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HomeMy WebLinkAboutR-98-0581J-98-567 05/15/98 RESOLUTION NO. 9 8- 581 A RESOLUTION, WITH ATTACHMENTS, APPROVING THE ATTACHED REVISED PROGRAM GUIDELINES FOR THE ADMINISTRATION OF THE CITY'S CDBG-FUNDED MULTI -FAMILY REHABILITATION PROGRAM ("CDBG PROGRAM GUIDELINES"); APPROVING THE ATTACHED COMMUNITY DEVELOPMENT HOUSING ORGANIZATIONS ("CHDOS")/NEW CONSTRUCTION LENDING GUIDELINES AND PROCEDURES FOR THE ADMINISTRATION OF THE HOME INVESTMENT PARTNERSHIP PROGRAM ("HOME") AND THE STATE HOUSING INITIATIVES PARTNERSHIP PROGRAM ("SHIP")("CHDO PROGRAM GUIDELINES"); AUTHORIZING AND DIRECTING THE CITY MANAGER TO ADMINISTER THE CDBG-FUNDED MULTI -FAMILY REHABILITATION PROGRAM, HOME AND SHIP PROGRAMS IN ACCORDANCE WITH THE ABOVE -MENTIONED PROGRAM GUIDELINES, SUBJECT TO THE APPROVAL OF SAID PROGRAM GUIDELINES FOR THE CDBG AND HOME PROGRAMS BY THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT ("HUD"); FURTHER AUTHORIZING AND DIRECTING THE CITY MANAGER TO SUBMIT THE CDBG PROGRAM GUIDELINES AND CHDO PROGRAM GUIDELINES FOR THE HOME PROGRAM TO THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT FOR ITS REVIEW AND APPROVAL OF THE SAME. WHEREAS, since the 1980's, the City of Miami has provided low -interest loans to owners of multi -family apartment buildings (5 units or more) for the rehabilitation of substandard rental housing units in the City's Community Development Block Grant ("CDBG") target areas; and ATTACHMENT (S)I CONTAINED CITY COMMSION MMMG OF JU N 0 9 1998 Resolution No. 98- 581 WHEREAS, pursuant to the City's Multi -Family Loan Programs funded through the CDBG Program, Rental Rehabilitation Grant Program and Home Investment Partnership ("HOME") Program, the City has provided approximately $61,900,000.00 in federal funds for the rehabilitation of approximately 3,620 sub -standard rental units in the City's eight (8) CDBG target areas; and WHEREAS, since 1993, the City of Miami has also provided project financing to both not -for -profit Community Development Corporations ("CDCs") and Community Housing Development Organizations ("CHDOs") through the CDBG Program, HOME Program and the State of Florida funded State Housing Initiatives Partnership ("SHIP") Program; and WHEREAS, the U.S. Department of Housing and Urban Development's District Office of the Inspector General ("OIG") in its Audit Report dated March 26, 1998, identified several findings and concerns relating to deficiencies in the City's underwriting procedures and policies with respect to the City's CDBG-funded Multi -Family Rehabilitation Loan Program; and WHEREAS, in an effort to address the programmatic and loan underwriting deficiencies which have been identified by the OIG, the Department of Community Development is recommending that the City Commission adopt the attached modified program guidelines for the CDBG-funded Multi -Family Rehabilitation Loan Program ("CDBG Program. Guidelines"), which incorporates all of the recommendations identified in the Audit Report; and 2 98-- 58i WHEREAS, in an effort to ensure that certain controls and underwriting procedures are in place in connection with the administration of the City's HOME Program and SHIP Program, the attached CHDO/New Construction Lending Guidelines and Procedures ("CHDO Program. Guidelines") are also being recommended for adoption by the City Commission; and WHEREAS, the CDBG Program Guidelines and the CHDO Program Guidelines delineate the respective roles and responsibilities of the City's Housing Loan Committee, City Commission and the State Financial Emergency Oversight Board regarding the said Program Guidelines; NOW, THEREFORE, BE IT RESOLVED BY THE COMMISSION OF THE CITY OF MIAMI, FLORIDA: Section 1. The recitals and findings contained in the Preamble to this Resolution are hereby adopted by reference thereto and incorporated herein as if fully set forth in this Section. Section 2. The revised program guidelines for the City's CDBG-funded Multi -Family Rehabilitation Loan Program ("CDBG Program Guidelines") which (a) incorporates the recommendations of the U.S. HUD's District Office of the Inspector General as set forth in its Audit Report dated March 26, 1998 and (b) delineates the roles and responsibilities of the City's Housing Loan Committee, City Commission and the State Financial Emergency 3 98- 581 Oversight Board, attached hereto and made a part hereof, are hereby adopted. Section 3. The CHDO/New Construction Lending Guidelines and Procedure; for the administration of the City's HOME Investment Partnership ("HOME") Program and the State Housing Initiatives Partnership ("SHIP") Program ("CHDO Program Guidelines"), which also delineates the roles and responsibilities of the City's Housing Loan Committee, City Commission, and the State Emergency Financial Oversight Board, attached hereto and made a part hereof, are hereby adopted. Section 4. The City Manager is hereby authorized and directed to administer the CDBG-funded Multi -family Rehabilitation Program, HOME Program and SHIP Program in accordance with the aforementioned CDBG Program Guidelines and CHDO Program Guidelines, subject to the approval of the CDBG Program Guidelines and CHDO Program Guidelines (as such guidelines pertain to the HOME funding) by the U.S. Department of Housing and Urban Development ("HUD"). Section _`i. The City Manager is hereby authorized and directed to submit the CHDO Program Guidelines and CHDO Program Guidelines for the administration of the CDBG-funded Multi -Family Rehabilitation Loan Program and HOME Investment Partnership Program, respectively, for review and approval by HUD. Section 6. This Resolution shall become effective immediately upon its adoption. C! 98- 581 PASSED AND ADOPTED this 9th day of June 1 1998• JOE CAROLLO, MAYOR In accordance with Miami Coate Sec. 2-36, since the Mayor did not indica#s approval of this legislation by signing it in the designated place prjvw= G, C' 1; ,;..; ; r!0v1 becomes effective with the elapse of ten (10) days fr^,m the date of act°;cn regarding same, without the Mayor exercisi a ATTEST: ,�y/ Wafter , . Fo an, City Cleric WALTER J. FOEMAN, CITY CLERK DEP&TMENT OF COMMUNITY DEVELOPMENT nrIT .i at.Tn i7\PPROVAL: WENC. WARREN, DIRECl'OK DEPARTD#NT OF COMMUNITY DEVELOPMENT PREPARED AND APPROVED BY: LINDA KELLY KE SON ASSISTANT CITY ATTORNEY 5 98- 581 CITY OF MIAMI CDBG MULTIFAMIL Y REHABILITATION LOAN/GRANT PROGRAM 98 - 581 CITY OF MIAMI DEPARTMENT OF COMMUNITY DEVELOPMENT / HOUSING DIVISION COMMUNITY DEVELOPMENT BLOCK GRANT (CDBG) MULTIFAMILY HOUSING REHABILITATION LOAN / GRANT PROGRAM GUIDELINES PROGRAM PURPOSE AND OBJECTIVES The Multifamily Housing Rehabilitation Loan/Grant Program is designed to provide owners of substandard rental housing with below market rate loans with grants to finance the cost of rehabilitation. The low interest loans coupled with grants further allows the after rehabilitation rents to be maintained at levels affordable to low and moderate income residents. The Program is funded through the Community Development Block Grant provided to the City of Miami by U.S. Department of Housing and Urban Development. The City Department of Community Development / Housing Division is responsible for the administration and implementation of the Program. The Department will implement the Program in the City's Community Development Target Areas to accomplish the following objectives: • To conserve the existing housing stock and increase the inventory of standard rental housing; • To provide standard affordable housing to low and moderate income residents; • To spur reinvestment of private capital in older residential neighborhoods, and; To complement other public neighborhood revitalization efforts. DEFINITIONS Appraisal - An estimate of the fair market value of a property after the rehabilitation work is completed, prepared by a professionally certified appraiser. 98- 581 City Rehabilitation Loan and Grant - Funds provided to the property owner in the form of a loan and grant for the purpose of improving the property. All such funds are secured by a mortgage instrument and the borrower(s) personal guarantee. Assistance shall cover 75% of the total rehabilitation cost. Dwelling Unit - A residential space containing at a minimum, a bathroom, kitchen or kitchenette and a living area/bedroom. Credit Report - For each application processed, the Housing staff will obtain, review and analyze a credit report for the borrowing legal entity (if applicable) as well as the principals (individuals). Equity - The current market value of the property i.e., assessed value OR appraisal value (if available) OR purchase price (if purchased within the past 12 months), less all indebtedness secured by subject property, i.e., mortgages, liens, etc. A minimum equity of 10% is required for all projects, not to include debt equity, i.e. secondary or rehabilitation loan proceeds. Multifamily Dwelling - A residential property containing five (5) or more dwelling units OR five (5) or more Single Room Occupancy units. Owner - The individual or group holding valid legal title to the property. Private Financing - Funds provided by the owner for the rehabilitation project. Monies may be obtained from a private lending institution, owner's capital or other sources. Minimum rehabilitation participation for the property owner is 25% of the total rehabilitation cost. Property Rehabilitation Standards (PRS) - The minimum standards required for rehabilitation are the City of Miami Minimum Housing Code, the South Florida Building Code, and the Department of Community Development's Rehabilitation Specifications. Rehabilitation Cost - The total cost of a rehabilitation project as determined by the City to include the actual construction cost, a 10% contingency and allowable soft costs, e.g., closing costs, architect, engineering and legal fees. Rent Regulatory Agreement - A written and recorded document limiting the borrower's rate of return on investment and establishing rent levels by unit size as established and advertised by CDBG Target Area for a specified period of time. Return on Investment - The percentage of net income returned from the rehabilitation investment in relation to the owner's equity in the property and the owner's cash investment in the rehabilitation project. Single Room Occupancy (SRO) Unit - Any room forming a single habitable unit, used for living and sleeping but not for cooking or eating purposes. 98- 581 Specifications and Cost Estimate - A property inspection report itemizing all rehabilitation work to be done on a property, including an estimate of the cost to repair/correct each item. Target Area - An administratively designated geographic section of the City of Miami in which Community Development activities are implemented and which contains slum and/or blighting conditions and/or the majority of the residents are low income. Loan - to - Value - (LTV) The total amount of the City's CDBG grant and loan cannot exceed 90% of the after rehabilitation appraised value of the property. PROGRAM DESIGN Within Community Development Target Areas, financial assistance will be made available to owners of multifamily structures in order to bring their property up to the Property Rehabilitation Standards. Upon completion of rehabilitation, rent levels shall be subject to a duly recorded Rent Regulatory Agreement for a specified period of time, except in the case where other Federal programs, such as Section 8 requirements, prevail. PROGRAM ELIGIBILITY Eligible Properties - To be eligible under the program, proposals must meet all the following criteria: 1. Multifamily residential dwellings, Single Room Occupancy units, cooperatives or condominiums. 2. Structures in substandard condition (not meeting P.R.S) 3. Structures located within Community Development Target Areas Eligible Applicants - Investor/owner (individual, not -for -profit corporation, private corporation, partnership). Eligible Improvements - Owners are required to make repairs to meet the City of Miami Minimum Housing Code, the South Florida Building Code, and the Department's Rehabilitation Specifications. General property improvements (non -code required) may be undertaken to the extent feasible, up to a maximum of 40% of the total cost of rehabilitation. All applicable Federal, State and local Fair Housing, Labor, Environmental and City- wide Historic Preservation regulations shall be a program requirement. Eligible Costs - The following items are eligible to be included as part of the rehabilitation cost: 98- 581 1. The actual cost of rehabilitation necessary to bring the property in compliance with the South Florida Building Code, the City of Miami Minimum Housing Code and the Department's Rehabilitation Specifications. This is the mandatory minimum work required for any financial assistance. 2. The cost of rehabilitation to correct or remove incipient code violations, including all physical conditions of the property which, if not repaired, would deteriorate into actual violation of the P.R.S. within two years. 3. The cost of general property improvements (G.P.I.). Such improvements shall not be the major focus of the financial assistance, and will have a maximum limit of forty (40%) percent of the cost of rehabilitation. G.P.I.'s may be included only if the minimum improvements required are satisfied and the project's financial feasibility can accommodate such improvements. 4. The cost of rehabilitation to convert a property, i.e., increase or decrease the number of units, is allowed provided such conversion is in accordance with the City of Miami zoning classification for that property. 5. The cost of building permits, related fees, (including architect's, engineering and legal fees), and other soft costs including closing costs, etc. required to carry out the proposed rehabilitation work. 6. A contingency reserve not to exceed 10% of the cost of rehabilitation. FINANCING Combination Loan and Grant - Community Development Block Grant funds will be used to provide direct low interest loans in combination with grants to owners of multifamily rental property in conjunction with the private financing secured and/or provided by the owner for the rehabilitation of multifamily structures. Rehabilitation Cost - The Department of Community Development/Housing Division shall determine the total cost of rehabilitation. Based upon this cost, the City shall finance 75% of this total while the property owner shall be responsible for financing ( via owner's cash investment or bank loan) the remaining 25% of the rehabilitation cost. The City's 75% financing shall consist of the following: CDBG Direct Loan for 50% of the City's financial assistance. This loan shall be at a six (6) percent interest rate for a ten (10) year term. There is no penalty for prepayment of the loan balance. AND 98- 581 CDBG Direct Grant for 50% of the City's financial assistance. This grant shall be for a ten (10) year term to coincide with the loan term and forgiveness of the grant shall occur at the conclusion of the ten (10) year loan term assuming full repayment of the loan has occurred. In the case of early loan repayment or payoff, the grant term shall coincide with that of the loan repayment or payoff. The private owner's 25% financing shall consist of the following: Cash investment - at time of City's loan and grant closing the owner shall provide to the City a cashier's check for the entire amount of the private financing required, namely the 25% of the City's established rehabilitation cost. The City shall then be responsible for disbursing these funds to the general contractor in the form of progress payments. we Private Bank Loan - the City's CDBG loan must be in either first or second position and loans from other than a formal lending institution (i.e., private individual) shall in every case be in an inferior position to the City's financing. In no instance will the City's CDBG loan be allowed to be in more than second position. For private financing provided from a formal lending institution it is preferred that the property owner bring a cashier's check for the full amount (25% of the rehabilitation cost) to the City at the time of the City's loan and grant closing; however, if this is not possible, the City will accept individual construction progress payment checks issued from the lending institution after they have completed their progress inspection. The City shall then be responsible for disbursing both payments, the CDBG and the private financing, to the general contractor as payment for construction work completed. City Rehabilitation Financing - every rehabilitation project will consist of the following components: (1) Direct CDBG Loan = 37.5% of total rehabilitation cost. (2) Direct CDBG Grant = 37.5% of total rehabilitation cost. (3) Private Owner Participation = 25% of total rehabilitation cost. Property Taxes and Insurance - if the city financing will not be in first position, the owner must provide proof to the City at or before its loan/grant closing that the first mortgage holder is escrowing taxes and insurance. If that is not the case, the City will escrow taxes and insurance. Refinancing - the refinancing of existing mortgages shall not be permitted with the City's financial assistance. 98- 581 Private Rehabilitation Funds - the owner's 25% of the total rehabilitation cost must, if cash or private funds, be given to the City in the form of a cashier's check at the City's closing, or if private lending institution funds, the lending institution upon inspection for construction draw, shall provide a check for the owner's percentage of the total draw payment, to the City for disbursement. Disbursement of City CDBG and Private Proceeds - the City, at time of closing, will reserve the CDBG funds as well as escrow the private funds necessary for project completion. 1. Disbursements will be made for the following purposes: a) To make progress and final payments to the contractor; b) To pay expenses incidental to closing, and; c) To close out the CDBG account by appropriate disbursing of unutilized funds remaining in the account. 2. Progress Payments to contractor - upon receipt of a contractor's invoice for a progress payment, the City shall determine if the work has been performed satisfactorily, and draw payment from both the CDBG and private fund accounts. The City's payments shall coincide with the owner's approval of the work. 3. Final Payments to contractor - when all work is found to be satisfactorily completed in accordance with the specifications and upon receipt of all release of liens, warranties, etc., the City will draw payments for the CDBG and private funds to make the final payment. As with progress payments, the owner's approval of work must coincide with the City's payments to the contractor. In the event of a dispute between the property owner and the contractor with respect to rehabilitation work, the City shall take appropriate action in accordance with the provisions of the rehabilitation contract. Such appropriate action shall include mediation to assure the protection of both the property owner and the contractor. Mediation will be provided by the City who will inspect the work and determine if it has been performed in accordance with the contract and in a workmanlike manner. If the work has not been completed properly, the contractor will be ordered to make the necessary corrections before receiving final payment. If the contractor does make corrections as requested and the work is deemed satisfactory by the City and the property owner, final payment shall be authorized to be disbursed to the contractor. If, on the other hand, the contractor fails to make the necessary corrections prior to the expiration of his contract, the City shall assist the property owner in obtaining another contractor to make the corrections. Once corrections are made to the satisfaction of the City and the owner, the contractor that failed to perform shall be paid the balance of the funds earned by him or her remaining in the 98- 581. project account after the new contractor has been paid for the corrective work. Such payment shall be made upon receipt of the appropriate release of liens documents. PROPERTY MANAGEMENT Management Plan - Applicants shall submit a management plan. At a minimum this plan will include: 1. Name and qualifications of the management entity; 2. Experience with other properties; 3. Method for handling routine, preventive and emergency maintenance; 4. List of tenant related services such as rent collection, tenant selection policy, evictions, etc.; 5. Schedule of maintenance services such as garbage collection, equipment servicing and replacement, painting, etc.; 6. Actual and/or proposed form of lease, and; 7. Certification of no evictions without cause for a six (6) month period prior to the date of application to the City's Program. Rent Regulatory Agreement - A Rent Regulatory Agreement shall be executed at time of loan/grant settlement in order to limit the rate of return to the borrower through increased rents caused by the rehabilitation of the property and to insure the affordability of rents to lower income tenant households. The maximum allowable rate of return on investment will be twenty (20%) percent. The Agreement will be in effect over the first four years of the loan/grant commencing upon completion of rehabilitation. The rent schedule shall be based on the following criteria: 1. Rents shall be established at levels commensurate with prevailing rents for comparable units in the neighborhood and shall be taken from the CDBG Rent Schedule as used by the City. 2. Total net income shall represent a reasonable return on investment not to exceed twenty (20%) percent. REHABILITATION CRITERIA AND EVALUATION Proposals shall be accepted during the advertised submission period. Submitted applications shall be accepted only when complete and including the full amount of the application fee. Upon acceptance, applications will be date and time stamped and shall 98- 581 be processed in the order in which they are received. All proposals which are determined feasible will be preferenced by the Department of Community Development based upon the following factors: 1. Amount of code required rehabilitation work - preference for greater amount of work. 2. Private funds provided for rehabilitation financing - preference for greater percentage of project cost provided by owner, exceeding the mandatory 25% participation. 3. Number of bedrooms - preference for projects consisting of units containing more than one (1) bedroom. 4. Temporary tenant relocation - preference for proposals requiring no temporary relocation of tenants to carry out rehabilitation work. 5. Owner's tract record - preference for proposals sponsored by owners who have demonstrated the ability to complete required work in a competent and timely manner. 6. Owner's equity - preference for greater percentage of owner's equity (cash investment) in project. 7. Not -for -Profit housing development corporations - preference for proposals sponsored by non-profit groups. PROCESSING PROCEDURES Listed below are the step-by-step procedures to be followed for each application: Phase I - Preliminary Application 1. Interested applicants will answer the RFP (placed in newspapers of general circulation), by making an appointment with Department staff. 2. Department staff will interview interested applicants and explain program requirements. Applicants will be provided with program guidelines and preliminary application. 3. Owners will complete application form and return it to this Department along with the following: a) The non-refundable application fee in the amount of $20 per unit with a minimum fee of $300 (whichever is greater) 98- 581 b) Evidence of site control - Warranty deed, purchase contract, etc. c) Most recent property tax bill. d) Certified rent roll e) Certified statement of expenses for the previous twelve months (utilities, maintenance, management, etc.) f) Verification of all mortgages on the property to include amount, term, interest rate and monthly payments g) Letter of intent/commitment letter specifying source, amount, term and mortgage position of private share of rehabilitation financing h) Three (3) letters from Realtors indicating average rents for comparable size units in the neighborhood Application forms submitted without items (a)-(h) will be considered as incomplete and will not become official applications until all items are provided. After all items are provided, the application will be considered complete and receive a date and time stamp. 4. Owner/applicant shall arrange for the Department inspectors' access to the subject property. 5. Department staff will conduct a preliminary inspection of the subject property and provide the applicant with a preliminary cost estimate for the amount of the rehabilitation work. 6. Department staff will do a credit check for the perspective borrower, i.e. legal entity and individual. 7. Department staff will prepare a preliminary financial feasibility to determine the project's feasibility. Phase II - Final Application 1. Owner(s) will pay a non-refundable final application fee in the amount of one- half ('/2) point calculated on the preliminary City loan/grant amount which is based on the Agency's preliminary rehabilitation cost estimate. This fee must be received by the Department prior to the continuation of processing of the final application. 2. Department staff will conduct a detailed inspection of the subject property and prepare a detailed rehabilitation work write-up to include the rehabilitation cost estimate. 3. Owner(s) will provide the following documentation required to complete the loan/grant application package: a) For legal entity: (corporation, partnership, etc.) articles of incorporation corporate resolution specifying officer(s) authorized to borrow funds b) Personal financial statement for individual as applicant OR corporate officer(s) authorized to borrow funds c) Personal guarantee from individual as applicant OR corporate officer(s) authorized to borrower funds d) Engineer's report and plans, if necessary e) An appraisal reflecting the after rehabilitation value of the subject property. Such appraisal is to be performed by a fully licensed, professionally certified appraiser. This will be used to determine the final Loan -to -Value (LTV) amount, to ensure that it does not exceed 90% LTV. f) If commercial use exists as part of the property: evidence that commercial space meets minimum code OR proof of financing available for necessary rehabilitation work to correct code violations of commercial space. g) For structures constructed prior to 1940 - photographs of the exterior and interior of the building must be provided for the Florida Department of State to assess the property's historic significance. h) Upon receipt of rehabilitation work bidding packages prepared by the Department staff, owner will obtain a minimum of three (3) bids from licensed general contractors. 4. Department staff will prepare the final project financial feasibility. 5. Department staff will calculate both the City's and owner's respective percentages of the rehabilitation costs. 6. Applications shall be presented by Housing staff to the Housing Loan Committee for approval or denial. 7. Applications approved by the Housing Loan Committee shall be presented to the State Oversight Board while in existence for final approval. 98- 581 Phase III - Loan Commitment 1. Owner(s), upon receipt of City's loan/grant commitment letter, shall have seven (7) days to accept said commitment and pay a non-refundable fee in the amount of one-half ('/Z) point calculated on the final loan and grant amount. This amount may be adjusted to insure that the combined total of the two fees - the final application and the loan/grant commitment fees - equals one (1) point based on the actual loan and grant amount. 2. Owner will provide the final documentation required to settle the loan/grant: a) Property insurance (with the City of Miami as additional insured). b) Title insurance (with the City of Miami as beneficiary). c) Evidence of firm private financing commitment to include source, dollar amount, interest rate, term, mortgage position, for private share of rehabilitation cost. This commitment shall include the owner's pledge to provide the City with the full amount of the private funds in the form of a cashier's check at the City's closing. d) Owner shall also provide the City with either of the following: 1) Proof that first mortgage is escrowing for taxes and insurance and shall continue to do so, 2) Authority for the City to establish an escrow account for taxes and insurance. Phase IV - Loan/Grant Closing Loan/grant closing shall occur within forty-five (45) days of the property owner's acceptance of the City's loan/grant commitment. The cashier's check for the full amount of the private funds shall be given to the City at this time. If the City will be in first mortgage position or will be escrowing for taxes and insurance, a cashier's check for 1/12' of the annual amount for taxes and insurance shall also be provided to the City at this time. Phase V - Construction The Department staff will conduct inspections of the project during rehabilitation to ensure the timely progress and completion of the work. Inspections will also be conducted to approve progress and final payment draws. The City's payments 98- 581 shall coincide with the owner's approval of the work, and shall include payments from both the CDBG and private funds, based on the percentage of participation; namely, 75% City, 25% private. OTHER PROGRAM POLICIES Property Reinspection Rehabilitated structures shall be subject to an annual reinspection to insure continuing compliance with minimum housing codes. This inspection will be initiated one year after the date of completion of the rehabilitation work and will occur annually thereafter for the duration of the loan term. A fee of $10 per unit with a minimum fee of $150 per project will be assessed for each reinspection. If any violations are found, the property owner will be given a reasonable amount of time to correct any and all violations. Violations not corrected within the specified period of time will result in the City's recall of its loan/grant. Loan/Grant Cancellation In the case of a loan/grant which has already been closed, but monies have not been disbursed for construction, and cancellation of the transaction is requested by the owner, the following fees are to be levied by the City to defray the costs associated with the City's issuance of the satisfaction of note and mortgage. 1. Owner shall pay a fee equivalent to one (1) point calculated on the City's loan/grant amount. 2. Owner shall repay to the City any monies already drawn down from the loan/grant proceeds, e.g., closing costs, recordation fees, etc. 3. Owner shall pay the maximum interest allowed by law on any monies previously drawn down on the loan/grant amount, e.g., closing costs, recordation fees, etc. Monitoring of Rent Regulatory Agreement The City shall monitor the Rent Regulatory Agreement on an annual basis to insure that the property owner is complying with the terms and conditions contained therein. Monitoring will commence one year after the effective date of the Agreement and will occur annually thereafter for the duration of the Agreement. A fee of $10 per unit with a minimum fee of $150 per project will be assessed at the time of the monitoring. Non- compliance will result in a $1,000 fine and the property owner will be expected to refund any overpayment of rent with interest (maximum allowed by law) to his/her tenants within 45 days. If the non-compliance is not remedied within the 45 day period, the 98- 581 owner will be in default of the City's loan/grant and is subject to the City's recall of the loan/grant. In addition, the City shall also respond to and investigate at any time any and all complaints received from tenants as they arise. Rnhordinatinn After the City's rehabilitation loan/grant has been settled and the City's mortgage recorded, the Department upon the owner's request will consider subordinating the City's housing rehabilitation loan/grant mortgage to a new mortgage only under the following conditions: 1. The amount of the new loan does not exceed the current outstanding principal balance nor extend the current term of the existing loan secured by the property and senior to the City's Mortgage. The purpose of the subordination shall be to obtain a lower interest rate. a) A. $500 subordination issuance fee will be assessed by the Department in advance to cover staff s and attorney's costs. In addition to the policies stated herein, the following will apply to all subordination requests: a) All mortgage subordination requests must be presented to the City Department of Community Development/Housing Division b) A. minimum of 60 days is required for processing as all requests must be presented to the Housing Loan Committee for approval. c) Complete disclosure of the new financing terms and conditions is required to determine project feasibility. d) An appraisal reflecting the current value of the subject property is to be provided by the owner. Such appraisal shall not be more than sixty (60) days old and shall have been done by a fully licensed professionally certified appraiser. e) A maximum of one (1) mortgage subordination will be granted during the life of the City loan/grant. f) While in existence any subordination request approved by the Housing Loan Committee must be approved by the State Oversight Board. Waiver of Program Requirements The Housing Loan. Committee shall have the authority to waive any Program requirement except those imposed by U. S. HUD, to further the purposes and objectives of the City's U.S. HUD approved Consolidated Plan. 98- 581 Role of Housing Loan Committee The Housing Loan Committee shall have the authority to approve/disapprove any loan application for housing funds, loan restructuring plan, loan repayment plan and subordination agreement which has been requested by a developer. Developer's Right to Appeal to City Commission Decision of Housing Loan Commission The Housing Loan Committee shall have the authority to approve/disapprove any loan application for housing funds, loan restructuring plan, loan repayment plan and subordination agreement which has been requested by a developer. A developer can exercise his/her option to appeal to the City Commission, the decision of the Housing Loan Committee, however, any action taken by the City Commission which is contrary to the recommendations of the Housing Loan Committee must be (1) supported by competent, substantial findings and (2) approved by a four -fifths vote of the City Commission. Moreover, it is understood that any decision by the City Commission which overrules the recommendation of the Housing Loan Committee, and the financial transaction results in a financial loss of U.S. HUD funds, the City of Miami shall assume the risk for repayment of HUD funds from the City's General Fund. Role of State Oversight Board While in existence, the State Oversight Board shall have the authority for final approval/disapproval of any loan application for housing funds, loan restructuring plan, loan repayment plan and subordination agreement which has been requested by a developer. [Diane]<Multifamily Guidelines.doc>sjg 98- 581 CITY OF MIAMI , - INCDRP DRATED 18 96 Department of Community Development/Housing Division CHDO/New Construction Lending Guidelines and Procedures 98- 581 City of Miami Department of Community Development/Housing Division CHDO/New Construction Lending Guidelines and Procedures The City of Miami's CHDO and New Construction Programs are designed to provide financial assistance to newly constructed affordable housing units, developed by City of Miami certified Community Housing Development Organizations (CHDO), in the City of Miami. The programs are designed to provide financial assistance in the form of loans and grants to assist in part with the development of newly constructed affordable housing projects. The financial assistance will be provided for direct construction cost, project - specific technical assistance, site control loans and pre -development costs. The programs are funded through the U.S. Department of Housing and Urban Development's, Home Investment Partnership Program (HOME) and the State of Florida's, State Housing Initiatives Partnership Program, (SHIP). The City of Miami's Department of Community Development/Housing Division is responsible for the implementation of the programs. The Department will implement the programs on a City Wide basis to accomplish the following objectives: 1. To spur reinvestment of private capitol in older residential neighborhoods through the production of new affordable housing units sponsored or owned by CHDO's or General Partnerships in which a CHDO is a general partner. 2. To provide standard housing affordable to very -low, low and moderate income residents. 3. To compliment other public neighborhood revitalization efforts. Definitions "Affordable" means that monthly mortgage principal and interest payments together with real estate taxes, insurance, homeownership/condominium association payments and mortgage insurance does not exceed thirty (30%) of an amount representing the households monthly gross income. For rental housing, rents do not exceed those limits adjusted for bedroom size published annually by the US Department of Housing and Urban Development. 2. "Community Housing Development Organization (CHDO)" means a private nonprofit organization structured in conformance with 24 CFR Part 92, Subpart G. 3. "Grant" mean an award to an eligible sponsor or eligible person to fully or partially assist in the construction, rehabilitation, or financing of eligible housing without requirement for repayment as long as the condition of award is maintained. 98- 581 4. "HOME Funds" means funds made available under 24 CFR Part 92 through allocations and reallocations, plus program income. 5. "Equity" means the current market value or development cost value of the property less all indebtedness secured by the subject property. 6. "Homeownership" means ownership in fee simple title or a 99 year leasehold interest in one -to -four -unit dwellings or in a condominium unit. 7. "Household" means one or more persons occupying a housing unit. 8. "Loan" means an award to an eligible sponsor or eligible person to partially or fully finance the acquisition, construction, or rehabilitation of eligible housing with requirement for repayment or provision for forgiveness of repayment if the condition of the award is maintained. 9. "Low -Income Person" or "Low Income Household" means one or more natural persons or a family, that has a total annual anticipated gross household income that does not exceed eighty (80%) percent of the median annual income, adjusted for family size for households in Dade County. 10. "Moderate -Income Person" or "Moderate -Income Household" means one or more natural persons or family, that has a total annual household income that does not exceed one hundred twenty (120%) percent of the median annual gross income adjusted for family size for households in Dade County. 11. "Project" means a site or sites together with any building or buildings located on the site(s) that are under common ownership, management, and financing and are to be assisted with HOME or SHIP funds as a single undertaking. The project includes all the activities associated with the site and building. 12. "SHIP" or "SHIP Program" means the State Housing Initiatives Partnership Program created pursuant to the State Housing Initiatives Partnership Act, Sections 420.907- 420.9079, F.S. 13. "Sales Price" or "Value" means, in the case of acquisition of an existing or newly constructed unit, the amount of the executed sales contract. 14. Very -Low Income Person" or Very -Low Income Household" means one or more natural persons or a family, that has a total annual anticipated gross income that does exceed fifty (50%) percent to the median annual income adjusted for family size in Dade County. 2 98- 581 Program Eligibility Eligible Properties: To be eligible under the program, proposals must meet all of the following criteria. 1. Funding proposals must be made for newly constructed residential units, which will provide homeownership opportunities and/or rental housing assistance to very -low, low or moderate -income households. 2. Eligible property types consist o£ single family homes, condominium units, townhome units, cooperative share units and multifamily rental projects containing two units or more. 3. Proposed developments must be located within the City of Miami city limits. Eligible Applicants: City of Miami certified Community Housing Development Organizations (CHDO), private for -profit developers, General Partnerships where a certified CHDO is a general partner or Joint Ventures. Eligible Improvements: Proposed developments must be constructed in compliance with the City of Miami's Minimum Housing Codes and the South Florida Building Code. All applicable federal, state and local housing, labor, tenant relocation, environmental and citywide historical preservation regulations shall apply. Eligible Costs/Activities: Eligible cost or activities provided to a proposed development funded with HOME Program funds shall comply with the Sections 92.205 through 92- 212 of 24 CFR Part 92. Eligible costs or activities provided to a proposed development funded with SHIP funds shall comply with Section 9I-37 of the Florida Administrative Code and Sections 420.907 through 420.9079, Florida Statutes. Types of Financial Assistance: The following types of financial assistance are available under the programs. 1. Pre -development financing: Financial assistance will be provided to CHDO's in the form of project specific seed money to cover pre -construction expenses including but not limited to feasibility studies, consulting fees, cost of preliminary financial applications, architectural and engineering fees, engagement of a development team, site control and title clearance. Pre -development loans shall be repayable to the City from other non City funding sources at the time the project is brought to fruition. Pre - development financing shall be forgivable if a project fails to come to fruition as a result of circumstances reasonable beyond the control of the CHDO. 3 98- 581 2. Construction financing: Construction financing is provided to an Eligible Applicant, in the form of a loan or grant to cover in part the cost of developing newly constructed affordable housing projects. Funding under this category includes but is not limited to: Soft/Indirect Cost: Architectural and engineering fees, appraisals, legal fees, bank fees, permits, impact fees, etc. Hard/Direct Cost: Construction materials and labor. Construction Financing Terms and Conditions: Construction financing will be provided to a CHDO in the form of a loan or a grant. Determination as to which from of financing is provide will be made by the Department of Community Development/Housing Division staff during the underwriting phase. It is the intent of the City to provide each applicant with a construction loan as opposed to a grant, unless it is determined that due to the nature of the project, a grant would be the only feasible alternative in order for the project to be successful. The underwriting analysis or write-up presented to the Housing Loan Committee must justify the feasibility and regulatory compliance of a particular project and equally important the justification of the funding requested. Construction financing will be provided for a period sufficient enough to allow time for the completion of the entire project, together with sufficient time for lease up or sell out, whichever is applicable. In reviewing the financing requested, the time consideration for a particular request is made based on the extent and nature of the proposed development. In general, the construction term should be for a period or twelve (12) months from the date of the closing of the transaction. If the project's completion is expected to take longer than twelve (12) months the construction loan agreement will provide a clause that would allow for two extension of six (6) months to the construction loan. In homeownership projects where the City provides a loan, the City's intent is to provide a construction loan that upon the completion of the units, the total amount provided in construction financing to the Eligible Applicant is divided by the total number of units built. The result is provided to the unit purchasers in the form of a second or third residential mortgage loan. The homebuyers in turn would repay the total amount of the City's funding in the form of amortized loans over a period of no more than thirty (30) years. The terms and conditions of the mortgage loans are outlined in the City of Miami's Homebuyers Program. In homeownership developments where the City provides a grant, a restriction will be placed on the properties deed that restricts the resale of the individual units. The initial homebuyer may only sell the unit to a program eligible subsequent homebuyer as defined by the program where the funds derive from. The resale restriction will be placed on the property for the entire period of affordability or twenty (20) years. Subsequent purchaser must be qualified by the City of Miami's Housing Division, prior to purchasing the unit. In multifamily rental development where the City provides a grant or a loan, the rental rate restrictions and other program requirements contained in the City's Multifamily Rehabilitation Program apply. 2 98- 581 Lien Position: The City of Miami will provide funding under the New Construction or CHDO Programs in either a first or second lien positions. Request's made that would result in the City holding an inferior mortgage beyond a second lien position are subject to approval by the Housing Loan Committee. In the event that the City would hold an inferior mortgage beyond a second lien position, the City's exposure may be no greater than eighty (80%) percent loan to value, supported by an appraisal in form and amount acceptable to the City. Subordination's: Subordination of a City of Miami mortgage under the New Construction or CHDO Programs is not permitted unless all of the following conditions are met: 1. The Mortgagor will not receive any cash out from the new superior mortgage. 2. All of the projects existing financing is current. 3. The subordination will allow the Mortgagor to obtain financing that will assist in the betterment of the project or improvement of the affordability or the project. 4. The subordination will not increase the City's Loan to Value exposure. All subordination requests are subject to approval by the Housing Loan Committee. Personal Guarantees: Private for -profit developers obtaining financial assistance under the New Construction Program will be required to execute a "Personal Guarantee Agreement" in favor of the City of Miami. Minimum Underwriting Requirements Subsidy Per Unit: Projects approved for funding under the City's New Construction or CHDO programs will be eligible to receive a minimum of $1,000 of assistance per unit in a project. The maximum allocation of subsidy per unit assisted will be determined on a project specific basis, not to exceed the maximum amount of allowable subsidy per unit as established by the funding source being used. Project Development Cost: The total project development cost of all proposed new construction projects presented to the City of Miami for funding, will be required to be reviewed by a third party engineering firm contracted by the City of Miami. The engineering firm will perform a detailed budget development cost analysis of all of the costs related to the proposed project. The City's Department of Community Development's staff will utilize the engineering report as a tool in the overall project underwriting analysis that is presented to the Housing Loan Committee for its consideration. 5 �• 1 Maximum Loan to Cost or Grant to Cost: The maximum amount of funding the City of Miami will provide a proposed new construction project will be based on the following Loan/Grant to Cost percentages: Residential Homeownership Developments 33% Residential Multifamily Rental Projects 20% The percentage of funding to cost may be increased if it is determined that the proposed development will not be able to secure other forms of government subsidies without additional City of Miami funding. The increase in the percentage of financing must be approved by the Housing Loan Committee. Construction Period (Term): Construction loans/grants shall be provided for a period of twelve (12) months from the date of closing, with a provision for two six (6) month extensions. Construction Period (Interest Rate): Construction loans provided to a City of Miami certified CHDO will bare no interest cost. Construction loans provided to a for profit developer will carry an interest rate of one (1%) percent to three (3%) percent on moneys drawn. Maximum Sales Price: The maximum sales price of a newly developed homeownership unit shall not exceed the current Federal Housing Authority (F.H.A.) 203b mortgage limit. Types of Construction Financing: The following types of financing is available: Construction Grant: The City of Miami will make available construction financing in the form of a grant, only after it has been determined that the proposed development would not be feasible without the assistance of a grant. The underwriting analysis presented to the Housing Loan Committee must provide evidence that a grant is merited. Construction Loan: The City of Miami will make available construction financing in the form of a loan. The interest rate and term will be determined on a project specific basis. Construction/Permanent Financing: Homeownership developments will be able to apply for construction permanent financing. This type of financing will make available construction funds that will convert to permanent end -loan mortgages to the individual unit purchasers when the construction of the unit(s) is completed. In multifamily rental development the construction funds will be converted into a permanent loan on the entire building when the construction of the building is completed. Interest rate and terms to be determined. Cel 98- 581 Other private and/or public financing: Projects applying for funding must provide evidence that all of the funding necessary to cover the entire cost of development has been secured or applied for. Furthermore, the projects developers must provided evidence that the end -loan financing in a form and amount sufficient to make the units affordable to program eligible purchasers, has also been secured or applied for. Debt Service Coverage: Multifamily rental projects must generate a debt service coverage of no less than 110% (1.10) of the total debt service of all financing assistance provided. Equity: When construction financing is provided to a private for -profit developer, the developer must provided equity in the form of "hard cash" in an amount not less than ten (10%) percent of the total cost of development. The developers funds must be expended on the project prior to the City commencing with the funding of the loan. The equity investment must be verified by the City's designated construction inspector. This requirement does not apply to CHDO's. Funding Procedures Prior to the City of Miami expending any funds under the CHDO or Construction Programs, the following must occur. A. Advertise Availability of funds. B. Application selection period. C. Project evaluation (Underwriting) D. City Commission approval. E. Preparation and execution of funding Agreements. F. Closing/Funding of projects. A. Advertise availability of funds: Proposals shall be accepted during the advertised submission period which will be open for a period of no less than thirty (30) days. The availability of funds will be advertised in a local newspaper of general circulation. All proposals shall be required to submit a complete application package for staff review, which shall contain the following information: 1. Funding Application 2. Description of Ownership. 3. Statement of total dollar amount requested. 4. Description of Project. 5. List of proposed sales prices for each unit. 6. Evidence of other mortgages, construction and end loan financing. 7. Exhibit of sales contracts and closing documents. 8. Affordability Study. 9. Unit appraisals/ market comparable. 10. Detail breakdown of all Hard Cost, Soft Cost, Financing Cost and Interest Reserves. 11. Complete description of materials statement. 7 98- 581 12. Breakdown of Lot/Block and/or street addresses for each proposed site. 13. Location Maps. 14. Original photographs of site and existing buildings. 15. Zoning statement from the City's Department of Building and Zoning. 16. Complete set of working drawings and specifications. 17. Proper evidence of site control. (deed, purchase contract, resolution) 18. Corporate resolution. 19. Articles of Incorporation. 20. Partnership Agreements or Joint Venture Agreements. 21. Marketing Plan. 22. Tenant Relocation Plan. 23. List of resumes of all members of the development team. 24. CHDO Certification Letter from the City of Miami. 25. Environmental report. B. Application Selection Period: Upon the completion to the advertisement period, the City of Miami's Department of Community Development/Housing Division staff will evaluate each application submitted in order to arrive at a funding recommendation. In evaluating each application, the City's Department of Community Development/Housing staff will use the following grading system, which contains a maximum score of 100 points: • Largest number of qualified persons aided by proposal: 1. Very -low income 10 points 2. Low income 7 points 3. Moderate income 5 points Largest number or homeownership units: 10 points Proposals providing provision for social services, i.e. Credit counseling, homeownership counseling, etc. 10 points • Proposals including funding sources other than the City of Miami: 1. 2 or more sources 10 points 2. 1 source 5 points 3. City only 0 points • Proposals that provide the maximum leveraging of City funds: 1. 5 to 1 ratio 20 points 2. 3 to 1 ratio 10 points 3. 2 to 1 ratio or below 0 points • Proposals with lowest cost per square footage: 10 points 98- 581 • Proposals having the lowest loan to value ratio: 10 points • Proposals containing other local government financial contributions: 10 points • Proposals planed on publicly owned parcels: 10 points C. Project evaluation (underwriting): All funding proposals are required to be presented to the City of Miami's Housing Loan Committee for consideration and approval. The Department of Community Development/Housing staff prepares an underwriting analysis which evaluates the proposed project, determine the projects feasibility, affordability and regulatory compliance, as well as other pertinent data. This information is presented to the Housing Loan Committee in the form of an underwriting presentation or write-up. The write-up is a major component of the approval process. Each write-up contains certain headings, which allow the Housing Loan Committee members to evaluate all aspects of the proposed development and funding request. Each loan write-up presented to the Housing Loan Committee must at a minimum contain the following headings: CHDO: Provide the name of the Community Housing Development Organization. CHDO Description: Provide a condensed history and track record of the CHDO. Developer: Provide pertinent information regarding the developers. This information is most valuable when there are other developers in the proposal besides the CHDO. Request: Outline the exact request made by the developers. Amount: Outlines the exact amount of funds requested and the source where funds will come from. Funding Description: Description of how the City's funds will be funded, i.e. phases, multiple buildings, etc. Description of Financing Description of all of the funding involved in the development of the project, i.e. private banks, other government financing, etc. 9 98- 581 Area Description: Description of the geographical area where the proposed development will be built. Accessibility to schools, shopping, entertainment, places of worship, social service providers, public transportation and major roadways are some of the issues considered. Site Description: Description of the subject site, its location, dimensions, ownership status, etc. Zoning: Description of the sites current zoning classification. Appraisals: When provided with proposal, a review of the appraisal information is provided. An analysis of comparable developments, highest use of site, final cost and value determinations. Project Description: A detailed description of the proposed project, including the projects size, configuration, unit types, sales prices or rental structuring, amenities, etc. Sources and Uses of Funds: A detailed line item description of the total projected project cost, identifying how the total cost will be distributed among all of the funding sources. Tenant Relocation: If applicable, a description of the tenant relocation plan and how it will be funded. Repayment Analysis: A calculation which determines how the proposed development will be able to sell out its inventory and repay the projects financing. This analysis determines what type of financing the City would need to provide. Pro -Forma: In rental housing developments, this analysis consists of the projects gross rental income and an account of the projects total operating expenses and debt service. This analysis determines the projects cash flow. Affordability Analysis: In homeownership developments , this analysis takes into account the projected sell out of the proposed units and determines how much private and/or public end loan financing is needed in order to make the units affordable to program eligible applicants. Any existing end loan financing provided by the developers is also analyzed and evaluated. 10 98- 581 Recommendation: Recommendations are provided to the members of the Housing Loan Committee by the Department of Community Development/Housing staff for their consideration. D. City Commission Approval: Upon the approval of the funding request by the Housing Loan Committee, the City's Department of Community Development/ Housing Division staff prepares legislation requesting project and funding approval by the City of Miami's City Commission. E. Contracts: Upon the approval of the proposed funding by the City of Miami Commission, the Department of Community Development/Housing staff prepares the required funding agreement. Each funding agreement must be prepared in compliance with the rules and regulations of the funding source. All other closing documents i.e. construction loan agreement, mortgage, note, etc., are also prepared at this time. F. Closing: The transaction is closed by the City of Miami's City Attorneys Office. Other Program Policies and Procedures Housing Loan Committee: The Housing Loan Committee shall be comprised of seven (7) members appointed by the City Manager. The composition of the Committee shall be as follows: • Three (3) representatives from the City of Miami. • Two (2) representatives from the private banking industry. • One (1) representative from Miami Capital Development, Inc. • One (1) representative involved in the development of affordable housing. Role of Housing Loan Committee: The Housing Loan Committee shall have the authority to approve/disapprove any loan application for housing funds, loan restructuring plan, loan repayment plan and subordination agreement which has been requested by a developer. 11 98- 58i Developer's Right to Appeal to City Commission Decision of Housing Loan Committee: The Housing Loan Committee shall have the authority to approve/disapprove any loan application for housing funds, loan restructuring plan, loan repayment plan and subordination agreement which has been requested by a developer. A developer can exercise his/her option to appeal to the City Commission, the decision of the Housing Loan Committee, however, any action taken by the City Commission which is contrary to the recommendations of the Housing Loan Committee must be (1) supported by competent, substantial findings and (2) approved by a four -fifths vote of the City Commission. Moreover, it is understood that any decision by the City Commission which overrules the recommendation of the Housing Loan Committee, and the financial transaction results in a financial loss of U.S. HUD funds, the City of Miami shall assume the risk for repayment of U.S. HUD funs from the City's General Fund. Role of State Oversight Board: While in existence, the State Oversight Board shall have the authority for final approval/disapproval of any loan application for housing funds, loan restructuring plan, loan repayment plan and subordination agreement which has been requested by a developer. Disbursement Procedure The funding agreement establishes the conditions to the City's obligation to disburse the City's funds to the developer. No funding will occur prior to the recording of the Notice of Commencement. From the time the construction begins through the time that it has received all funds to which it is entitled, the Developer will submit draw requests for funding, which will be submitted not more frequently than one (1) time per month. The developer will submit or caused to be submitted the following documentation to the City: 1. A Request for Disbursement, in a form acceptable to the City , setting forth such details concerning construction of the Project as the City shall require, including: the amount paid to the General Contractor that is constructing the Project (the "Contractor") to the date of the request for Disbursement, pursuant to the contract for the construction of the Project between the Developer and the Contractor (the "Construction Contract"), the amounts, if any, paid directly by the Developer to subcontractors of the contractor and materialmen, the amount currently payable to the contractor, broken down by trades, the amounts paid on account of the Contractor's construction fee and the balance of the construction costs which will remain unpaid after the payment of the amount currently payable. Any Request for Disbursements must be submitted to the City no later than the thirtieth (30') day of each month of construction. Each request for Disbursement must be signed by the Developer, the Architect for the Project and the Contractor. 12 98- 581 All applications for receiving will include a Memorandum of Advance and Architectural Documents G702 and G703. The city Inspector, shall be required to certify with each draw request: the amount of work at the Project that has been completed: the good and acceptable workmanship of he contractor and its subcontractors: the compliance with approved final plans and specifications of the Project: and such other matters as the city may require. Lien waivers shall be submitted to the City and to the title Insurance company, the city Inspector, and City for review and approval before each disbursement. If the City requires that the title Insurance Company monitor all lien waivers, the Project Sponsor shall also submit to the Title Insurance Company all lien waivers in connection with each proposed draw. All costs associated with the Title Insurance Company, in monitoring lien waivers, shall be paid for by the Project Sponsor. 2. Each Request for Disbursement shall constitute a representation by the Developer and the Contractor to the City that: a) The materials have been physically incorporated into the Project, free of liens and security interests and that the construction of the Project to date has been performed substantially in accordance with the Drawings and Specifications and in a first-class workmanlike manner. b) All governmental licenses and permits required by the Project, as then completed, have been obtained and are available for inspection by the City, c) The Project as completed, does not violate any law, ordinance, rule, regulation, or order or decree of any court of governmental authority: and d) No Event of Default has occurred and is continuing and there is no continuing default under the Construction Contract. 3) Such other information and documents as the City may reasonable require. 4) The City Inspector will review the work that is incorporated into the Project and for which each and every Request for Disbursement of funds is submitted. The City Inspector will review and approve the final plans and specifications for the Project and will review and approve the draw requests based on the percentage of work completed. The City Inspector's reviews, approvals, and conclusions shall be for the sole benefit of the City. 5) The City may elect to hire, at the expense of the Developer, a third party Engineering firm to evaluate the total cost of the proposed development and to provide the City with monthly Project progress reports. In the event that the City elects to hire a third party Engineering firm, the firms progress report must be included in the Request for Disbursement package prior to the City receiving the funding request. 13 98- 581 6) Within five (5) working days of its receipt of a Request for Disbursement delivered pursuant to the requirements contained herein and without attempting to verify the completeness of same, the City will notify the City Inspector of the need to inspect the progress of construction work on the Project and shall forward to the city Inspector the Request for Disbursement that has been delivered by the Developer. 7) The City Inspector shall complete its inspection and submit its report to the City within five (5) working days. 8) If the City finds the materials submitted by the Developer and the report of inspection by the City Inspector and/or third party Engineering firm to be satisfactory to the City in accordance with the funding Agreement, and upon the receipt of all outstanding partial notices of liens equal to the amounts of payments made to date, the City shall fund the sum requested by the Developer or such lower sum as the City deems appropriate to the Developer. 9) The City shall fund disbursements of the City funds by no later than seven (7) working days after it has received both the Request for Disbursement, in the form required and the inspection report of the City Inspector and/or third party Engineering firm, in the form required by the City. 10) The City shall retain ten (10%) percent, ("retainage") of each Request for Disbursement funded until the final Request for Disbursement is funded and upon receipt of all outstanding final release of liens and waivers from the Developer and final release of liens by the Title Insurance Company, at which time the retainage will be paid as part of the final payment. 11) The City of Miami may elect to hire, at the expense of the Developer, a third party Title Insurance Company. Said company shall be responsible to obtain all "notice to owners", as well as all "partial release of lien" and "final release of lien" from the Developer, the General Contractor, all of the General Contractors Subcontractors, suppliers and service providers. Prior to the City of Miami funding any draw request, the City must receive the approval of the Title Company that all of the aforementioned documentation has been received and is current. The Title Insurance Company shall also provide the City of Miami with monthly title endorsements that will provide the City with up to date information regarding the subject properties title status. 14 98- 581 CITY OF MIAMI, FLORIDA INTER -OFFICE MEMORANDUM 27b TO: The Honorable Mayor, Joe Carollo and DATE: May 20, 1998 FILE: Members of the City Commission SUBJECT: Adoption of Revised Program Lending Guidelines--CDBG d/onMulti-Family Rehab. Program/ City FROM City CI ManManager earSilaW REFERENCES: HOME and SHIP Programs City Commission Agenda Item ENCLOSURES: May 26, 1998 RECOMMENDATION: It is respectfully recommended that the City Commission adopt the attached resolution, approving the revised program lending guidelines and procedures, in connection with the implementation of the City's CDBG-funded Multi -Family Rehabilitation Loan Program. The attached resolution further authorizes the adoption of the lending guidelines and procedures for the HOME Program - funded Community Development Housing Organizations (CHDOs)/New Construction Programs and SHIP Program. BACKGROUND: Since the 1980s, the City of Miami has provided low -interest loans to owners of multi -family apartments (5 units or more) for the rehabilitation of substandard rental housing units in the City's Community Development Block Grant (CDBG) target areas. Through the City's CDBG-funded Multi -Family Rehabilitation Loan Program, Rental Rehabilitation Grant Program and HOME Program, the City has provided approximately $61,900,000.00 in funds to private property owners for the rehabilitation of approximately 3,620 substandard rental housing units in the City's eight (8) CDBG target areas. In March of 1998, the U.S. Department of Housing and Urban Development's District Office of the Inspector General ("OIG"), in its audit report dated March 26, 1998, identified deficiencies in the City's loan underwriting procedures and policies, with respect to the implementation of the City's CDBG-funded Multi -Family Rehabilitation Loan Program. In an effort to address the deficiencies which have been identified by the District Office of the Inspector General, the Department of Community Development has modified the program The Honorable Mayor, Joe Carollo and Members of the City Commission May 20, 1998 Page 2 guidelines for the CDBG-funded Multi -Family Rehabilitation Loan Program, by incorporating all of the recommendations which have been outlined in the audit report. The significant modifications to the program lending guidelines are as follows: 1) Combination Loan and Grant Financing Due to the nature of the low-income neighborhoods where the CDBG loans are made, in most instances, the multi -family apartment buildings' value after rehabilitation does not increase in value proportionately with the dollar amount of improvements which have been made. In an effort to address this shortcoming, it is being recommended that the CDBG-financed rehabilitation assistance be provided in the form of a combination loan and grant to the property owner. The CDBG funds to be provided by the City will be used to finance 75% of the total rehabilitation cost of the property as follows: The loan amount shall equal 37.5% of the total rehabilitation cost as determined by the City. The loan will be at six percent (6%) interest rate for a ten-year (10) term. The grant amount shall equal 37.5% of the total rehabilitation cost as determined by the City. The grant will be for a ten-year (10) term, with forgiveness to occur at the end of ten (ten) years, assuming that full repayment of the loan portion of the City assistance has occurred. 2) Private Rehabilitation Financing The minimum rehabilitation participation for the property owner shall be 25% of the total rehabilitation cost. These funds may be obtained from a private lending institution, owner's capital or other sources. 3) Minimum Owner's Equity A minimum equity of 10% is required for all multi -family rehabilitation projects, not to include debt equity, i.e., secondary or rehabilitation loan proceeds. 98- 581 The Honorable Mayor, Joe Carollo and Members of the City Commission May 20, 1998 Page 3 4) Loan -To -Value (LTV) Provisions The total amount of the City's CDBG loan and grant shall not exceed 90% of the rehabilitation appraised value of the subject property. 5) Credit Report The City will obtain and analyze credit reports on all property owners (individuals), borrowing entity(ies), as well as principals to determine the credit worthiness of the borrower(s). 6) Appraisal Reports An appraisal of the property will be required of all borrowers to reflect the after - rehabilitation value of the subject property. Such appraisal to be performed by a fully licensed, professionally certified appraiser. 7) Mortgage Position The City's CDBG loan shall be in either first or second position. Any loans from other than a formal lending institution shall in every case be in an inferior position to the City's financing. 8) Taxes and Insurance The City will escrow for the payment of taxes and insurance, if the City holds the first mortgage or, if the City is in second position and the first mortgagee does not escrow for taxes and insurance, the City will also escrow for the payment of taxes and insurance. 9) Subordination of City's Mortgage Only one (1) subordination of the City's mortgage shall be allowed during the term of the City's loan/grant. The amount of the new financing (loan) shall not exceed the current balance and term of the existing loan and the purpose of the subordination shall be to obtain a lower interest rate only. 98- 581 The Honorable Mayor, Joe Carollo and Members of the City Commission May 20, 1998 Page 4 In an effort to ensure adequate lending criteria and guidelines for the Home Investment Partnership (HOME) Program and the State Housing Initiatives Partnership (SHIP) Program, it is also recommended that the City Commission approve the attached lending guidelines and procedures for the aforementioned housing programs. In addition, Sections 3 and 4 of the attached resolution establishes and delineates the role and responsibility of the City's Housing Loan Committee in the overall housing loan underwriting approval/disapproval process as enumerated in the lending guidelines and procedures for each of the housing programs, which are administered by the City. In response to the Office of the Inspector General's audit, it is recommended that the City's Housing Loan Committee shall be charged with the responsibility of approving/disapproving any loan application for housing funds, loan restructuring plan, loan repayment plan and subordination agreement which has been requested by a developer. In the event that a developer is in disagreement with the decision of the Housing Loan Committee, the developer can exercise his/her option to appeal to the City Commission. However, any action taken by the City Commission which is contrary to the recommendations of the Housing Loan Committee must be (1) supported by competent, substantial findings and (2) approved by a four -fifths vote of the City Commission. Moreover, the City's revised lending guidelines, policies and procedures are explicit, that any decision by the City Commission which overrules the recommendation of the Housing Loan Committee, and the final transaction results in a financial loss of U.S. HUD funds, that the City of Miami shall a ume the risk for repayment of HUD funds from the City's General Fund. JGP/CMC/G W/JBH:vh �ts <shared -memo svh>mayorcc 54