Title
Approval of Housing Program Short Sale Grant/Loan Forgiveness Policy (B)
Explanation
In accordance with certain housing programs, the City of Gainesville Housing Division is required to file a mortgage lien in the public records of Alachua County on the property of the owner who receive certain types of financial assistance from the Comprehensive Housing Program such as rental rehab, downpayment assistance, housing rehabilitation, etc. When applicable, the property owner is required to execute a promissory note and mortgage to receive the financial assistance. Filing a mortgage lien secures the City's note that is executed by the property owner. Upon receiving the financial assistance, the property owner must meet the terms and conditions of the mortgage and note over a stated compliance period, which generally includes continued ownership and occupancy, maintaining the property, keeping the property taxes current, etc. The City's lien position is typically subordinate to the 1st mortgage lien holder. This practice is the norm for the affordable housing industry because most property owners have a 1st mortgage loan on their property.
When the property owner pays the loan in full and/or completes the stated compliance period, then City Housing Division must release the mortgage lien by executing and filing a Satisfaction of Mortgage in the public records of Alachua County. The City Attorney has approved the Satisfaction of Mortgage document for form and legality. The document is on file with the City Housing Division. However, occasionally, a property owner may experience an economic hardship and is unable to meet the terms and conditions of the mortgage and note. In some instances, it could force the property owner into foreclosure and/or to sell their home through a short sale transaction. A short sale occurs when a mortgage lender(s) agrees to discount the loan balance due to an economic hardship on the part of the borrower. The property owner is then allowed to sell the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender(s) in full satisfaction of the debt . In such instances, the mortgage lender(s) would have the right to approve or disapprove a proposed sale. Extenuating circumstances influence whether or not mortgage lender(s) will discount a loan balance. These circumstances are usually related to the current real estate market climate and the individual borrower's financial situation. A short sale typically is executed to prevent a home foreclosure. Often a mortgage lender will choose to allow a short sale if they believe that it will result in a smaller financial loss than foreclosing. For the home owner, the advantages include avoidance of having a foreclosure on their credit history. Additionally, a short sale is typically faster and less expensive than a foreclosure.
As a result, the City Housing Division is proposing to develop a Short Sale Grant/Loan Forgiveness Policy to handle these types of occurrences in an effort to protect the City's investment in the property. If the property forecloses, then the City may lose its investment by being the junior lien holder. However, in the event of a short sale, a portion of the City's investment would be protected by requiring that all proceeds be paid to the City after payment to the superior lien holder(s) and other bona fide seller closing costs. The property owner would not receive a refund and/or any profit from the short sale. The Short Sale Grant/Loan Forgiveness Policy outlines the process for approving/denying a forgiveness request, which includes the eligibility requirements, program criteria and evaluation criteria that a property owner must meet to be considered for grant/loan forgiveness.
Fiscal Note
None.
Recommendation
The City Commission: 1) approve the Housing Division Short Sale Grant/Loan Forgiveness Policy; 2) authorize the City Manager, or his designee, to develop the necessary forms and guidelines to administer this policy, subject to approval by the City Attorney as to form and legality; and 3) authorize the City Manager or his designee to execute all required program documents necessary to administer this policy, subject to approval by the City Attorney as to form and legality.
Alternative Recommendation A:
The City of Gainesville could choose not to approve the Short Sale Grant/Loan Forgiveness Policy.