments for years. They can now do the same with a mortgage. SHIP staff must also assess risk, however. There is risk involved with simply relying on a first mortgage lender to tell you what is a truly affordable payment. When the Florida Legislature modified the SHIP definition of affordable in 1994, there were few examples of lenders engaging in “predatory practices.” It seemed more reasonable to solely rely on a lender’s assessment of risk. In recent years, we
are increasingly faced with lenders who provide unfavorable lending terms and conditions that can set up a buyer to fail. To protect the interests of SHIP-assisted homebuyers, a growing number of SHIP administrators have worked with their most active lenders to establish local “lenders guidelines.” These guidelines define the terms of what would locally be considered an acceptable first mortgage for a SHIP-assisted buyer. The lenders guidelines in most communities set an upper limit for the front-end ratio, the percentage of monthly income devoted to a mortgage payment. Guidelines may also set an upper limit for the mortgage interest rate and for the closing fees associated with the loan. In this way, lenders guidelines provide the protection needed to ensure that SHIP buyers do not over-commit themselves to mortgage payments. The guidelines supplement SHIP’s definition of affordability to avoid the need for SHIP administrators to rely on the assessment of lenders in each individual case. Now consider the SHIP definition of “affordable” as a whole. What implications do these lessons about this definition have for our work? On the positive side, housing administrators may have more flexibility than they may have originally thought to help applicants purchase houses. On the other hand, the definition could possibly set up homebuyers to fail by allowing them to take on unaffordable high mortgage payments. SHIP administrators reduce the risk of foreclosure by working with the buyer and the lender to discuss the reality of what maximum mortgage payment is affordable for each buyer. If desired, a local SHIP jurisdiction can add language to its local housing assistance plan stating the percentage of each specific household’s monthly income that housing costs cannot exceed. In addition, lenders guidelines can provide the formal written guidance that establishes the true definition of affordability for a specific community. The Coalition can provide you with additional direction on how to address this issue in your SHIP program.
Question:
Does the SHIP Rule prohibit providing assistance to a person who is obtaining a first mortgage from an individual rather than through a lending institution?
Answer:
No, the SHIP Rule does not expressly require that the lender be institutional in nature, and allows for this lending arrangement, known as "Purchase Money Mortgages." In a traditional lending situation the lender or first mortgage holder has the responsibility of ensuring that the applicant has the ability to pay the monthly payments on the mortgage, as well as numerous other responsibilities, including arranging for insurance, termite inspections, surveys and doc stamps, and ensuring clear title. As you know, assuring that a low-income homebuyer can afford a monthly payment is critical to a successful affordable housing program. Without a mortgage lender in the process, however, the local jurisdiction's SHIP administrator will need to take on the above responsibilities in order to protect the low income borrower, as well as evaluate the borrower's income, assets, and ability to pay prior to approving the loan for the second mortgage for the down payment assistance. These could prove to be burdensome tasks for a busy SHIP administrator who must, in addition to the above, verify and certify that the applicant is income-eligible to receive assistance. As stated in the SHIP act, the Legislature intends for the SHIP program to provide the maximum flexibility to local governments to determine the use of funds for housing programs, while ensuring accountability for the efficient use of public resources and guaranteeing that benefits are provided to those in need. In the spirit of the law, the Florida Housing Finance Agency Staff suggest that good, common-sense business practices be employed when awarding funds and managing your program. Should a local jurisdiction decide that "Purchase Money Mortgages" are a viable alternative to the more traditional approach, a system needs to be developed and maintained to enable the jurisdiction to take on the additional responsibilities outlined above.
Question:
May a person who currently owns a mobile home but is requesting assistance to replace the mobile home be counted as a first-time homebuyer?
Answer:
The SHIP Rule does not define first-time homebuyer, but leaves that definition up to each local jurisdiction. The Federal Mortgage Revenue Bond program defines a first-time homebuyer as someone who has not owned a home for the last three years. This definition can be used as a guide. Several programs also include displaced homemakers as eligible first time buyers. The HOME program defines a displaced homemaker as an adult that has not worked full time, full year in the labor force for a number of years, but has, during such years, worked primarily without renumeration to care for the home and family, and who is unemployed or underemployed and is experiencing difficulty in obtaining or upgrading employment. Many communities have targeted mobile homes for replacement, and allow assistance to mobile home owners under their definition of first-time homebuyer.
Question:
Do I pay documentary stamps and intangible taxes on my SHIP second mortgage when I assist a home buyer?
Answer:
Documentary stamps must be paid on SHIP second mortgages. However, intangible taxes do not have to be paid on SHIP second mortgages. The statutory basis for this is outlined in Chapters 199 and 201, F.S. Section 199.183 (1), F.S., addresses the intangible tax. It states that "intangible personal property owned by this state or any of its political subdivisions or municipalities shall be exempt from taxation under this chapter." Regarding SHIP transactions, conversations with the Florida Department of Revenue have confirmed that SHIP funds are the property of the state's municipalities and are considered to be "intangible personal property" discussed in this statute. Therefore, SHIP second (or third) mortgages are exempt from intangible taxation. Section 201.08 (1), F.S., addresses the documentary stamp tax. The State requires that all notes or mortgages be subject to this tax and that the Florida Legislature must explicitly state if a certain type of transaction is exempt from the tax. The Legislature has not provided an exemption for SHIP transactions.
Question Regarding CLT Purchase: Every time we assist a homebuyer with purchase assistance, we confirm that the sales price of the purchased unit does not exceed our community’s maximum purchase price. Our community is now one of several Florida communities beginning to build housing using the Community Land Trust (CLT) model. When checking the maximum purchase price, it does not seem fair to include the value of land for a CLT house, since the buyer does not purchase the land. That is one of the fundamental methods that CLTs use to keep home prices affordable. Do I count land value when confirming that the sales price of a CLT house does not exceed our community’s maximum purchase price?
Answer:
No, you do not count the value of land in the purchase price of a community land trust unit. The answer to this question may be found in the SHIP Rule. Section 67-37.005 addresses the details of the Local Housing Assistance Plan. Subsection (5) outlines the information to be provided for each use of SHIP funds, including the maximum purchase price or value of a unit that may be considered eligible housing. This value “can be lower but may not exceed 90 percent of median area purchase price established by the U.S. Treasury Department, or as required by Section 420.9075(5)(c), F.S.” This area of the SHIP Rule was expanded in 2006 to address the topic of community land trusts. Subsection (5)(d) now states, “for community land trust purposes the value of the land is not included in the purchase price.”
REHABILITATION TOPICS
Question:
A rehabilitation applicant has a masonry house that was originally a mobile home. The unit's roof and walls have been built around the mobile home, and more rooms have been added outside the mobile home perimeter. Is this considered eligible housing for the SHIP program?
Answer:
According to the Codes and Standards office at the Florida Department of Community Affairs, the house in question does not meet Chapter 553 standards since it does not comply with plumbing, electrical, venting and structural code requirements. As of 2009, a newer mobile home is considered eligible housing for SHIP assistance. Addressing the needs of the home in question is an eligible SHIP activity, so long as the unit was manufactured in 1994 or after. This house will undoubtedly require significant rehabilitation. Consider if the expense involved might justify providing a replacement house as an alternative. For more information to determine if a house meets Chapter 553 standards, contact the DCA Codes and Standards office at (850) 487-1824.
Question:
An applicant has requested rehabilitation assistance for a duplex. The applicant’s daughter lives in the other half of the duplex and she pays rent. There is one legal description for the duplex and only one insurance policy. The daughter’s name does not appear on the deed. Can I provide assistance to this unit?
Answer:
Yes, you can provide rehabilitation assistance, but several conditions must be met. First, the daughter’s half of the duplex is considered a rental unit—even though she does not pay rent—since the applicant does not reside in that portion of the duplex. In order to provide rehabilitation assistance, your Local Housing Assistance Plan (LHAP) must include a rental rehabilitation strategy. Any repairs to the rental portion of the duplex must be attributed to the rental rehabilitation strategy. Moreover, the rental unit is subject to all the requirements for using SHIP funds with rental housing, as outlined in Section 420.9074, subsections 3(e) and 4(f). Specifically, the rental unit must be “reserved for (a SHIP income) eligible persons for 15 years or the term of the assistance, whichever period is longer.” Also, if the rehabilitation loan is more than $3000, the rental unit must be annually monitored to determine tenant income eligibility and to ensure that the rent is at an affordable level. Other requirements must also be met. The value of the home cannot exceed the value limit listed in your LHAP. Also, the rent that the daughter pays must be included in the applicant’s household income when determining income eligibility.
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, secure the property prior to starting rehabilitation. This is the same practice that a 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, 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. Note that this is a different policy than those of federal programs like CDBG or HOME, which require the security instrument to accurately document specific final cost of repairs.
Question:
A rehabilitation applicant has asked if the SHIP program can purchase a washer and dryer for her home. Is this an eligible expense, and have other SHIP jurisdictions used their funds in this manner?
Answer:
Ultimately, SHIP funds must be used to provide eligible housing for eligible persons. Section 67-37.002(12) of the SHIP Rule states that “rehabilitation means repairs or improvements which are needed for safe or sanitary habitation, correction of substantial code violations, or the creation of additional living space. Local plans may more specifically define local rehabilitation standards.” This definition justifies the purchase of refrigerators and stoves, which are often considered necessary for safe and sanitary habitation. Washers and dryers, however, do not pass this same standard of justification. The Coalition is not aware of any SHIP jurisdiction that purchases washers and dryers with SHIP funds as part of its rehabilitation strategy, although some use their funds to purchase refrigerators and stoves.
Question:
Does the State require that all SHIP-assisted units carry hazard insurance? Should we require it? What if the homeowner can't afford it?
Answer:
No. The State does not require that all units assisted with SHIP funds be covered under an insurance policy and it is not uncommon for very low and low income persons not to have insurance on their home. It is probably a good idea to require that the homeowner who receives substantial rehabilitation assistance to carry hazard insurance, at a minimum. This will cover the cost of potential loss due to fire or other disasters, and will help protect the jurisdiction's investment in the unit. But this approach is not without its administrative burdens. Consider potential difficulties enforcing a provision requiring that insurance be maintained on repaired homes. A mortgage would have to be filed with a standard hazard insurance clause, insuring that the mortgagor (the SHIP program) will be notified if insurance ever lapses. Also, the SHIP program would need to have a remedy available if the owner fails to maintain the insurance. SHIP funds may be used to purchase hazard insurance, although you must arrange to pay for the coverage upfront in a lump sum; some jurisdictions have successfully purchased up to three years of insurance upfront. This allowed them to file a SHIP lien, complete assistance to the repaired unit, and close the file.
The decision to make insurance a requirement of rehab eligibility should be weighed against the amount of SHIP subsidy, the additional administrative burden in maintaining that the policy does not lapse. Consider the homeowner's need to maintain the unit as affordable, and also the cost of insurance if SHIP funds are used to purchase it as a last resort.
Question:
Is construction management which is outsourced considered a project soft cost?
Answer:
Yes, construction management activities, including work write-ups, inspections, and contractor oversight are all related to project delivery, and are considered to be soft costs. Soft costs can be paid with program funds rather than tapping into the very limited SHIP administrative funds. There is one notable exception of this policy: if a feasibility test results in a "no-go" decision, then the construction management costs for that unit cannot be paid from program funds, because there is no work performed on the unit. It must instead be charged to administrative funds.
Here is a soft cost example: an owner-occupied rehabilitation job is estimated to cost $20,000 in materials and labor. Your construction management company charges you $500 to manage the project, perform the work write-ups and inspections, and provide contractor oversight. The total amount of the job is now $20,500.
If you have a maximum per unit cap of $20,000, then you must reduce the amount of work to be done by $500, so that the total job cost is $20,000. If for some reason this is not feasible, then the construction management fee of $500 must be paid from the administrative portion of your SHIP funds. As an alternative, you may get the approval of the local governing body on a case by case basis to exceed the maximum per unit amount. Documentation of this approval must be retained in the individual applicant file.
Question:
What are the requirements for lead based paint abatement on a SHIP assisted unit?
Answer:
SHIP assisted units must meet Chapter 553 F.S. Building Construction Standards, which does not require lead based paint abatement. However, if the unit will also be assisted with SHIP in conjunction with any federal housing dollars, then lead based paint requirements apply. If the local jurisdiction has adopted local building construction standards which require abatement of lead-based paint in its Local Housing Assistance Plan, then staff must conduct lead-based paint abatement procedures on the SHIP units.
Question:
What are the rules regarding rehabilitation of a unit located in a flood zone?
Answer:
If the cost of the rehabilitation is greater than 50 percent of the value of the home, excluding the land, then the home must be elevated so that it is above the 100 year base flood level. This is federal law in conjunction with the National Flood Insurance Program administered by the Federal Emergency Management Agency. In the velocity zone, the cost of the repairs made to the home is required to be tracked on a cumulative basis over five years. If the cost of the rehabilitation over this five year period is greater than 50 percent of the cost of the home, excluding the land, then the home must be elevated. This is state law. SHIP administrators should be aware of these, and any other local codes which govern construction-related practices within their communities. However, the responsibility for implementing these laws and practices ultimately falls to local building department officials.
Question:
Is the installation of central air conditioning an eligible SHIP rehabilitation expense?
Answer:
Yes. In most parts of Florida air conditioning is a necessity for the health and safety of the occupants living in the units. Previous experience with housing programs that do not allow for the installation of air conditioning has shown that people will find a way to cool their home. This often means the purchase of very old, very inefficient window units. These window air conditioners can greatly increase a family's monthly utility bills, drastically reducing a family's ability to meet their other monthly bills.
Question:
When we rehabilitated a house, we were unprepared for the number of change orders that have come up. Now, in order to complete the repair work, the cost will exceed the maximum per unit amount set in the local Housing Assistance Plan. How can we proceed?
Answer:
You may exceed the maximum per unit amount, with approval from the local governing body, on a case-by-case basis. However, if this occurs frequently, you may need to either evaluate the completeness and accuracy of the initial work write-up or update your local housing assistance plan to raise your per unit maximum award. In some communities, it is a common practice to build a contingency amount into each work write-up to address these situations.
Question:
We have an elderly couple who have applied for rehabilitation assistance. Their home is a life estate. Is this considered owner-occupied?
Answer:
Generally yes. It is common for elderly persons to place their property in trust as a means of providing for their children after they are gone. Local governments can decide how they want to define ownership. In some communities, the local government has decided to tightly define ownership and in many cases will not provide assistance to a home if the deed is held in another family member's name, or if there are judgments against the owner, such as those in favor of the local government for payment of back taxes. While this may seem like a prudent and wise use of public funds, these types of policies do little to address the furtherance of overall community improvement through affordable housing activities, not to mention that the households which are denied assistance in these instances may have no choice but to continue to live in substandard units.
Question:
A lender is requiring a purchase assistance applicant to have a family member co-sign on the first mortgage loan. The co-signer is simply doing this to aid the applicant; he will not live in the home being purchased. Is this a permitted practice? Should I count the co-signer as a household member, count his income, and have him sign the SHIP mortgage?
Answer:
There is nothing in the SHIP statute or rule that prohibits co-signers. It is not uncommon for SHIP-assisted buyers to have co-signers. Co-signers are not household members, so their income will not be counted in household income when determining income eligibility. There is one exception: the co-signer’s income must be counted if he or she is the spouse of the applicant. In all other cases, you should document that the co-signer maintains a separate residence. Another important issue must be considered. Check who owns the home once it is purchased. Naturally, the co-signer’s name and signature will be included on the first mortgage, since the co-signer is assuring the first mortgage provider that he or she will assume mortgage payments if the applicant fails to stay current on the mortgage. However, the co-signer should not be included on the title to the house. Ownership of the house must be fully in the SHIP applicant’s name.
Question:
May we provide our down payment assistance on a construction-perm loan?
Answer:
Yes. If you do provide the assistance at the construction loan closing, which is before the unit is built, you cannot count funds as expended until the unit is finished and occupied.
Question:
I have a question about first-time homebuyer status. We have a divorced applicant who still co-owns a home with her ex-husband, even though she doesn't live in it. The divorce decree gives the home to the ex-husband, but her name is still on the mortgage and loan note. She is applying to the SHIP program for down payment assistance. Can we consider her a first-time homebuyer, and should we give her assistance with purchasing a new home?
Answer:
The SHIP Statute and Rule do not define "first-time homebuyer" and this is not a fundamental requirement of the SHIP program. The local government has the flexibility to establish a first-time buyer policy and a definition must then be created locally. Many communities with such a policy include displaced homemakers and divorced persons in their local definition. If you decide to consider a person in this situation for assistance as a first-time homebuyer, remember that if the balance of the first home is shown as a debt on her credit report, she may be responsible for the balance if something happens which prevents the ex-husband from repaying the loan amount of the first mortgage. This may result in an increase of her debt ratio and place her in a potentially dangerous situation for default on her current mortgage if she does not have enough income to cover both the original mortgage note and the mortgage amount of her current residence. Lenders consider each applicant on a case by case basis, and as a general rule, if the first mortgage lender is willing to provide financing, then SHIP assistance should be considered favorably.
Question:
I met another SHIP administrator who has used the “safe harbor limits” provided by the U.S. Department of Treasury to set a $220,000 maximum sales price or value limit for her community. How can a SHIP jurisdiction justify setting such a high price? It is just not affordable.
Answer:
In recent years, many communities have increased the maximum sales price or value
limit for their SHIP programs. Your question illustrates a common misconception of the maximum
limit, which is not intended to represent an “affordable” home value. Instead, it indicates the house sales price at and below which SHIP eligible homebuyers may find an adequate supply of homes to purchase.
First, some background information is needed. The SHIP Statute requires jurisdictions to set an upper limit on the value of a home that will be considered “eligible housing” for purposes of SHIP
assistance. This requirement is outlined in section 420.9075 (4)(c) of the SHIP Statute: “The sales price or value of new or existing eligible housing may not exceed 90 percent of the average area purchase price in the statistical area in which the eligible housing is located.” The SHIP
Rule further addresses this topic in section 67-37.007 (4)(d) 6: “The local government at its discretion may set the sales price or value below the 90 percent benchmark. The maximum area purchase price used must be that established by the U.S. Department of Treasury or that calculated in accordance with Section 420.9075(4)(c), F.S.”, which states that the “average area
purchase price may be that calculated for any 12-month period beginning not earlier than the fourth calendar year prior to the year in which the award occurs.” A SHIP jurisdiction, therefore, has the flexibility to justify its maximum purchase price or value based on one of three sources: A local study of sales price levels in the past 12 months, Florida Housing’s bond study—which reports recent price levels for Florida’s metropolitan statistical areas, or the U.S. Department of
Treasury’s data, called the “safe harbor limits.” If a SHIP jurisdiction needs a copy of either of the latter two studies, they can request them from the Coalition by calling (850) 878-4219.
A community’s maximum sales price or value should be set at a realistic level to represent the sales price at which there are an adequate number of homes to buy. Affordable housing professionals do not have the power to control the sales price of homes—housing prices are established by the interaction of buyers and sellers in the open market. For the most part, we rely on the private sector to build the single family houses that low-income buyers will purchase with assistance. There must be an adequate supply of homes for these buyers to purchase, and
so the actual price of available homes for sale must be considered when setting the maximum sales price or value. As housing prices rise, communities must increase their maximum sales prices. If they do not raise this price to keep up with the market, SHIP eligible buyers will not
be able to find any homes to purchase. The market is not producing houses at a price
that SHIP eligible buyers can afford. This is why the SHIP subsidy is needed. It is the combination of a buyer’s first mortgage money and this subsidy that makes the equation of home purchase truly affordable. As housing prices continue to outpace the annual increase in household incomes, it will take larger levels of subsidy to keep this equation affordable. Call the Florida Housing Coalition for additional assistance on considering the level at which to set your community’s maximum sales price or value.
Question:
Housing sales prices are on the rise, and our jurisdiction needs to increase its maximum purchase price. When will Florida Housing Finance Corporation release another bond study with average sales prices for my area that I can use to justify an increase to our maximum purchase price?
Answer:
Regardless of when Florida Housing next issues another sales price study, a study is not absolutely required to justify an increase to your jurisdiction’s purchase price. In the past several years, the U.S. Department of Treasury has regularly issued updated versions of its “safe harbor limits”. These are the figures referenced in section 67-37.007 (4)(d) 6 of the SHIP Rule, which states “the maximum area purchase price used must be that established by the United States Department of Treasury.” The SHIP Statute requires jurisdictions to set an upper limit on the value of a home that will be considered “eligible housing” for purposes of SHIP assistance. This requirement is outlined in section 420.9075 (4)(c) of the SHIP Statute:
“The sales price or value of new or existing eligible housing may not exceed 90 percent of the average area purchase price in the statistical area in which the eligible housing is located…. The average area purchase price may be that calculated for any 12-month period beginning not earlier than the fourth calendar year prior to the year in which the award occurs”.
A SHIP jurisdiction, therefore, has the flexibility to justify its maximum purchase price or value based on one of three sources: a local study of sales price levels in the past 12 months, Florida Housing’s bond study—which reports recent price levels for Florida’s metropolitan statistical areas, or the U.S. Department of Treasury’s safe harbor limits. If a county or city opts to pay for a local average home price study, Florida Housing must approve the methodology for this study. To obtain a copy of the most recent safe harbor limits, call the Coalition at 1 (800) 677-4548. Set your community’s maximum sales price or value at a realistic level that represents the sales price at which there are an adequate number of homes to buy. If this sales price is set too low, a SHIP homebuyer may be unable to locate a home in the local housing market. When housing prices rise or fall, communities must adjust their maximum sales prices accordingly.
Caution your commission, staff and applicants against the belief that your maximum sales price or value represents the local price tag for an “affordable house.” On the contrary, this price level is unaffordable—the price simply indicates the current value of modest homes in the local market. Several housing markets in Florida are not producing houses at a price that SHIP eligible buyers can afford—this is why they need SHIP subsidy. It is the combination of a buyer’s first mortgage money and this subsidy that makes the equation of home purchase truly affordable.
Question:
SHIP’s definition of “affordable”is confusing to me. Does it state that housing costs must be less than 30 percent of the homebuyer’s monthly income?
Answer:
The answer to this question is no, and it reveals a lesson about a central concept defined in the
SHIP Statute. The definition of “affordable” is in the definition section of the SHIP Statute. It means that “monthly rents or monthly mortgage payments including taxes and insurance do not
exceed 30 percent of that amount which represents the percentage of the median annual gross income for the households as indicated in subsection (19), subsection (20), or subsection (28).” This definition makes reference to the 19th, 20th and 28th definitions in the SHIP Statute, which respectively address the definitions of a low-income, a moderate-income and a very low-income household. Each definition cites a percentage—80 percent in the case of low-income, for example—that represents the maximum percentage of the area median income that a household can earn and still qualify to be in that income category. Now reconsider the definition of “affordable.” When addressing a low income household, for example, affordable means that housing costs do not exceed 30 percent of that amount which represents 80 percent of area median income. This definition is similar but distinct from another way that housing professionals commonly talk about affordable. We commonly talk about devoting up to 30 percent of a household’s income to housing costs. We might, for example, discuss the mortgage payment of
a low-income family earning 60 percent of the area median income. If we know that 60 percent of the monthly area median income is $1500, we would calculate that monthly housing cost of no more than about $450 is affordable for the family under consideration. Using the SHIP definition of affordable, however, we would conclude that an even higher housing cost is consistent with the definition in the statute. Considering the income of the same family, the SHIP definition would conclude that a housing cost of up to $600 is affordable. Although the household in this example has income equivalent to 60 percent of the area median income, SHIP’s definition of affordable housing for a low-income family means that housing costs do not exceed 30 percent of that amount which represents 80 percent of area median income. In this example, 80 percent of the monthly area median income is $2,000 and 30 percent of this income is $600.
Question:
Follow-up question: I understand what you are saying. In fact, SHIP’s definition of
“affordable” continues on with an additional sentence that notes that “it is not the intent to limit an individual household’s ability to devote more than 30 percent of its income for housing.” How does this second half of the definition relate to what you are saying above about affordability?
Answer:
The final part of the definition notes that “housing for which a household devotes more than 30
percent of its income shall be deemed affordable if the first institutional mortgage lender is satisfied that the household can afford mortgage payments in excess of the 30 percent benchmark.” This brings up the other important lesson in the definition. It indicates that a SHIP administrator may rely on the guidance of a mortgage officer who concludes that a specific buyer can afford monthly payments that are higher than 30 percent. After all, lenders are in the business of assessing risk on the loans they offer. It is conceivable that a lender could approve a mortgage payment representing 32 percent, 34 percent or maybe 36 percent of a buyer’s monthly income; some buyers can demonstrate that they have consistently and successfully made high rent payments for years. They can now do the same with a mortgage. SHIP staff must also assess risk, however. There is risk involved with simply relying on a first mortgage lender to tell you what is a truly affordable payment. When the Florida Legislature modified the SHIP definition of affordable in 1994, there were few examples of lenders engaging in “predatory practices.” It seemed more reasonable to solely rely on a lender’s assessment of risk. In recent years, we
are increasingly faced with lenders who provide unfavorable lending terms and conditions that can set up a buyer to fail. To protect the interests of SHIP-assisted homebuyers, a growing number of SHIP administrators have worked with their most active lenders to establish local “lenders guidelines.” These guidelines define the terms of what would locally be considered an acceptable first mortgage for a SHIP-assisted buyer. The lenders guidelines in most communities set an upper limit for the front-end ratio, the percentage of monthly income devoted to a mortgage payment. Guidelines may also set an upper limit for the mortgage interest rate and for the closing fees associated with the loan. In this way, lenders guidelines provide the protection needed to ensure that SHIP buyers do not over-commit themselves to mortgage payments. The guidelines supplement SHIP’s definition of affordability to avoid the need for SHIP administrators to rely on the assessment of lenders in each individual case. Now consider the SHIP definition of “affordable” as a whole. What implications do these lessons about this definition have for our work? On the positive side, housing administrators may have more flexibility than they may have originally thought to help applicants purchase houses. On the other hand, the definition could possibly set up homebuyers to fail by allowing them to take on unaffordable high mortgage payments. SHIP administrators reduce the risk of foreclosure by working with the buyer and the lender to discuss the reality of what maximum mortgage payment is affordable for each buyer. If desired, a local SHIP jurisdiction can add language to its local housing assistance plan stating the percentage of each specific household’s monthly income that housing costs cannot exceed. In addition, lenders guidelines can provide the formal written guidance that establishes the true definition of affordability for a specific community. The Coalition can provide you with additional direction on how to address this issue in your SHIP program.
Question:
Does the SHIP Rule prohibit providing assistance to a person who is obtaining a first mortgage from an individual rather than through a lending institution?
Answer:
No, the SHIP Rule does not expressly require that the lender be institutional in nature, and allows for this lending arrangement, known as "Purchase Money Mortgages." In a traditional lending situation the lender or first mortgage holder has the responsibility of ensuring that the applicant has the ability to pay the monthly payments on the mortgage, as well as numerous other responsibilities, including arranging for insurance, termite inspections, surveys and doc stamps, and ensuring clear title. As you know, assuring that a low-income homebuyer can afford a monthly payment is critical to a successful affordable housing program. Without a mortgage lender in the process, however, the local jurisdiction's SHIP administrator will need to take on the above responsibilities in order to protect the low income borrower, as well as evaluate the borrower's income, assets, and ability to pay prior to approving the loan for the second mortgage for the down payment assistance. These could prove to be burdensome tasks for a busy SHIP administrator who must, in addition to the above, verify and certify that the applicant is income-eligible to receive assistance. As stated in the SHIP act, the Legislature intends for the SHIP program to provide the maximum flexibility to local governments to determine the use of funds for housing programs, while ensuring accountability for the efficient use of public resources and guaranteeing that benefits are provided to those in need. In the spirit of the law, the Florida Housing Finance Agency Staff suggest that good, common-sense business practices be employed when awarding funds and managing your program. Should a local jurisdiction decide that "Purchase Money Mortgages" are a viable alternative to the more traditional approach, a system needs to be developed and maintained to enable the jurisdiction to take on the additional responsibilities outlined above.
Question:
May a person who currently owns a mobile home but is requesting assistance to replace the mobile home be counted as a first-time homebuyer?
Answer:
The SHIP Rule does not define first-time homebuyer, but leaves that definition up to each local jurisdiction. The Federal Mortgage Revenue Bond program defines a first-time homebuyer as someone who has not owned a home for the last three years. This definition can be used as a guide. Several programs also include displaced homemakers as eligible first time buyers. The HOME program defines a displaced homemaker as an adult that has not worked full time, full year in the labor force for a number of years, but has, during such years, worked primarily without renumeration to care for the home and family, and who is unemployed or underemployed and is experiencing difficulty in obtaining or upgrading employment. Many communities have targeted mobile homes for replacement, and allow assistance to mobile home owners under their definition of first-time homebuyer.
Question:
Do I pay documentary stamps and intangible taxes on my SHIP second mortgage when I assist a home buyer?
Answer:
Documentary stamps must be paid on SHIP second mortgages. However, intangible taxes do not have to be paid on SHIP second mortgages. The statutory basis for this is outlined in Chapters 199 and 201, F.S. Section 199.183 (1), F.S., addresses the intangible tax. It states that "intangible personal property owned by this state or any of its political subdivisions or municipalities shall be exempt from taxation under this chapter." Regarding SHIP transactions, conversations with the Florida Department of Revenue have confirmed that SHIP funds are the property of the state's municipalities and are considered to be "intangible personal property" discussed in this statute. Therefore, SHIP second (or third) mortgages are exempt from intangible taxation. Section 201.08 (1), F.S., addresses the documentary stamp tax. The State requires that all notes or mortgages be subject to this tax and that the Florida Legislature must explicitly state if a certain type of transaction is exempt from the tax. The Legislature has not provided an exemption for SHIP transactions.
Question Regarding CLT Purchase: Every time we assist a homebuyer with purchase assistance, we confirm that the sales price of the purchased unit does not exceed our community’s maximum purchase price. Our community is now one of several Florida communities beginning to build housing using the Community Land Trust (CLT) model. When checking the maximum purchase price, it does not seem fair to include the value of land for a CLT house, since the buyer does not purchase the land. That is one of the fundamental methods that CLTs use to keep home prices affordable. Do I count land value when confirming that the sales price of a CLT house does not exceed our community’s maximum purchase price?
Answer:
No, you do not count the value of land in the purchase price of a community land trust unit. The answer to this question may be found in the SHIP Rule. Section 67-37.005 addresses the details of the Local Housing Assistance Plan. Subsection (5) outlines the information to be provided for each use of SHIP funds, including the maximum purchase price or value of a unit that may be considered eligible housing. This value “can be lower but may not exceed 90 percent of median area purchase price established by the U.S. Treasury Department, or as required by Section 420.9075(5)(c), F.S.” This area of the SHIP Rule was expanded in 2006 to address the topic of community land trusts. Subsection (5)(d) now states, “for community land trust purposes the value of the land is not included in the purchase price.”
REHABILITATION TOPICS
Question:
A rehabilitation applicant has a masonry house that was originally a mobile home. The unit's roof and walls have been built around the mobile home, and more rooms have been added outside the mobile home perimeter. Is this considered eligible housing for the SHIP program?
Answer:
According to the Codes and Standards office at the Florida Department of Community Affairs, the house in question does not meet Chapter 553 standards since it does not comply with plumbing, electrical, venting and structural code requirements. As of 2009, a newer mobile home is considered eligible housing for SHIP assistance. Addressing the needs of the home in question is an eligible SHIP activity, so long as the unit was manufactured in 1994 or after. This house will undoubtedly require significant rehabilitation. Consider if the expense involved might justify providing a replacement house as an alternative. For more information to determine if a house meets Chapter 553 standards, contact the DCA Codes and Standards office at (850) 487-1824.
Question:
An applicant has requested rehabilitation assistance for a duplex. The applicant’s daughter lives in the other half of the duplex and she pays rent. There is one legal description for the duplex and only one insurance policy. The daughter’s name does not appear on the deed. Can I provide assistance to this unit?
Answer:
Yes, you can provide rehabilitation assistance, but several conditions must be met. First, the daughter’s half of the duplex is considered a rental unit—even though she does not pay rent—since the applicant does not reside in that portion of the duplex. In order to provide rehabilitation assistance, your Local Housing Assistance Plan (LHAP) must include a rental rehabilitation strategy. Any repairs to the rental portion of the duplex must be attributed to the rental rehabilitation strategy. Moreover, the rental unit is subject to all the requirements for using SHIP funds with rental housing, as outlined in Section 420.9074, subsections 3(e) and 4(f). Specifically, the rental unit must be “reserved for (a SHIP income) eligible persons for 15 years or the term of the assistance, whichever period is longer.” Also, if the rehabilitation loan is more than $3000, the rental unit must be annually monitored to determine tenant income eligibility and to ensure that the rent is at an affordable level. Other requirements must also be met. The value of the home cannot exceed the value limit listed in your LHAP. Also, the rent that the daughter pays must be included in the applicant’s household income when determining income eligibility.
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, secure the property prior to starting rehabilitation. This is the same practice that a 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, 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. Note that this is a different policy than those of federal programs like CDBG or HOME, which require the security instrument to accurately document specific final cost of repairs.
Question:
A rehabilitation applicant has asked if the SHIP program can purchase a washer and dryer for her home. Is this an eligible expense, and have other SHIP jurisdictions used their funds in this manner?
Answer:
Ultimately, SHIP funds must be used to provide eligible housing for eligible persons. Section 67-37.002(12) of the SHIP Rule states that “rehabilitation means repairs or improvements which are needed for safe or sanitary habitation, correction of substantial code violations, or the creation of additional living space. Local plans may more specifically define local rehabilitation standards.” This definition justifies the purchase of refrigerators and stoves, which are often considered necessary for safe and sanitary habitation. Washers and dryers, however, do not pass this same standard of justification. The Coalition is not aware of any SHIP jurisdiction that purchases washers and dryers with SHIP funds as part of its rehabilitation strategy, although some use their funds to purchase refrigerators and stoves.
Question:
Does the State require that all SHIP-assisted units carry hazard insurance? Should we require it? What if the homeowner can't afford it?
Answer:
No. The State does not require that all units assisted with SHIP funds be covered under an insurance policy and it is not uncommon for very low and low income persons not to have insurance on their home. It is probably a good idea to require that the homeowner who receives substantial rehabilitation assistance to carry hazard insurance, at a minimum. This will cover the cost of potential loss due to fire or other disasters, and will help protect the jurisdiction's investment in the unit. But this approach is not without its administrative burdens. Consider potential difficulties enforcing a provision requiring that insurance be maintained on repaired homes. A mortgage would have to be filed with a standard hazard insurance clause, insuring that the mortgagor (the SHIP program) will be notified if insurance ever lapses. Also, the SHIP program would need to have a remedy available if the owner fails to maintain the insurance. SHIP funds may be used to purchase hazard insurance, although you must arrange to pay for the coverage upfront in a lump sum; some jurisdictions have successfully purchased up to three years of insurance upfront. This allowed them to file a SHIP lien, complete assistance to the repaired unit, and close the file.
The decision to make insurance a requirement of rehab eligibility should be weighed against the amount of SHIP subsidy, the additional administrative burden in maintaining that the policy does not lapse. Consider the homeowner's need to maintain the unit as affordable, and also the cost of insurance if SHIP funds are used to purchase it as a last resort.
Question:
Is construction management which is outsourced considered a project soft cost?
Answer:
Yes, construction management activities, including work write-ups, inspections, and contractor oversight are all related to project delivery, and are considered to be soft costs. Soft costs can be paid with program funds rather than tapping into the very limited SHIP administrative funds. There is one notable exception of this policy: if a feasibility test results in a "no-go" decision, then the construction management costs for that unit cannot be paid from program funds, because there is no work performed on the unit. It must instead be charged to administrative funds.
Here is a soft cost example: an owner-occupied rehabilitation job is estimated to cost $20,000 in materials and labor. Your construction management company charges you $500 to manage the project, perform the work write-ups and inspections, and provide contractor oversight. The total amount of the job is now $20,500.
If you have a maximum per unit cap of $20,000, then you must reduce the amount of work to be done by $500, so that the total job cost is $20,000. If for some reason this is not feasible, then the construction management fee of $500 must be paid from the administrative portion of your SHIP funds. As an alternative, you may get the approval of the local governing body on a case by case basis to exceed the maximum per unit amount. Documentation of this approval must be retained in the individual applicant file.
Question:
What are the requirements for lead based paint abatement on a SHIP assisted unit?
Answer:
SHIP assisted units must meet Chapter 553 F.S. Building Construction Standards, which does not require lead based paint abatement. However, if the unit will also be assisted with SHIP in conjunction with any federal housing dollars, then lead based paint requirements apply. If the local jurisdiction has adopted local building construction standards which require abatement of lead-based paint in its Local Housing Assistance Plan, then staff must conduct lead-based paint abatement procedures on the SHIP units.
Question:
What are the rules regarding rehabilitation of a unit located in a flood zone?
Answer:
If the cost of the rehabilitation is greater than 50 percent of the value of the home, excluding the land, then the home must be elevated so that it is above the 100 year base flood level. This is federal law in conjunction with the National Flood Insurance Program administered by the Federal Emergency Management Agency. In the velocity zone, the cost of the repairs made to the home is required to be tracked on a cumulative basis over five years. If the cost of the rehabilitation over this five year period is greater than 50 percent of the cost of the home, excluding the land, then the home must be elevated. This is state law. SHIP administrators should be aware of these, and any other local codes which govern construction-related practices within their communities. However, the responsibility for implementing these laws and practices ultimately falls to local building department officials.
Question:
Is the installation of central air conditioning an eligible SHIP rehabilitation expense?
Answer:
Yes. In most parts of Florida air conditioning is a necessity for the health and safety of the occupants living in the units. Previous experience with housing programs that do not allow for the installation of air conditioning has shown that people will find a way to cool their home. This often means the purchase of very old, very inefficient window units. These window air conditioners can greatly increase a family's monthly utility bills, drastically reducing a family's ability to meet their other monthly bills.
Question:
When we rehabilitated a house, we were unprepared for the number of change orders that have come up. Now, in order to complete the repair work, the cost will exceed the maximum per unit amount set in the local Housing Assistance Plan. How can we proceed?
Answer:
You may exceed the maximum per unit amount, with approval from the local governing body, on a case-by-case basis. However, if this occurs frequently, you may need to either evaluate the completeness and accuracy of the initial work write-up or update your local housing assistance plan to raise your per unit maximum award. In some communities, it is a common practice to build a contingency amount into each work write-up to address these situations.
Question:
We have an elderly couple who have applied for rehabilitation assistance. Their home is a life estate. Is this considered owner-occupied?
Answer:
Generally yes. It is common for elderly persons to place their property in trust as a means of providing for their children after they are gone. Local governments can decide how they want to define ownership. In some communities, the local government has decided to tightly define ownership and in many cases will not provide assistance to a home if the deed is held in another family member's name, or if there are judgments against the owner, such as those in favor of the local government for payment of back taxes. While this may seem like a prudent and wise use of public funds, these types of policies do little to address the furtherance of overall community improvement through affordable housing activities, not to mention that the households which are denied assistance in these instances may have no choice but to continue to live in substandard units.
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