HUD’s Office of Community Planning and Development (CPD) issued a lengthy policy notice, CPD 12-003, outlining the resale and recapture requirements in the HOME Investment Partnerships (HOME) program for homebuyer projects.
To ensure that homebuyer projects remain affordable and available to low income homeowners, the HOME statute requires participating jurisdictions (PJs) to establish and use either resale or recapture provisions. They are triggered by a title transfer during the affordability period, which depends on the amount of HOME funds invested in the property. There must be a written agreement between the homebuyer and PJ enforcing the resale or recapture obligation through a lien, deed restriction, or covenant running with the land. A PJ’s resale or recapture provisions must be included in its Consolidated Plan Annual Action Plan and approved by HUD.
Recapture provisions must recoup the HOME investment from available net proceeds obtained from the sale of a house. The aim is to assist other HOME-eligible families. Most PJs use recapture because it is easier to administer. The notice describes four basic recapture options. Most PJs share appreciation with the homebuyer, usually reducing the net proceeds recaptured the longer the homeowner occupies the home.
Resale provisions must limit any subsequent purchase of a HOME-assisted property to income-eligible families, provide the owner with a fair return on investment, and ensure that the house will remain affordable to a reasonable range of low income homebuyers. The resale option is typically used in areas with high home sales prices. Most PJs consider a house affordable if no more than 30% of the homebuyer’s income is spent on principal, interest, property taxes, and insurance.
In certain areas, neighborhood characteristics make it possible to presume that the resale requirements will be met. In such areas, PJs can seek a HUD exemption from resale obligations.
Exempt PJs must annually verify that conditions have not changed, and they must conduct a market analysis every three to five years to ensure that it is still reasonable to presume continued affordability.
Notice CPD 12-003 is available at: www.nlihc.org/doc/CPD_Notice_12-003.pdf