LOPEZ COMMUNITY LAND TRUST FINANCE
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Obtaining mortgage financing was initially a challenge for the Lopez CLT, since many households that applied for mortgages did not qualify individually for financing. In 1991, the then vice president of lending for the local Washington Mutual Bank Seattle branch suggested that the first housing development be structured as a cooperative. “She realized in looking at everyone’s application and both credit and work history and how people made a living in general on Lopez that we would leave a lot of people behind if we used a fee-simple home ownership model for our land trust,” Sandy recalls. “She thought in a rural area like ours, where we wanted to offer housing for a wide range of people in a range of livelihoods, a cooperative model would work the best.”
Under the cooperative structure, the bank makes a construction loan to LCLT. The loan is assigned to the cooperative (the homeowner’s association) after the homes are built and the cooperative pays the debt service thereafter. The land and improvements are pledged as collateral.
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“The Land Trust doesn’t want the house sitting on its land to go to foreclosure so it has a financial interest to make sure the payments are made as well,” says Bob Hurst, executive director of the Oak Hill Fund. “It is a pretty good arrangement for all parties. ”
Since 2003, beginning with the financing for Innisfree development, Islanders Bank, which has 3 branches on the San Juan Islands, has extended a total of about $1.5 million in financing to LCLT for both construction loans and long-term loans to the housing cooperatives. Four of the five neighborhoods now hold long-term notes with Islanders. Islanders Bank, which holds these mortgages on its books as nonconforming portfolio loans, for the long term.
Since 2003, beginning with the financing for Innisfree development, Islanders Bank, which has 3 branches on the San Juan Islands, has extended a total of about $1.5 million in financing to LCLT for both construction loans and long-term loans to the housing cooperatives. Four of the five neighborhoods now hold long-term notes with Islanders. Islanders Bank, which holds these mortgages on its books as nonconforming portfolio loans, for the long term.
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says Mike Taylor, senior loan officer at the bank’s Lopez branch. “So a project like this perfectly fulfills our mission statement to assist, really support, and provide access for, housing alternatives.”
The cooperative model offers a number of other tangible economic benefits to the Land Trust itself. First, Lopez’s land tax system is such that smaller parcels are often assigned a higher value. By holding the land as one piece undivided and owned by a single entity property taxes are lower for the land. The model also makes it easier for the land trust to administer than a fee simple model. “We only have to deal with one entity per cooperative rather than each individual member," Rhea explains. "This makes our administration during a time of resale more streamlined. The coop deals with selling the shares to individual owners. Our job is to ensure that anyone wanting to purchase a share qualifies financially including having good credit history. After that, the coop takes responsibility for choosing final members and manages its own maintenance and reserve funds.” |
In addition to conventional mortgage financing, LCLT has been the beneficiary of numerous grants and below-market loans. “When Washington State Housing Trust Fund saw what it took for us to put together financing for our first neighborhood, Morgantown—a bank loan at 8.5%, over 100 private individuals, church groups and grantors—they came up with a novel idea; that they loan us $499,000 dollars at a 1 percent interest rate for 60 years,” says Sandy. “The second neighborhood, Coho, was by far the simplest development we were ever involved in. Typically we have to spend hundreds of hours raising funds from all manner of sources and we are never sure which ones will come through. By borrowing from the Washington State Housing Trust Fund we were able to focus on the development of the neighborhood and not search for a lot of additional funding. The state receives annual payments from Coho to plow back into housing programs."
In 2001 the State Housing Trust Fund granted LCLT $471,465 for Innisfree, its third housing development, and it is used as a revolving loan fund operated by LCLT. About 35 homeowners currently access it. The Len Kenzer Memorial Fund for Housing also extends loans to homeowners who do not have sufficient equity to pay for coop shares, which can cost upward of $15-20,000. “Those revolving funds have really allowed the coop model to thrive in this environment,” says Sandy.
Building a net zero energy homes was a challenge for LCLT’s Common Ground and Tierra Verde developments. The associated technology added roughly twenty percent to the cost of construction. Those costs were partially covered by a gift from an anonymous donor. And while land costs have continued to escalate, the land purchased for the neighborhoods of Common Ground and Tierra Verde in 2006, appraised at $1.2 million, was sold to LCLT for $160,000 by local neighbors who wanted to see the land developed for affordable housing.
In 2001 the State Housing Trust Fund granted LCLT $471,465 for Innisfree, its third housing development, and it is used as a revolving loan fund operated by LCLT. About 35 homeowners currently access it. The Len Kenzer Memorial Fund for Housing also extends loans to homeowners who do not have sufficient equity to pay for coop shares, which can cost upward of $15-20,000. “Those revolving funds have really allowed the coop model to thrive in this environment,” says Sandy.
Building a net zero energy homes was a challenge for LCLT’s Common Ground and Tierra Verde developments. The associated technology added roughly twenty percent to the cost of construction. Those costs were partially covered by a gift from an anonymous donor. And while land costs have continued to escalate, the land purchased for the neighborhoods of Common Ground and Tierra Verde in 2006, appraised at $1.2 million, was sold to LCLT for $160,000 by local neighbors who wanted to see the land developed for affordable housing.
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WHAT ARE COMMUNITY LAND TRUSTS AND HOW DO THEY FUNCTION?
The community land trust model has evolved in the United States over the last 40 years (ICE 1991). Currently there are approximately 160 CLTs operating in every region of the country and in 38 out of the 50 states and the District of Columbia. These CLTs are nonprofit, community-based organizations whose mission is to provide affordable housing in perpetuity by owning land and leasing it to those who live in houses built on that land. Complementing their status as nonprofit corporations, as defined in the U.S. tax code, and their formal rights and responsibilities codified in the ground lease, CLTs are governed by a board of directors with membership from the community. In the classic CLT model, membership is comprised of adults who live in the leased housing (leaseholders); adults who live in the targeted area (community members); and local representatives from government, funding agencies and the nonprofit sector (public interest) (Burlington Associates 2003). The community land trust and the homeowner agree to a long-term ground lease agreement (typically 99 years) that spells out the rights and responsibilities of both parties. Among the homeowner’s rights are the rights to privacy, the exclusive use of the property, and the right to bequeath the property and the lease. The CLT has the right to purchase the house when and if the owner wants to sell. The community land trust’s abiding interest, as the landowner, as the party with the option to purchase the improvement, and as a community-based organization, is to maintain a stake in the relationship long after the original house purchase and lease signing. For example, if buildings become deteriorated, the CLT can force repairs; if the homeowners are at risk for default the CLT can and does act to forestall the default. The ground lease also includes a resale formula intended to balance the interests of present homeowners with the long-term goals of the community land trust. The intent of affordability in perpetuity is in conflict with the desire of most owner-occupants in the U.S. to reap real estate gains. Thus, the resale formula is designed to balance the interest of individual homeowners to benefit from the use of their home as a real estate investment and the interest of the CLT to provide affordable housing for future homeowners. © 2005 Lincoln Institute of Land Policy. From "Community Land Trusts: Leasing Land for Affordable Housing," Authors: Greenstein, Rosalind and Yesim Sungu-Eryilmaz, Land Lines, April 2005, Volume 17, Number 2. Reprinted with permission. |