How does this program work and what benefits does it offer?
Under this program, potential new homeowners will be able to purchase a single-family home at a discounted price through a developer, thereby making it more affordable. Because the land was sold to the developer at a discount through the Next Generation Housing Program, a deed restriction will be recorded with the Register of Deeds that will contain certain provisions and restrictions about transfer and resale.
What is a Resale Restriction?
Resale restrictions are a right in perpetuity or for a certain number of years, stated in the form of a restriction, easement, covenant, or condition in any deed, mortgage, ground lease, agreement, or other instrument executed by or on behalf of the owner of the land. In this case, a restriction will be placed on the original deed to the property that will follow the deed when the property is sold to subsequent homeowners.
What type of restrictions will be placed on the property being purchased?
As long as the original homeowner owns title to the property for a minimum of five years, there would be no restrictions. However, if the title changes hands in the first five years, the original or new owner of the home would be required to repay Washington County a portion of the profit of the sale or transfer. This amount is known as the Repayment Obligation.
What is the Repayment Obligation?
The Repayment Obligation is a percentage of the difference between the “Purchase Price” of the property and the “Fair Market Value” of the property. The Purchase Price of the property is recorded in the original purchase agreement between the homeowner and developer. The Fair Market Value of the property is determined by the certified real estate appraisal that the homeowner receives at the time of purchase. If the homeowner does not obtain an appraisal at the time of purchase or is unable to supply a copy of the appraisal at the time of sale or transfer, then the homeowner shall be responsible for the cost of having a new residential real estate appraisal completed on the property. The Fair Market Value will be determined by appraisal done at that time.
The percentages used for the Repayment Obligation are as follows:
- Year 1 = 100% of the difference between the Purchase Price and the Fair Market Value
- Year 2 = 80% of the difference between the Purchase Price and the Fair Market Value
- Year 3 = 60% of the difference between the Purchase Price and the Fair Market Value
- Year 4 = 40% of the difference between the Purchase Price and the Fair Market Value
- Year 5 = 20% of the difference between the Purchase Price and the Fair Market Value
For example, if the Homeowner sold the Property to a third-party buyer 14 months after acquiring the Property, the Repayment Obligation would be 80% of the difference between the Purchase Price and the Fair Market Value.
Are there any circumstances under which the Deed Restriction will not apply if a transfer occurs in the first five years?
If the property is transferred in the first five years because of foreclosure, similar remedial action, or upon conveyance of the property in lieu of foreclosure, the Deed Restriction will terminate and will not apply to the purchaser or acquirer of the property. The property shall then be free from all restrictions.
How does Washington County go about recording these restrictions?
The county will prepare and record a Deed Restriction with the developer for each lot purchased and record it with the Register of Deeds. The Deed Restriction will exist during the developer’s ownership of each lot and will remain in effect when the developer conveys the property to the first purchaser to occupy the property. This Restriction will remain in effect for five years after the developer transfers the property to the first purchaser unless the property is transferred due to foreclosure or similar remedial action (such as a deed in lieu of foreclosure.) The Deed Restriction will appear when performing a Title Search and should be explained to the borrower.
Does the Deed Restriction interfere with the Lender's priority in recording a mortgage?
No, the Lender would still be in first position. The Deed Restriction does not place a lien on the property.
If the borrower decides to refinance the loan later down the road, what happens to the Deed Restriction?
If the original borrower retains ownership title to the property, then there is no Repayment Obligation. Borrowers are encouraged to refinance their home with the original lender but are not required to.
Is the lender allowed to sell the permanent financing into the secondary market?
According to the Federal National Mortgage Association (FNMA) and their published guidelines (B5-5.2-01), loans with the Deed Restrictions listed below are available for sale and do not fall under the Shared Equity programs. Fannie Mae will purchase loans that are subject to one or more of the following types of resale restrictions:
- income limits,
- age-related requirements,
- employment-related requirements,
- occupancy requirements,
- first-time homebuyer requirements, and
- restrictions on group homes or homes that are principally used to serve residents with disabilities.
The applicable Deed Restriction for the Next Generation Housing program is an occupancy restriction only. There are no limits on income for the original purchase or subsequent purchasers. There are also no restrictions on the resale price of the property after the first purchase by a homeowner.
Jeff Schmid - Director of Compliance and Management Services, FIPCO
What happens to the Deed Restriction following the five-year period?
Washington County will satisfy their Deed Restriction with the Register of Deeds. There is no cost to the homeowner for this satisfaction.